Economics be damned – Congress, legislate @ will! (1-24-07)

L&G-

I’d just like to introduce something of a bill that affects the most needy of Americans. It is the minimum wage law. We have just passed one ($7.15/hr.) in the continental United States, which, I’m sure, is a happy happy day for some. However, there are indeed unintended consequences that I’d like to quickly delve into. As most know, a company can employ workers from any location to make things and to export goods. Those locations w/ the lowest wages can offer the most competitive advantage to companies seeking profits. And profits are the lifeblood of business, employment, and life. Do you work for a corporation? Most likely! Otherwise you work for yourself, the government, or an NGO (nonprofit). In any case, it’s truism that you can’t just sit still and expect to earn enough pay to keep you going. If a man won’t work, he won’t eat. Get out of bed, lazy! Alternatively, you are either getting stronger or you are getting weaker. You are either moving ahead or you are falling behind. Some move just enough to maintain a relatively stable position. Oftentimes it is these people who get laid off in restructuring, but I digress…

Companies need to clear revenues over [variable and fixed] costs to earn profit. It is that of variable cost – e.g., wages – that we are most concerned w/ today. A company’s factor inputs consist of seventy percent labour and thirty percent capital. Meaning, that if labour costs a lot, it will contribute a lot of extra cost to the company and that will diminish the internal rate of return, or the return on [human] capital. And companies will have fewer profits. And shareholders become unhappy. And people lose jobs. So that is bad. Blame neither executives nor stockholders. It is no one’s fault because in God’s economy, there is no free lunch. You can’t legislate higher wages and expect to make more people happy (unless we are in the dark ages or in a totalitarian country where people get routinely taken advantage of and abused and terrorized and there is no oversight, ergo protection for the weak and the vulnerable). We do not live in a totalitarian dark age. We live in a market-driven political economy where the price mechanism functions satisfactorily well and civilians are able to acquire jobs commensurate w/ their own knowledge, skills and abilities.

In American Samoa, there is frenzy over the $3.26 minimum wage legislation that tuna fisheries are now required to pay their employees. The problem is that, although Star Kist, a major employer in the area, would like American Samoa to maintain its status as the preferred cost location for much of Star Kist production, the area will not be able to compete with a $0.50 wage in another place (e.g. Ecuador). So when people say ‘fair economics’, consider what God considers fair first and then make plans that comport w/ that. Otherwise, legislating wages in a [perfectly] competitive wage environment such as in the heretofore-globalizing world in order to increase employees’ utility is a fool’s errand. Legislation that contravenes natural law causes negative spillover effects into the domestic economy – i.e., we lose jobs to overseas workers who are willing to do the jobs for less pay.

Bumbling bureaucrats thought they were helping people. Now these [literally] poor fishermen are wondering what percentage of the wage labour increase will pass through to the commodity price of Star Kist tuna and what effect that will have on competition w/ other brands [of tuna]. Minimum wage legislation is forcing industry [that provides jobs to Samoan Americans] to relocate in order to compete for [razor thin] margins in an industry w/ a nearly perfect price elasticity of demand.

Star Kist on new [deal] legislation that will cause outsourcing of jobs from [American] Samoa:

Our bottom line position is, any increase in minimum wage puts considerable pressure on the costs of the commodity products that are manufactured in American Samoa that are already not in a good cost position.

FYI

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