Now I am fully aware that Obama thinks that he is smarter than me. I also realize that the vast, vast majority of Obama supporters also believe he is smarter than they. But most of his ideas have not only been tried before, but they have been absolutely catastrophic to freedom and capitalism — which, I believe, is his entire point. But, for those who might want to direct the Obama supporters to a little reality-based math, here’s a quick bit about how economics works. I’ll try and keep the math simple.
Company A sells Widgets. It costs company A money to make widgets. In a typical week, they pay their 10 employees $5.85 an hour for 40 hours of work. That’s $2,340 is direct labor costs (I know there’s more, but I’m trying to keep it simple). They also have to pay $1,660 to buy supplies to make their widgets (and other expenses). In a typical week, their company produces 200 widgets. That means it costs them $20 for each widget they make. Since there is a lot of competition for widgets, they sell their widgets for just $20.50. That gives the company a total “profit” of $100 each week.
Have I lost anyone yet? It’s the price they sell the widget minus the cost it takes to make the width that equals profit.
Now Obama wants to raise the minimum wage to $9.50 an hour. What will happen at our widget company?
The costs to create the widgets now rises. Their 10 employees now cost $3,800 to pay (instead of $2,340). Their suppliers also have to pay increased wages, so the supplies now cost more too — $2,695 instead of $1,600 (an increase at the same rate as wages). So under Obama’s plan, it now costs $6,495 to make the exact same 200 widgets. If they continue selling widgets for $20.50, they only collect $4,100 — losing over two thousand dollars a week. So they cannot do that. What do they do?
Each company will have a few options. If they want to continue making money, they must adjust. They can raise the price of widgets. If they raise the price of widgets to $33.00 (up from $20.50), they will earn $105 a week. And in economic circles, that’s less than before because the profit on the investment has lowered percentage-wise. And of course, if you had been paying $20.50 for widgets and the price jumped to $33, you likely wouldn’t buy the widgets (meaning they’d have to raise the price even more to make up for lost sales).
The next option the company has is to attempt to reduce costs. They cannot reduce how much the employees are paid, but they can reduce the number of employees. If the company fires 5 employees (half their workforce) and somehow makes the remaining employees (who are now fearful for their job) work 50% harder, here’s the numbers:
Employee costs: $1900; Supplies: $2695; Net Widgets: 150 Widgets; Cost to manufacture each: $30.60. They still need to charge $31 to continue to make money.
Another option the company has is to reduce the widgets. They can make them smaller. They can make them cheaper. They can make them from a plastic that breaks more easily. In that way they can cut their supplier cost (ensuring other people are unemployed). Let’s say they cut those costs by 50%. Now we’re to $1347 in supplier costs. That still leaves the cost of making widgets at $21.64. They now charge $22.50 for a net profit each week of around $100. But keep in mind that they have less employees and are making an inferior (or smaller) product. And those that are still employed are now scared to death that they will be fired next.
So by raising the minimum wage, Obama will increase unemployment and he will ensure prices of everything will rise. He will also increase fear in the working class. Then again, I honestly believe that is what he desires — because then he can make more people dependent on government. That’s “change” all right.
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Tags: 2008 Elections, Freedom by Ogre
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