« Saved (revised) | HomePage | Government Waste »
23/12/2005
Another Parable
Once apon a time there was a man who started a discount general store. His idea was to make a lot of money. When the company started he was able to pay his employees a living wage and pay himself three times what he paid his employees and he was able to sell his goods at a reasonable price.
This man was greedy and he was not happy making three times what his employees made. The man decided that he could raise his own wage if he lowered the wages that he paid his employees. Since lowering the wages would not go over with his employees, he was sneaky and he did not give his employees cost of living raises when inflation caused the prices of things to rise. No one could say that he cut anyone's wages, but he realized that he could raise his own wage. So, after a couple of years his employees were making 75% of a living wage while he was making five times what they were making.
Well, time went on and his employees began to find it difficult to live in proper housing, eat proper food and give their kids what they needed. The people got upset and asked their representatives to help them out. Since many business owners were doing the same thing as this man the representatives decided to tax the people who were making more than a living wage to help out the people who were not making a living wage. With the help from the government the people were now able to live because they effectively made a living wage. And the people who were making 5 times a living wage was now back to making 3 times a living wage.
Of course the greedy man wanted to make more money, so he decided to raise prices. Similarly other businessmen decided to raise prices. This meant that the price of everything began to go up. When the price of things goes up this is called inflation. The greedy man raised his own wages again, but once again he neglected to raise the wages of his employees. Once again his employees were making 75% of a living wage while he managed to make 10 times what his employees made. Once again people complained to their representatives and this time they made a law that the employees needed to be paid a minimum wage that was high enough so that the people could make a minimum wage.
The greedy man continued to find ways to pay himself more. This action continued to cause the prices of his goods to go up. The minimum wage also lagged behind true inflation. The greedy man was also able to get his representatives to cut taxes and the employees soon made even less than 75% of a living wage. The wealthy greedy man told his representative that he would spend money, which would cause profits to go up, and the poor people would make more money. And, the wealthy did spend some of their money. But the employees didn't make more money per hour. They were given the opportunity to work longer hours in an effort to make a living wage. The greedy business people were now making 100 times the living wage.
And the story continues to go on....
17:00 Posted in Politics | Permalink | Comments (9) | Email this | Tags: Politics
Comments
So the man who uses government contacts to expropriate money from the other isn't the greedy man? What a strange world!
Posted by: Dan tdaxp | 24/12/2005
But what if an even greedier man came along and cut prices and raised wages? Then that greedier man would get virtually all the customers and the best workers to provide service and become so rich the other store owners had to cut prices and raise wages or go out of business.
Or there's always the union option.
Posted by: Adam | 27/12/2005
Good catch, Adam!
Posted by: Dan tdaxp | 27/12/2005
Adam, the greedier man as you say that cut prices and raised wages would hope to make up the difference in volume. Obviously there is only so much volume and so mach market. If he is truly greedy he is only waiting for the other guy to go out of business and promptly raise prices and cut wages. In the long run all businessmen are greedy and they will raise prices to the maximum level and keep wages at the minimum level while attempting to pay himself the maximum allowed.
Posted by: Dr. Forbush | 03/01/2006
Sort of. Increasing sales while simultaneously decreasing profit margin (and prices) often leads to increased profits- that's what Wal-Mart is all about. And in America's service-driven economy, increasing wages and benefits to attract quality employees is one of the first ways at least the employers I've worked for look to attract more business.
Just because businesses aren't altruistic doesn't mean they're malevolent. Their goal is to make money, not to destroy the world. As long as individual citizens are allowed to freely control how these businesses get their money, businesses work to better the lives of all. It's generally when we start giving out corporate welfare and create government monopolies that we run into trouble.
Although it oversimplifies things, I find it interesting that the goods and services left to the market tend to get better and cheaper (ie home computers) while goods and services micromanaged by those without a profit motive in mind don't. (ie dairy products)
Posted by: Adam | 03/01/2006
So Adam, how was Sam Walton able to make so much money by keeping wages low? Couldn't K-Mart have raised wages and beat out WalMart with its quality employees? Show me some actual evidence that this has been done somewhere. Surely some greedy businessman has tried it to make some extra cash...
Posted by: Dr. Forbush | 03/01/2006
Well, the example every school child learns in American History is Henry Ford.
Another would be the restaraunt I work for. (I won't post the name on blogs) There is no law requiring them to offer discount insurance to its employees and we have no union. My restaraunt offers higher wages and benefits in order to get higher quality workers than you might find at a fast food restaurant. Interestingly, we also just slashed prices.
K-Mart could have raised wages, cut prices or increased product quality, but the company was mismanaged. You bring up an interesting question though- if Wal-Mart is so hell-bent on cutting wages, then why does their average worker earn $8.23 an hour and offer health insurance when the law requires neither? Not out of the goodness of their hearts, but because although low prices are Wal-Mart's main attraction, it would fail if the service wasn't decent.
A business suceeds and fails in a free market based entirely on how much the masses think the business is good for them. Unless they're getting government kickbacks, the only way for a greedy businessman or woman to get money is by convincing citizens to give it to them in exchange for a good or service. The 3 general ways to do this is by offering a superior quality product, offering a lower price or offering superior service.
The mythological businessman you propose doesn't do any of these, yet somehow makes a profit. Please give me an example of a successful business that cut wages and raised prices without improving product quality and without stealing taxpayer money.
Posted by: Adam | 03/01/2006
"You bring up an interesting question though- if Wal-Mart is so hell-bent on cutting wages, then why does their average worker earn $8.23 an hour and offer health insurance when the law requires neither?"
Why did Wal-Mart break the law in California and not give mandatory lunch and breaks to its workers? Why do they limit hours and fire people so they can't get seniority? Why do they prey on the weakest in our society?
Posted by: Dr. Forbush | 04/01/2006
Walmart's main era of growth coincided with them giving higher-than-normal wages. Sam Walton built his business on rural areas, where non-employment is high and wages are low. Interestingly, Walmart's entrance into suburbs, where the same wages suddenyl became lower than its competitors, saw the beginning of the decline in growth.
Theoretically, the most vulnerable are the very poor and workers in poor countries. Walmart substantially helps both of these. But like many innovations, it harms otherwise able domestic-born workers with minimal education.
Posted by: Dan tdaxp | 05/01/2006