Ford Motor Company: In 1914 Henry Ford acquiesced to his workers’ demand for $5 per hour ($128.67 in today’s dollars) as a result of rising competition in the automobile industry.
McDonalds Company: After a 5-year war against any proposal to raise the government-mandated minimum wage to $15, McDonalds and other large corporations gave up fighting. In the absence of real competition, businesses see no reason to raise wages significantly, and wait until forced to do so by government.
The Keynesian Zeitgeist
Anyone harboring expectations that the U.S. can be saved from the ultra-progressive interpretation of Keynesian economics must feel extremely disappointed. Spending, borrowing and regulating in good times and bad at all levels of government seem to be the majority’s solution to every economic challenge.
Why would the U.S. need eventual salvation from such “solutions?” Exuberance over high stock prices, low unemployment, and a decent GDP has masked since the end of the Great Recession vanishing private sector jobs and an unsustainable national debt.
Keynesian solutions discourage businesses and prop up consumer spending with various government-mandated benefits. To sustain such benefits there has to be very high levels of taxation. In the absence of taxation, public debt is the only other alternative.
Ah, but Keynesians say supply-side economics only serves to enrich the already rich. True, supply-side economics cannot benefit workers in a rigged, monopoly-dominated market where cronyism passes for capitalism. It is no wonder that the bulk of the increase in jobs in the last few years has been in low-paying and part-time jobs. No business competition means no good jobs. Even self-described free-market fiscal conservatives end up in the Keynesian camp when real competition vanishes.
Any Hope in Sight?
* How are the Two Great Decisions of the Past Decade Working For You?
Obamacare? Many people unable to obtain health care before Obamacare were pleased, but the many who saw their premiums double were not.
How about the Tax Cut and Jobs Act? The tax cuts were not accompanied by commensurate spending cuts, so the national debt continues to grow. Small businesses, which generate a lot of new jobs, got a tax cut that will expire in 2025 (6 years away). Large corporations got a permanent tax cut, but have not so far produced the jobs or innovation hoped for. The lack of substantial results is not surprising, since no business it its right mind would commit to significant increases in workforce or capital investment based on the Tax Cut and Jobs Act. Congress has been determined since 2016 to impeach President Donald Trump one way or another, and re-elections are never a certainty. Should the President be ousted, the next effort will surely be to repeal the tax cut.
* 2020 Presidential Candidates’ Spend-Borrow-Regulate Meter
Today, there are two major Republican challengers. William Weld is a former two-term Governor of Massachusetts and 2016 presidential candidate on the Libertarian ticket. Joe Walsh is a former one-term member of the U.S. House of Representatives from Illinois and conservative talk show host. Both candidates talk in general terms about market innovation and fiscal responsibility. Weld’s most specific proposal is to substitute the current complicated tax system with a flat tax. Walsh speaks of advocating for a balanced budget amendment, free-markets, and a “sensible safety net.” Neither speaks of any radical measures necessary to bring down a $23 trillion national debt or end the cronyism that today produces substantial corporate bonuses but low worker wages.
The Democratic field is dwindling as expected, but there are 15 candidates still in. Although these candidates furiously argue with each other on the debate stage, their differences are of degree not substance. They all espouse the same core principle: let government provide all wants and desires by controlling and taxing pretty much everything in the economy. The seriousness of an unsustainable national debt does not seem to be a concern to the candidates.
The talking point voters mainly choose to hear is that Democratic candidates have plans to “eat the rich” to provide benefits for workers. Although that is not entirely the case, it is close enough. The working middle class will also be expected to chip in via such things as loss of stepped-up value on inherited homes (you will not keep a heck of a lot after you sell that San Francisco home your Grandma left you). Also, rich corporations are not the only one who will be required to follow new mandates such as a $15 Federal minimum wage. However, the candidates’ plan main thrust is indeed to tax corporations and wealthy individuals, implement more regulation on businesses, and redistribute wealth to workers and non-workers.
Let’s Talk About Ayn Rand
Fiction has a way of being ahead of life. In 1957 Ayn Rand wrote Atlas Shrugged, which showed in detail how Big Government has a habit of generating policies that create problems and then attempting to fix those problems by generating more problematic policies. Take the minimum wage: government increases the minimum wage, the more vulnerable workers are laid off, government increases taxes on businesses to support safety-nets for vulnerable workers, businesses lay off more workers to keep their level of desired after-tax profits.
In 2009, the Wall Street Journal ran an opinion piece the author Stephen Moore called Atlas Shrugged’: From Fiction to Fact in 52 Years. Note that the date of this op-ed falls during the Great Recession.
In a very brief WSJ video commentary, Stephen Moore talks about the article. He equates the economic downward spiral in Atlas Shrugged with the economic mess that was the period 2007-2009. Piles of regulations in Rand’s imaginary world obliterated innovation, strangled production, promoted inept cronyism, and brought down an entire economy. To Moore, those events looked like heaps of failing sub-prime loans encouraged by pools of mortgage backed securities mostly created by Ginnie Mae, Fannie Mae, and Freddie Mac.
As noted above, the economy is strong, but plagued by rising public debt and wealth inequality. Such ills are versions of things falling apart as envisioned by Ayn Rand in Atlas Shrugged.
Shrugging Happens in Real Time
Today, we see outmigration of large businesses from high-tax high-regulation states to low-tax low-regulation states. Large businesses generally only migrate to costly states if taxpayers fork over billions of dollars in tax breaks and other incentives. We have seen what happens when cost of labor increases beyond what businesses want to pay – they outsource to lower-cost countries.
In other words, when forced to carry more burden than they want to, businesses shrug. They leave. The employed are now unemployed. The good or service previously provided is gone.
There is no evidence that the Atlas of Greek mythology ever gave up and shrugged off the Heavenly Sphere he was ordered by Zeus to carry forever, but common sense would say that he probably eventually did.