Tag Archives: Supply and Demand

Minimum Wage – Econ 101

A couple of months ago I stumbled across a story regarding fast food workers, minimum wage and Labor Day – they decided that they needed to strike to protest the current minimum wage.

Their arguments are as old as they are wrong minded.  They claim that everyone deserves a living wage and that the best way to accomplish this is to increase the minimum wage.

Fast food workers in several states and abroad plan to walk off the job today to call for higher pay and better working conditions. The Associated Press reports that the protesters in the U.S. are demanding a $15 minimum wage. In Massachusetts, they are also pushing for union rights and paid medical leave.

Forget for a second that very few people work for the minim wage, most of those that do end up with a raise, and even of those that don’t – a significant number live in a household that has earns enough money to live on.

The fact is, labor, not the laborer but the labor, is a commodity.  Raise the price of it and people will purchase less of it.

Case in  point – McDonald’s simply hires fewer McWorkers to work in their McBurgerJoint.  I witnessed this first had just a few short weeks ago.

Raising the minimum wage might help the very few who earn it but it will certainly hurt those who fail to obtain employment as a result of being priced out of the market.

The Impact Of Obama’s Policies On Job Creation

Wanna see how politics in DC can impact job creation?

From IBD via Care Diem:

Proponents of a large minimum-wage hike have ignored its potential interaction with ObamaCare’s employer mandate, which the CBO suggested may result in a bigger near-term job loss than a wage hike by itself.

Firms that do offer coverage, even of the skimpy variety, would face a fine of $3,000 per full-time worker who receives exchange subsidies. This penalty is nondeductible, so for profitable retailers facing a 39.2% federal and state tax rate the fine would equate to $4,930 in wages. That comes to $2.37 an hour for a 40-hour-per-week, year-round worker.

Coming on top of a federal minimum-wage hike of $2.85 an hour, ObamaCare fines could mean a 70% increase in compensation costs for a low-wage worker.

Obama’s message to his base:  “Were here to help you find a job by making you 70% more expensive to hire.”

This is the devastating impact of populism vs. reality.  The brutal reality is that Obama’s base doesn’t understand the basic economics of his policies.

How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.

Minimum Wage – Europe Style

Minimum Wage with without

A quick look at unemployment in Europe with and without minimum wages.

Proof The Market Doesn’t Always Work

I may have to reassess my belief in the power of the free market:

LOUISVILLE, Ky. –  The producer of Maker’s Mark bourbon is cutting — likely permanently — the amount of alcohol in each bottle to stretch every drop of the famous Kentucky whiskey. The alcohol volume is being lowered from its historic level of 45 percent to 42 percent — or 90 proof to 84 proof.

The brand known for its square bottles sealed in red wax has struggled to keep up with demand that more than doubled the past seven years. Distribution has been squeezed and the popular premium brand has had to curtail shipments to some overseas markets.

“Over the last 100-plus days, there are many, many instances across lot of different cities where bars, restaurants, package stores have run low, run out,” Rob Samuels, chief operating officer for Maker’s Mark and grandson of the brand’s founder, said Monday.

“Given the surge in demand outstripping supply, what we’ve decided to do very carefully is to slightly reduce the alcohol volume.”

Of course, the other solution would have been to increase the price.

We’re Gonna Ration

The allocation of scare resources: Rationing.

There are a lot of ways of doing it; time, money, connections even luck.

Some of us think that rationing by money optimizes quality and supply.  Others think that rationing by time does the same thing.  I disagree:

SACRAMENTO — As the state moves to expand healthcare coverage to millions of Californians under President Obama’s healthcare law, it faces a major obstacle: There aren’t enough doctors to treat a crush of newly insured patients.

So, California is going to ration on time.  And one of the metrics that time based rationing optimizes is – low quality:

Some lawmakers want to fill the gap by redefining who can provide healthcare.

They are working on proposals that would allow physician assistants to treat more patients and nurse practitioners to set up independent practices. Pharmacists and optometrists could act as primary care providers, diagnosing and managing some chronic illnesses, such as diabetes and high-blood pressure.

Now, to be sure, allowing non-doctor health care providers could very well be positive; after all – why do we need an MD to refill a prescription for blood pressure medication?  However, I’m sure that California isn’t embracing this is an open-market mindset.  Rather, docs are just fleeing the medicaid business.  In fact, in California, only 57% of doctors are accepting new medicaid patients.


Empty Seats Olympic Style

Much attention was made during the 2012 Olympic games in London over the row after row of empty seats for many of the venues.  It seems that tickets are being allocated to various countries, agencies, athletes and families who simply don’t want to attend those events.

I might suggest we’ll see it in Russia too:

MOSCOW –  The upper house of Russia’s parliament has passed a bill calling for fines of up to $30,000 for anyone scalping tickets to the 2014 Winter Olympics in Sochi.

The bill, passed Wednesday by the Federation Council, now needs to be signed into law by President Vladimir Putin.

For low-level scalping by individuals, the fine would be five to 10 times the ticket’s face value, but penalties will be heavier for scalping done as a business.

Russian Olympic Committee head Alexander Zhukov told a news conference that “we as Olympic organizers have an obligation under our contract with the International Olympic Committee to prevent speculative price hikes for hotels and Olympic tickets.”

There needs to be a market for these tickets.  For those who don’t wanna go to the venue or the game, they need an easy method for selling those tickets to someone who does.  And at fair market value.

For an example of the London experience:

Germany, Canada, Norway and Slovakia are represented here as having produced suspects in a strict crackdown on ticket scalping and other ticket fraud, stretching from venues across the city to global Internet outlets.

Since the first full day of competition, the Metropolitan Police Department has swept up more than 30 people for scalping or ticket “touting,” including a 29-year-old man who was sentenced this week to 28 days in jail for hawking tickets outside the Olympic boxing venue.

In a separate action this week, three Norwegian companies, which operate 12 websites, have agreed to provide full refunds for up to 15,000 tickets that they were not authorized to sell, the result of an ongoing inquiry by Britain’s Office of Fair Trade.

The string of criminal arrests and civil actions represent yet another slice of ticket woes that have shadowed the Summer Games in which organizers have been scrambling since the start to fill empty seats across the venues.

Just make these tickets available to the market and the market will adjust the price until the stadium is full, or more full than it otherwise would be.

But in classic “big government style”:

The troubles prompted the chairman of the British Olympic Association, Colin Moynihan, to call for the International Olympic Committee to take over the ticketing operation and provide a centralized system for ticket distribution.

There’s no reason for these laws to be on the books.  And there’s no reason for the centralization of ticket distribution.

Set the tickets free!


You Can Pick

Would you rather have all the gas you wanna buy at 15 bucks a gallon?

Craigslist users started offering gasoline for as much as $15 a gallon to motorists and homeowners not wishing to brave the lines.

Or would you rather have no gas at $3.90 a gallon?

To me, the choice is easy.

Economists Ignore Laws Of Economics

It would appear that a set of economists are willing to ignore reality:

As the three-year mark since the federal minimum wage was last raised approaches, we urge you to once again raise the federal minimum wage. A three-step raise of 85 cents a year for three years—which would mean a minimum wage of $9.80 by 2014—and then indexing to protect against inflation (corresponding to the legislation proposed by Senator Tom Harkin and Representative George Miller) would be a reasonable approach. The increase to $9.80 would mean that minimum wage workers who work full-time, full-year would see a raise from their current salary of roughly $15,000 to roughly $20,000. These proposals also usefully raise the tipped minimum wage to 70% of the regular minimum.

This policy would directly provide higher wages for close to 20 million workers by 2014. Furthermore, another nearly 9 million workers whose wages are just above the new minimum would likely see a wage increase through “spillover” effects, as employers adjust their internal wage ladders. The vast majority of employees who would benefit are adults in working families, disproportionately women, who work at least 20 hours a week and depend on these earnings to make ends meet. At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum wage increase would provide a much-needed boost to the earnings of low-wage workers.

These esteemed economists must have forgotten the negative repercussions of raising the minimum wage:

  1. Reduced employment for marginal workers
  2. Reduced hours for minimum wage earners
  3. Restriction of new job market entrants reducing valuable work place skills

The laws of economics are incontrovertible.  You may no more pass legislation that says gravity is discretionary.

Economics: Tobacco Road Style


We are less than a day away from The Tournament.  3 glorious weeks.

And here, in all it’s simplicity, is an exercise in supply and demand.

Go Obama!  Go Heels!

Bill O’Reilly: Wrong On Gas Prices


Bill O’Reilly has launched a pretty big offensive regarding the price of gasoline.  He’s been on air several times extolling the administration to get ahead of the situation and take a leadership role.  Personally, I’m not sure that Obama has  had much influence on the price of gasoline today.  Prices are high today not because of supply and demand, policies where Obama is clearly wrong, but because of the tension in the Middle East.  Specifically with Iran.

Given the nature of the world market there is no wonder that gasoline prices are going up.  And fast.

But O’Reilly loses me on his solutions.

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