The Corporate Board Meeting: Welfare

The Pitch: Good morning, gentlemen. Today I'm submitting a proposal that is guaranteed to increase our sales, increase profits, and expand our business to vast new markets. Just by a simple investment, we will have more business than we can even dream of handling, and our stores will be flush with cash to either expand or branch out. What is this simple idea about which I can be so sure of success? Simple, we pay money to people who are not yet our customers. And I do not mean some trifling sum that would just be the equivalent of a sale or a discount, I mean enough for them to buy the product multiple times over. Here is how it will work. We hand out checks to those who cannot afford our products. They, then, will use that money, and even if they do not spend it all on our products, at least some of it will be spent on our products. Our store owners, then, will be getting more money, and they will be able to expand their stores because of the increased business. The money that was not spent in our stores will be spent in other places. It may be spent on movies, it may be spent on dinners, it may be spent on booze, etc., it really does not matter. The people who own those businesses will be getting more money which will mean that they will hire new employees and expand their businesses. This means that more people will be making more money, and those people will be able to spend more money in our stores. This will basically start a chain reaction whereby we will give up a lot now, but make up multiples of that in time because economic activity will boom! There is no way that we can lose in this scenario. Why invest in factory equipment and new machines that will take years to become profitable and come with great risk? With this proposal we face no risk, and guaranteed success. This is a sure-fire winner. Do you have any questions?

-The simplicity of the proposal may be its most endearing quality. Now, when you mention expansion, do you mean to say that businesses will expand just by making more money? It would likely take a long time for those businesses to make enough money to expand just by the profits that they make. Eventually they will have to take out a loan. Historically that was the purview of our business. Shop owners run and maintain the stores and we provide the capital for expansion. With the amount of money required for this, businesses will have to go outside to find sources of capital. Does this not decrease our profits?

-In the short run yes, it will decrease our profits. However, as they money starts coming in, we will eventually be able to provide that capital, and at that point we will already have become much richer.

-Why would we just give out this money? Historically, when faced with increasing profit margins, we have been forced to invest in capital so as to decrease our prices so that we could keep up with the competition. With this proposal, we will not have the money for such an investment. While we are handing out money to new customers, competitors will be investing in new production methods and will undercut our prices. In this scenario, why would customers ever buy anything from us? They would go to the cheaper companies, buy their products, and we would be completely shut out of the market. There is no way for us to win with such an expenditure.

-Indeed, I have already thought of this scenario, and found a solution. Instead of us alone providing this money, we should do it in concert with other companies. But trusts have historically failed, I know, because of outside competition or one of the companies dropping out of the trust. The best approach, then, would be to have government dole out the cash. This way, no other companies could undercut us as the entire industry would have to go through this. Even better with this approach is that instead of us furnishing the bill, we could have the customers themselves pay for it. We, in essence, would get the benefit of the customers themselves spending more money and we reap all the profits without doing anything to deserve it! It is the best solution.

-The only problem I see is that this would mean that the pool of savings among consumers would go down as they would be forced to pay more taxes. Would this, then, be a hindrance to capital accumulation and production?

-Of course, and usually this would be a problem for us. However, as all of the companies in the industry would have the same problem, we would have nothing to fear. We would be making more money without having to invest anything into production. Sure, the consumers would suffer as prices would otherwise fall making goods cheaper for them, but what does that matter to us? We will make more money and solidify our position in the industry since start-ups would have a tougher time finding the capital they need to compete with us. Gentlemen, our future lays with supporting the welfare machine.

Dean Russell and George W. Bush

Dean Russell, in 1955, "Those who advocate the ‘temporary loss’ of our freedom in order to preserve it permanently are advocating only one thing: the abolition of liberty. . . . However good their intentions may be, those people are enemies of your freedom and my freedom; and I fear them far more than I fear any potential Russian threat to my liberty."

George W. Bush, in 2008, "Well, I have obviously made a decision to make sure the economy doesn’t collapse. I’ve abandoned free market principles to save the free market system."

There is no such thing as a freedom loving right in this country. They are warmongers and economic fascists. Their rhetoric is nothing but a diversion from their real actions, much in the same vein as Reagan.

Inflation, Minimum Wage, and Unemployment

With some spare time I had today, I decided to look at the relationship of unemployment and minimum wage. I started with the year 1978 since it was simplest to track minimum wage using this year. I only used the federal rate, so state rates that differ could explain much of the variation in the following regressions. Additionally, I used CPI numbers from the government instead of some alternative, and as different methodologies have been used over the years, it is a little difficult to track inflation consistently (as it is also difficult to track it by only using one number). Finally, I did something which may seem unique. Instead of using the government unemployment figure U3, I decided to use the Civilian Employment-Population Ratio. This number is prone to bias due to demographic changes, labor participation, etc. However, these are the graphs produced. Enjoy.

The figure seems to have limited use. I used the nominal minimum wage rate, and you can see just how wildly the unemployment rate fluctuated at a given minimum wage. This graph is essentially useless because of that. Also, the years when nominal minimum wage was this low saw tremendous inflation, so it cannot just be ignored.

But this figure, on the other hand, corrects for inflation. You will probably first notice that there are many less data points. For this figure, I only used yearly data instead of the quarterly data I used for the last regression, mostly because it saved me some time on data entry. Now, you will notice a clear trend, but an r-squared value that is pretty low. That is to be expected, because there are so many things that affect this employment ratio besides just minimum wage. But the trend is there and undeniable. However, as with most economic data, you can poke holes in it. The highest minimum wage data points in the chart are from earlier in this analysis, and the reason employment may have been lower there is because women were still not completely entered into the job market. However, you could make the point that lowering economic productivity is what pushed women into the job market into the first place, and that minimum wage was at least partly responsible for that. I cannot answer that question with complete certainty, and this is why we should not use data to try to prove our hypotheses. That said, we expect higher minimum wage to produce higher unemployment due to lower productivity labor being pushed out of the market. The data seem to agree, which is nice for those who are addicted to data, but remember that data is not where an argument ends.