Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Basic Economics: $5 Coke Cans and Minimum Wage Laws

  by    0   0

One of the biggest enduring economic myths is the notion that the minimum wage laws only help workers and have no real negative effects. The fallacy inherent in this line of thinking becomes immediately clear if we simply propose a $1,000 per hour minimum wage. After all, if $15 is good, $1,000 would be fantastic, right?

Of course, nobody would pay somebody $1,000 per hour to perform a low-skill task. It’s obviously unaffordable. A $15 per hour minimum is just as unaffordable.

The smaller scale of a hike to $15 makes the effects much less obvious – sometimes completely invisible. But the same fundamental economic reasons a $1,000 per hour minimum wage would never work make a $15 minimum just as economically unviable. We saw the negative impacts in Seattle with the minimum wage hike there a few years ago.

Nick Giambruno did a good job of explaining the problem with minimum wages in an article published by the International Man.

First, it’s critical that you understand a wage is nothing more than a price. As Giambruno put it, “Employees sell labor. Employers buy it.” A wage is the price of labor.

Like any other price, wages are dictated by the laws of supply and demand. We call them “laws for a reason.” You can ignore them. You can try to wish them away. But they will always remain in operation. You can’t disregard supply and demand any more than you can disregard gravity. You can claim gravity doesn’t work in your given situation all you want. You’re still going to splat on the ground if you jump out of a 10th story window.

As Giambruno explains, minimum wage laws are price controls.

In this case, a control on the price of labor. And price controls always create destructive distortions in the market. Here, that means unnecessary unemployment and artificially high prices passed on to consumers. Even the Congressional Budget Office admits that 500,000 jobs would be lost if the US government raised the federal minimum wage from $7.25 to $10.10.”

Giambruno illustrates this point by making a comparison that pretty easy to wrap your head around. Imagine if the government set the minimum price for an aluminum can at $5. In that scenario, Coca-Cola would have to charge over $5 for a can of Coke. Would you shell out more than five bucks for a can of Coke?

Me neither.

In this scenario, we’d end up with a glut of Coke cans sitting on store shelves.

In this scenario, the problem isn’t that people don’t want Coke. They do. The problem is the artificially high price of aluminum cans… which leads to the artificially high price of Coke… that just sits on shelves, gathering dust, until eventually, Coca-Cola drastically cuts back production because of lack of demand.”

In all likelihood, Coca-Cola would just switch to exclusively using glass or plastic containers. The $5 minimum can price that was supposed to help the can companies would actually hurt them over the long-term.

Now, just substitute aluminum cans for labor and you have the exact same scenario.

A similar dynamic plays out when the government mandates the price of labor. But instead of Coke cans, potential employees sit on the shelves while employers eliminate jobs they otherwise wouldn’t, and are forced to pass on higher prices to consumers when they otherwise wouldn’t. The plain truth is, not every job generates $15 an hour worth of output. And some workers would much rather accept jobs that pay less than $15 than have no job at all.”

Minimum wage advocates seek to solve a legitimate problem facing American workers: their dollars buy less and less every year. But simply mandating employers fork over more dollars is a little like putting a band-aid on an amputation. It doesn’t do anything to address the underlying problem. We don’t have a wage problem. We have a money problem.

Federal Reserve and government monetary policies continue to devalue our money. The average wage rate has gone up 2.7% in the last year. Meanwhile, the Consumer Price Index (CPI) has increased by 2.9% during the same period. The CPI almost certainly understates the cost of living, but even if you take that number at face value, Americans are losing ground. Inflation is civilization’s death spiral. You aren’t going to fix the problem with wage laws.

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

It’s Going to Be a Rush to Gold; The Dollar Is Cooked

On Wednesday, Congress finally agreed on a government stimulus/bailout plan to battle the economic impacts of coronavirus to the tune of over $2 trillion. Meanwhile, the Federal Reserve has committed to monetize the debt with QE to infinity. Practically speaking, we’re talking about trillions of dollars being injected into the US economy – all of […]

READ MORE →

Federal Reserve Announces QE Infinity

We now have QE to infinity and beyond. On March 23, the Federal Reserve announced it will purchase an “unlimited” amount of US Treasuries and mortgage-backed securities. The Washington Post called the move “unprecedented” and said that it goes “much further than what the central bank did in the 2008-2009 crisis.”

READ MORE →

Beware of Gold Scams!

The demand for physical gold has gone through the roof in the midst of economic chaos caused by the coronavirus. We’re beginning to see shortages of some bullion products. As more people pile into the market,  the number of scammers looking to take advantage of gullible investors also increases. Recently, some guy started commenting on […]

READ MORE →

Central Banks Buy More Gold

Central banks started out 2020 buying more gold, but the rate of purchases slowed somewhat. On net, central banks added 21.5 tons of gold to their reserves in January, according to the latest data from the World Gold Council.

READ MORE →

Extraordinary Federal Reserve Policy Began Over a Year Ago

On Sunday evening, the Federal Reserve announced additional extraordinary emergency measures in an attempt to keep at least some of the air in the bubble economy. But in fact, the Fed has been engaged in extraordinary emergency monetary policy for over a year.

READ MORE →

Comments are closed.

Call Now