Minimum wage

The problem to address is a lack of free markets. If many industries were not controlled by oligopolies/monopolies there would be more competition for labor which in turn would raise wages. The government needs to do a better job enforcing antitrust laws.

The world is more complex than raising the minimum wage. Competition is international today and raising the minimum wage puts all of us in the United State at a competitive disadvantage. Yes the fast food industry is not directly affected by wages in China, but it is indirectly. If you raise the minimum wage economic forces will require all wages to ratchet up. One reason causing the fall of the auto industry was ignoring pricing oversees. 

Instead of the government must enforce antitrust laws and break up oligarchical control of markets. Fast food is not one of these industries, but if there was a greater demand for labor in other industries it would force the fast food industry to compete for labor while at the same time their profit margins would decrease.

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Free Markets Vs Capitalism

I learned not everyone defines capitalism and free markets the same. I discovered this while writing a blog, freefreemarkets.com, since the economic meltdown of 2008. For me they are the same, markets operating under the model defined in Adam Smith’s book in 1776 called Wealth of Nations. For others the two concepts are different.

Society selects an economic model based on its objectives, an economic model does not select a society to best meet its goals. I recently got into a fun debate with a young lady attending Harvard where I was defending free markets while saying one the greatest impediments to free markets meeting the needs to society was our government being derelict in its role as the “umpire” to free markets. My debate opponent kept coming back to me and saying by definition a free market does not have a regulator and set of rules to follow and therefore such markets are not bound by the objectives of society.

At the end of the day, both of us did agree that no matter how we defined it, there must be some regulation overseeing societies economic system in order for that society to succeed. A major reason  for the historically high inequality of income and worth in our society today is that our government is failing in its role as referee to our economic system. More and more our economic system is being run like a NFL football game with amateur referees.

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Health Care And Free Markets

Nobel laureate George J. Stigler discussed how regulation was “…designed and operated primarily for…” the benefit of the industries being regulated. and as a result could use the regulation for their advantage. Stigler’s conclusion was  “Every industry should be either effectively competitive or socialized.” Health care is one of the industries where free markets do not work.

Health care is an industry where the receiver of services, the patient, does not directly pay the provider, the doctor, for services rendered. A third party, an insurance company,  pays for the service and therefore the consumer is not as vigilant as he normally is when making a buying decision . The patient does not aggressively shop for the best care at the most affordable price in the market place because no money is coming directly from his pocket..

A trickle down affect of the disconnect between who is receiving the service and who is paying for it also negatively affects  the cost of drugs and other goods and services used by the doctor to cure the patient. The drug companies are able to buy business from the health care profession by giving lavish vacations and other benefits to members of the medical profession, raise the price of the good or service provided and neither the patient or doctor cares because it is passed on to the insurance company and added to the cost of the insurance premiums….More

Income Fairness or Tax Fairness

There is much debate about whether the tax rates should be kept low or raised. This is the wrong debate. Instead we should be deliberating whether we need to reform our economic system. If our markets were free of oligopolistic control we would have a wider distribution of income and income taxes with the result of more tax revenue going to the government with lower rates.

The republicans speak with pride how the free market system is the best economic model for increasing the living standards of the nation and the citizens of the country. They resolutely  proclaim that government needs to cut back on regulation and allow the free market to work. This is hard to argue against.

Below is a chart comparing tax rates and percent of taxes collected in 1979 to what Congress passed during the “Fiscal Cliff” crisis. As a result of these changes 99.3% of households will not experience any changes in their income taxes. The top 20% will be paying 68% of the federal taxes collected, compared to 55% in 1979.

I do not understand why most free market advocates are not up in arms over industries being taken over and controlled by a small group of firms. 

The founder of the concept of free markets said:

‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices”, Adam Smith, The Wealth of Nations, 1776

The quote below is from the book Capitalism and Freedom written by Milton and Rose Friedman. Dr. Friedman is the economist who is quoted most often when conservatives are praising free markets and capitalism.

“But we cannot rely on custom or conscious alone to interpret and enforce the rules; we need an umpire.These then are the basic role of government in a free society; to provide a means where we can modify rules, to mediate differences among us on the meaning of rules, and to enforce compliance with the rules on the part of those few who otherwise would not play the game.”

For whatever reason, this part of  Dr. Friedman’s philosophy is never mentioned when it comes to making “free markets” work.

Lack of freedom in the markets corrupts markets. It makes them inefficient. This lack of freedom causes prices to rise, less innovation, egregious salaries at the top and skewed income distribution, less competitiveness in markets and last but not least, consolidation of political power.

This is a major part of the income equality problem that is seldom discussed.

Oligarchs and Labor

In the 1960’s the auto industry was part of an oligopoly that included the UAW. Before imports, they could raise prices and pass on some of the profits to union workers in the form of higher wages. Now they longer can do that.

Today more industries are controlled by oligarchs that do not include unions. These oligarchs are not buying off the unions because world competition does not allow it. If Apple raised its prices on smart phones to pay their workers more they would lose business to Samsung in South Korea.

By “crushing” oligopolies now, the consumer would have more choices because of competition and labor would have higher wages because there would be more companies seeking to hire good workers.

The problem of competing against foreign labor would still exist, however it would be somewhat offset by technology, shipping costs, etc. It would also force shareholders at the domestic companies to put the squeeze on wages paid to their board members and senior executives in order to remain competitive.

Today the “Captains of Industry” are paid egregious compensation to maintain the companies monopolistic position in their respective industry.  After enforcing anti-trust laws they will once again be paid to deliver the products and services the consumer wants and to run an efficient operation. The consumer will end up with better prices and service.