Saturday, September 30, 2023

Minimum Wage Madness: How The Leftists Induce Mass Stupidity

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By Anang Pal Malik

The Leftists are obsessed with profits. Marx taught them that the owner earns the profit out of the work the workers do, and so, naturally, he maximises his profit by keeping the wages only enough to keep the workers from starving.

And it speaks volumes about the infantile intellect of the Leftists that they have not bothered to examine this concept, which instinctively seems true, in last 150 years since Marx wrote it.

In reality, 1. Wages of the workers are just one of the costs of production, 2. Profits in any established business barely cross 5 to 10%, except where it is government mandated or government owned monopoly, or initial years of a breakthrough discovery covered by patents, or during the time competitors take to start business in the line that has windfall profits. 3. Profits described in point number two above result from the factors cited therein, not from the low wages of the workers.

To the Leftists, it seems logical that if the  wages of the workers are increased, all that will happen is reduction in the profit of the owner to which he is not entitled in any case, which is theft in fact, and being the benefactors of the workers, the saviours of the workers, they are fully within moral and legal realm to use law to mandate wages which are around 5% to 10% higher than they are now. Rarely have the wages ever been increased by more than this amount, even by the Leftists, for reasons which would become clear as we examine the whole issue below. Only now in the US there are talks of increasing minimum wages by upto 50%, and upto 100% in some truly insane jurisdictions of the same country.

In reality, wages are just the payoff to the worker as part of the contract between the employer and the worker. A person produces some product or service and sells it in the market. He can not sell it for more than the purchasers are ready to pay for it, and if they are ready to pay for it far more than it costs to produce it, other producers immediately appear and increase supply, bringing down the prices and hence profits. But if the profits are just marginal and do not attract other producers to that business, but demand is more than the lone person can produce, he hires another person, negotiating with him the wages. The wages evidently are low as the profits are marginal, but more than the worker is earning working for himself or working in some other business. That is the only case in which he would agree to work for the person, who as a result becomes employer. (Before becoming an employee, the first person who took up a job must have been working for himself- in farming, fishing, hunting, gathering, or something that brought food to him. May be he was a serf on the estate of a feudal lord. He took up the job only because it offered him more than he was earning working for himself or for the feudal lord.)

Coming to the profit itself, the Leftists never venture beyond the point it accrues to the owner, because the usefulness to them of profit ends there. They use it to demonise the owner, and know that if they trace its onwards journey, they would discover something that would collapse their whole worldview.

So what happens to profit once it has accrued to owner? Owner uses profit to either expand the business, or start a new business, thus hiring more workers and thus truly spreading the wealth around. Or he uses it to fulfil his want of luxury goods, giving business to those who produce the luxury goods the owner wants, thus again spreading the wealth around. (Here it is assumed that profit is what remains after owner has drawn his own wage also, which is higher than the worker, and equal to what he was earning when he was the lone person producing. Profit is what remains after owner has taken his own wage also. His own wage covers his daily needs.)

So what happens when, on the bidding of the Leftists, the State enters into the picture, and using the force citizens place at its disposal, rigs the contract in favour the worker, i.e. increases the wage of the worker above what the owner himself is paying to the worker?

There may be many results depending upon the profit that accrued to the owner before wages are thus increased:

  1. If the profit is bare minimum, increase in the wages may render the business unprofitable, and the owner may have to sack the workers and use some other process to produce, or shift to a business line that uses lesser workers for per unit production and therefore is less affected by the mandated increase in the wages.
  2. If, to survive in the same business, the owner increases the cost of his produce, the purchasers will reduce the quantity of the produce they purchase, as they have their own budgets for various commodities they purchase. This will force the owner to reduce production and will again result into sacking of the workers. Or the purchasers may start saving less to buy the costlier production, thus reducing the saving rate of the community.
  3. If the owner is able to pay the increased wages without increasing the cost, only by reducing his margin of profit, he will have less profit, and will therefore not start a new business or expand the existing one, depriving the potential new workers of a regular job. Or, he will not be able to buy the luxury goods he wanted, thus putting the luxury goods producers out of business and on Welfare, or if Welfare has not been instituted, to starvation and ruination. Either way, the growth of the economy will be affected.
  4. The workers who are now being paid more, will buy goods they want more, attracting factors of production of the society to those sectors that produce the goods the workers want. But since workers in those sectors will also be entitled to the increased wages, what workers purchase will cost more, soon nullifying the increase in the wages for the workers. Even if those sectors do not employ workers enough in numbers to be of consequence in the cost of the products the workers want, the producers of the goods the workers want will increase the prices of those goods, because they know that workers have now more purchasing power, again nullifying the increase in wages. In addition, other buyers of such goods who are not covered by increase in the wages will have to use their savings to buy these goods, or forego purchase  of some other goods. And products of the sectors from which the factors of production are so diverted, will become costlier, forcing buyers of those products to use their savings to buy them or forego purchase of some other goods, leading to loss of jobs in the sectors producing those other goods.

It is evident that the increased wages of the workers are invariably paid out of the Capital of the society, because the productivity of the workers has not increased, that is, the wealth being produced has not increased. So the Capital formation of the society as a whole goes down, till the time costs of everything else increases and nullifies the increase in the wages of the workers. And till  this fresh equilibrium is reached, there is loss of jobs across all sectors as demonstrated above.

So, all that the wage increase mandated by the State achieves is that workers in some sectors get paid out of the Capital of the society. And it goes without saving that a society that starts consuming its Capital to pay some persons more without they having to increase their productivity, soon gets impoverished, as with Capital being consumed to give temporarily good life to some members of the society now, future prosperity is being consumed, as Capital makes prosperity and growth possible.

The Leftists realise this. That is why minimum wages are not normally increased beyond 5 to 10% at a time, as the Leftists know that the Capital of the society is limited, and increase in wages in one go beyond this will collapse the economy by sucking out even the working Capital, not just the investment Capital. And the Leftists are careful to ensure that that does not happen, as then the collapse of the  economy will get connected to their policy of increase in the minimum wages; something the Leftists always make sure to not allow to come about. They keep their interventions in the free market limited to the extent that the consequences of their follies occur after a time when nobody is able to connect consequences of their policies to their policies. The destructive effects of their policies manifest themselves only in the long run.

But the long run also finally arrives. And it has arrived in Europe. The State mandated minimum wages in Europe have destroyed jobs like hotel waiters and unskilled staff, drivers, workers in the eateries, and other unskilled jobs. The workers in these jobs have gone on Welfare, and potential workers go straightaway on Welfare after college. So in Europe you come across the paradox of hotels without staff, but large number of persons on Welfare. The persons on Welfare actually consume Capital of the society, and do not create the wealth they would have created had they worked. Thus impoverishing the society. As a result economies across Europe are collapsing. A man who doesn’t work, but gets to eat because the society is forced to feed him out of its Capital, withers away; because work gives a man character, health, purpose, helps him pass his time, and keeps his mind engaged.  So more people on Welfare means that Europe is losing its human Capital also, and is collapsing as a society also.

The minimum wage madness of the Leftists results from the same misconception of money they have, which cause most of their other follies. They think that owner eats the profit in place of food. That is, they think money in itself has value as a consumer goods. In reality money is just a medium of exchange, and if the owner is making profit, he uses it to expand business, or start new business, or to buy some consumer luxury goods he wants. That is, he spreads around the profit. If this profit is decreased by increasing the wages of his workers, this spreading of profit stops, and though the workers get to spend more for sometime, this gain to them also is nullified by increases in the prices of all commodities, including wages of other workers. But till this new equilibrium is reached, his workers actually consume the Capital of the society, as because productivity has not increased, so the increased wages are being paid out of the Capital of the society. And as described above, a society that consumes its Capital to have a life better than that its current productivity makes possible starts decaying, setting up a vicious cycle that, if not interrupted by taking some painful decisions, leads to total collapse of the economy.

It may not be readily imaginable that with all the books, all the universities, all the economists, and all the revolution in information technology; the Leftists still manage to force such a destructive policy as the State mandated minimum wages. But their control of media and democracy which forces politicians to seek reelection every few years have combined to become an unstoppable force in the favour of the Leftists. And so, till the Leftists are not challenged and comprehensively defeated ideologically, they would continue the destruction of Civilisation through follies as the State mandated minimum wages.



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