The rest of the story…

7 10 2008

Sometimes we can’t see the forest for the trees. Sure enough, times are bad, but what’s the cause of it all? Who, or what created this monster?

High energy prices, falling home values, rising unemployment, foreclosures and falling markets. And those are just a few of the things confronting us today. Many people are just downright scared of what the future holds. We’ve got politicians telling us this and telling us that, using fear as leverage for votes. And some of what they sell is fact. Scary fact at that.

We hear over and over how the Bush administration failed with it policies, but that doesn’t account for the good economy and great job numbers for the first five or six years of his administration. It has, after all, been after the democrats took back the House and Senate that things got ugly. And anyway, most of the problems with the housing crises sits firmly at the feet of the democrats and their interference with the market via a fundamentally flawed plan to provide home ownership to minorities and the disadvantaged. Good intentions for sure, but good intentions they say pave the road to hell. Well, in this case, to ruin anyway.

And as democrat tend to do they want to blame somebody else, so they blame the whole thing on greedy Wall Streeter’s. And of course there are greedy Wall Streeter’s to be found. But the first thing the democrats did to “rectify” their belief that the roots stem from there is to place limits upon the system. More meddling in the market. Meddling is what created this mess on Wall Street in the first place.

Thomas Sowell, a man whom I have great respect for, sums it up this way – “In the midst of a major national financial crisis, what was one of the first things Congress zeroed in on? The pay of Chief Executive Officers of financial institutions.and “ …however insignificant the pay of CEOs is economically, it is big stuff politically. Whatever the shortcomings of the Democrats, they are consistent in their message, and class envy is a great part of that message.”


If all those CEOs agreed to work for nothing, that would not be enough to lower the bailout money by one percent. Anyone who was really serious would start with the 99 percent and let the one percent come later, if at all.”

In fact Mr. Sowell goes on to say that limiting compensation may in fact make it worse – “Politically imposed limits on the pay of CEOs is one of the most penny-wise and pound-foolish things that can be done. The difference between a top-notch CEO and a second-rate CEO can be billions of dollars on the bottom line. But in all this talk about Wall street and housing and how much a CEO can, or can’t make, we’ve overlooked one very important pressure out there in the country. I’ve broached the subject several times, but it’s as if nobody else sees, or even knows. And it has always brought with it the consequences of a weaker economy and a slowdown or worse in the job market. What that is is the minimum wage increase we just had.

You can’t take money out of the pockets of a company and not expect it to ripple through the dynamics of that company. Wages are a huge part of costs, and when cost go up it effects the bottom line, simple as that. This increase was no small itty bitty bite of the pie either. Seventy cents an hours – more than ten percent. Do the math. The increase has to be paid for somehow… Guess how?

Taxes, wages, interest rates; raise anything by ten percent and the results should be obvious. Somehow they weren’t… at least nobody is talking.

Like I said back in July – ‘Increases in wages can and should be a good thing… when they naturally occur. The main problem is that some employers kind of ride the wage far too long for many employees. The Feds increases the minimum wage to correct that situation. BUT, the forced rise comes with some negative consequences. It slows (or stops) job growth and create inflationary pressure on the economy.’ – I believe my point is proved.

Timing, they say, is everything. Giving more money to people may sound really good right now, but that money is coming at a time perhaps when the giver can least afford it.

Not only do I believe that the wage increase is a goodly percentage of the collective problems we now face, I believe we aren’t yet seeing the fullness of its effect. Has Social Security gone up yet? What about pensions? Will they rise too? Ten percent? The answer of course is no. So our elderly have taken a huge hit economically, and for all practical purposes they got a decrease.

And a double whammy on our seniors it is. Those on social security taking a hit, and those depending on income from investments, either personal or via retirement systems, losing tremendous value in the fiasco. Just wait till those statements show up in the mail.

This last raise in the minimum wage was step two in the process. Round three is coming next July I do believe and with it another seventy cent increase. The total amount of minimum wage increase adds up to about a forty percent increase in wages. And this isn’t just the minimum wages that go up, as it eventually trickles UP the wage chain, so don’t be looking for any real stability out there for maybe a couple of more years after that.

In a couple or three years prices will have gone up to pay for those raises and everything will sort itself back out, only the numbers will have changed. Back to the way it was before they went up. The same for everybody…, everybody but our elderly and others on fixed income. Once again they find themselves on the short end of the stick. That’s why nobody can afford to retire on Social Security anymore. We’ve raised that ability right out of existence.

Mandates are never good. Mandating loans be made to people that couldn’t really afford them was folly. Costly folly at that. Mandating fixes to problems usually just creates new problems. But a mandated wage increase is the real elephant in the room here.






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