It is unfortunate that many if not most of our state and federal representatives have little understanding of economics – a behavioral science that forms the foundation upon which our country’s trade, labor and services all function in our capitalist system. Basic economic understanding should be a requisite for public office in any democracy. Maybe there should be an entry test.   A while back, NY Representative Ocasio-Cortez made a harmless tweet about the high cost of croissants in a NY airport. She suggested that raising the minimum wage to $15.00, one of her pets, would make those delicious $7 croissants more affordable for everyone. Senator Ted Cruz, a political opponent, tweeted back that bakers should be required to offer them free to everyone. His response (on April 1st) was no doubt a joke, but AOC claimed that he missed the point.  No. AOC, I think you missed the point.

Governments have been meddling with the capitalist system for hundreds of years. Rent control, agricultural support prices, minimum wages, income taxes, etc., are all attempts to control the effects of supply and demand for those who our governing bodies are convinced–suffer unfairly from the harsh laws of economics. Many would say, and I agree, that some of these controls are very necessary to protect the producers and public.  Certainly the elderly and others who may be mentally or physically handicapped should be able to receive special economic help when needed.  Farmers may need protection so that they don’t go out of business fighting droughts, foreign market subsidies and taxes – creating empty stores.  But, in all cases, these should come in the form of specific, monthly or targeted financial assistance from the local, state or federal government, based on the particular market problem or handicap.  

General attempts to make the system fairer by passing laws that attempt to deal with the systemic “unfairness,” all create both expected and unforeseen consequences that we have to deal with. For example, rent control lowers the cost of rent for many in New York, San Francisco and other expensive rent-controlled cities. But it also reduces the normal profit for landlords so that they struggle to make repairs, replace broken or worn appliances and even avoid making safety repairs in some cases. Should they be required to make these for free? Some think so. Rent control reduces rent for everyone in that market, even those who don’t really need assistance.  It also reduces the tax revenue that cities collect which, in turn, may delay or prevent the replacement of important city infrastructure.  Or, in this case, provide the very source of income that could help support those that struggle to pay rent because of a handicap.  Economic laws are not something that you can shop for like a pair of shoes. When you short one area, you will undoubtedly get the short end in another area. This may be the ugly part of the law that AOC and others don’t understand.

Raising the minimum wage to $15 sounds like a great idea until you think about the consequences – economically, that is – not socially. If we all had that raise we could buy the $7 airport croissants easily and then they would all be gone. The airport merchant would call the baker and place a larger order the next day. A larger number would require greater dairy, flour and baking supplies from suppliers who are now also paying the new $15 minimum wage, including the delivery truck driver who now earns $15 an hour, if he didn’t before. To bake say, twice as many croissants the baker may have to hire more workers or pay the staff more to come in to work early or bake faster. Do you think there is any chance that the cost of croissants will rise? Pretty much like the dough in the bakery. Those that still haven’t caught on will say that a well-written law would prevent these secondary results. Or, that the baker or merchant could adjust his or her other costs and needs in order to keep the cost of croissants the same. This is where the rules you set come back to bite you.  Offsetting the cost of one special product or service with income from another department source can create accounting and management headaches.  People generally don’t like working for free. Everyone, the merchant, the customer, even our elected representatives struggle to balance income and expenses, supply and demand, every month. If anyone has an idea how to eliminate essential expenses please let us all know.

So, the socially attractive move to raise minimum wages sounded like a good idea to the naïve eye of an untrained representative who wants to make everything in life fair, avoiding economic reality, but now the airport croissants are $9.99 each, and that is just for the plain ones. The delicious almond croissants are $11.99 and far beyond the reach of a representative who did not get the $15 an hour raise in the first place. And we have not talked about the jobs that the baker and airport merchant will have to double-up or eliminate completely, or replace with new hi-tech ordering and baking machines. In Seattle, some restaurants began closing once the $15 wage hit home. To the newer restaurant owners who are operating on a thinner string, with fewer repeat customers and smaller reserves, the math becomes ugly.

There is a way to lower the (relative) cost of croissants, AOC. That would require many beneficial economic things to happen over a period of time. In the gardening industry they call it fertilizer. In the world of economics, it’s called creating a fertile business and economic environment where there is growth and opportunity so that employees can use their experience and education to advance to higher paying jobs or earn more doing more important work at their current job.  It is not a totally fair system–there is no such thing.  Senate or House Bills can’t do this, AOC.  Just as the gardener feeds his plants, business owners and managers must feed and re-energize their businesses by investing in additional production, equipment and services, or start new business services or marketing to repair stagnant business environments where no pay raises happen because they are not economically possible. In a growing, healthy economy new positions open up, talented workers seeking greater pay may leave their present jobs to earn more pay and find that they can even buy the $7 croissant in some cases.  As our experience in 2017 and 2021 has shown us, these pay advances are demand driven, not arbitrarily mandated by government. When they are demand driven, the greater demand drives the cost and corresponding pay upwards. Existing jobs are generally not lost, new jobs are often added. Business owners can afford to hire more employees, or easily borrow to buy labor-saving equipment that current employees can operate to increase production – and they may get paid more now than before.  When government forces this, inflation is often created.  Amazon has just raised minimum pay to $18.00 an hour.  If you ask them why they are doing this, I’m sure they will say that higher gross sales allows them to raise wages to keep good workers or attract new ones to assist in their expansion.  Amazon warehouse work may not be too exciting so higher pay helps.

It’s not about the value of human worth, AOC. It is the relative value of pay for the work done combined with any needed materials and services to produce a marketable item or service for the customer. It’s a science, unfortunately, not a social service. There will always be those at the bottom of the pay scale.  Life is never totally fair.  Government can have an important role by ensuring that cartels and monopolies or misplaced government mandates don’t prevent basic economics from working efficiently. They can help by providing support to those who cannot climb the ladder, or helping those that want to spend the effort to develop greater skills. Sometimes they can help by getting out of the way. This is where our representatives could be helpful, but first they must get their $7 degree in economics.

Geoff Wood Rev. 12/2021

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