From Mises.org: Why Devaluing the Yuan Won’t Help China’s Economy

yuan

In an article on Daily Mises, Frank Shostak writes about how the recent devaluation of the Chinese Yuan will not help stabilze the Chinese economy. While the devaluation helps the overall GDP, it will eventually lead to higher prices and less imports and results in what he terms as “economic impoverishment”. The scenario of more exports and less imports leads to the economic impoverishment in the form of a decrease in real wealth, by means of the price of goods and services to the Chinese people increasing.

Read the Mises Daily article: Why Devaluing the Yuan Won’t Help China’s Economy

The Anti-Capitalist Culture

anti-capitalist-protest

On July 8th, Mises.org published an article regarding the Greek financial crisis and made the suggestion that the biggest problem that Greece suffers from is an “anti-capitalist culture”. The suggestion was made that the culture in that country is one that embraces fiscal and economic policies and practices that are contrary to sound economics. Culturally, the people of Greece live in a way (with the effects of socialized government) that stand in the face of the classic capitalism.

We can see that attitude beginning to permeate further into our own American culture, where capitalism has to be defended over and over again, despite being responsible for the increased standard of living that Americans enjoy today. I have noticed over my life time this idea becoming more and more of a mainstream idea. But, the fact remains that capitalism is the only system known to man that has rescued from poverty and improved the lives of common people. Socialism, which is the favorite alternative of opponents of capitalism does not accomplish that feat. However, we hear from our gracious leaders how capitalism destroys society and that it only benefits certain small segments of the population. Nothing can be further from the truth. In fact, socialism is the system that produces that very outcome. But, never mind the proven history of societies and nations when you want to advance a false narrative.

While the United States is not yet close to becoming a Greece, the same narrative that has plighted the Greek culture today, that of capitalism being an enemy of the common man, could work to destroy that system that allows man to pursue his own separate interests to the full ability that he chooses. And I invite you to read the article at Mises.org.

Read the Mises Daily article: Greece’s Biggest Problem Is Its Anti-Capitalist Culture

The Minimum Wage Debate- part 2

minimumwage

A recent opinion article published on CNN’s website, written by Gov. Peter Shumlin and Gov. Dan Malloy expresses their support for a minimum wage increase. While on the surface, an increase in the minimum wage (or a minimum wage at all) would be beneficial to those minimum wage earning employees (or the economy, in general), there are some unintended consequences that need to be considered. In the article, there were 3 reasons cited for these two gentlemen’s support of a minimum wage increase. In this second part of the 3-part series, I will address the second point in their article. Note: You can read Part 1 at http://thelion.us/the-minmum-wage-debate-part-1/

Their second point is:

Two, it’s good for women. Women account for roughly two-thirds of workers whose incomes would rise by increasing the minimum wage to $10.10 an hour. These women currently work 40 hours a week to make just $14,500 a year. These women are our daughters, sisters and mothers who are often the only breadwinners in their families. Our country is in a stronger position when women are in a stronger economic position. We need to make that a reality.

First, this is a political statement and not a statement on how a minimum wage increase is economically viable or makes economic sense. It seems to me that no matter if the wage earner is a woman or man, black or white, born in the US or an immigrant, the same economic dynamics apply. Why is it a fact (as they imply) that “our country is in a stronger position when women are in a stronger economic position“. Does it matter who is entrenched in this low wage dilemma? No, it doesn’t. This seems to be a classic example of identity politics, where arguments are made concerning specific social groups in order to advance a political position. And I understand that this is probably the very intent of the writers of this article (two politicians) and therefore of great expectation. But, there is no value in solving the problem of the low wage dilemma by making this point. Higher wages are good for men, college students, and every other political identity group, not just for women.

Second, the statement that “these women are our daughters, sisters and mothers who are often the only breadwinners in their families” again has nothing to do with the economic viability of an arbitrary raised minimum wage. This is more of a commentary statement of our current society. The assumption is that these women are working because they have to, forced by family dynamics not only to earn an income to supplement another income, but also to act as the breadwinners. And as breadwinners, they are working a minimum wage job. If that is not a sad commentary of our society, I don’t know what is. But, what is the connection between this heart-stringed statement and the economic impact of a raised minimum wage?




Third, since there is no economic reasoning in this second point of the article, I will offer one. The thought that keeps coming to my mind is why are people (women in this case) working minimum wage jobs, while having to act as the breadwinner of the family. I can understand that there will be some people in this dilemma, but the article claims that “women account for roughly two-thirds of workers (that are working minimum wage jobs)” and that they “are often the only breadwinners in their families“. The implication is that there are many women in this position. Why are so many women relying on minimum wage jobs as the sole source of income to raise a family? Minimum wage jobs are not intended to be jobs expected to support a family. Why should business owners be burdened with the social responsibility of making bad up for past and current decisions of their employees. Businesses that employee workers at minimum wage do so for a reason. First, they are in an industry where the work is generally un-skilled labor and the workforce is easily expendable or replaceable. In other words, if their fry cook, making $7.25 an hour quits today, the business owner can reasonably expect to hire another person replace him the next day (or in a short period of time) for $7.25 an hour, without expending many resources. Second (as mentioned in part 1), businesses generally do not have stash of cash sitting around waiting to be spent. The capacity to absorb an arbitrarily raised payroll expense is something that has to be carefully considered by the business owner, and often times the requires measures that produce unintended consequences.

In the third and final rebuttal of the article written by Gov. Peter Shumlin and Gov. Dan Malloy, I will talk about the minimum wage I general, and how the minimum wage actually works contrary to unskilled laborers, in ways that you probably have never considered.

Please comment!

Note: You can read the original article written by by Gov. Peter Shumlin and Gov. Dan Malloy at http://www.cnn.com/2014/03/05/opinion/shumlin-governors-minimum-wage/.

Is the Affordable Care Act affordable?

Affordable Care Act

As the debate rolls on about the Affordable Care Act (ACA), there are some fundamental problems with the legislation that causes it, at its foundation, to be contrary to what its name desires to achieve. Instead of working to reduce healthcare costs, if nothing changes, it will prove to keep healthcare costs higher in the long run. The problem comes in the form of fundamental supply and demand.

First, I am not concerned in this article in getting involved in the discussion of why there are a limited amount of suppliers. We can look at that topic at another time. As we see the market reacting to this legislation, we see more and more healthcare providers opting out of participating in this program. I will explain how this decrease in service participation will affect cost in the long run. Second, the word “affordable” is very subjective and changes from person to person. Instead of debating whether or not healthcare services will be more affordable under the ACA, I will address how prices will be affected. Each individual will determine on their own whether or not the services are affordable or not.





In a free market, price (cost) is affected by certain factors, namely supply and demand. Assuming the demand for a product (or service) remains unchanged (constant), if the supply of that product decreases, the law of supply and demand tells us that the price of the product will eventually increase. And that’s easy to understand. When the amount of stuff consumers want to buy decreases, and the number of people that wanted to buy the same stuff does not change (demand remains constant), then those people (consumers) will be willing to pay a little more than they were previously willing to pay, when the product was more readily available. Manufacturers know this and more than willing to increase their price to accommodate the change in the supply as it relates to the unchanged demand.

Apply this to the ACA. The ACA seems to be heading towards reduced amount of doctors and healthcare providers being willing to “supply” their healthcare to the growing number of “wanters” (patients) that desire the same healthcare. As the supply of providers continues to decrease, assuming the number of patients at least stays the same or increases (which is very likely), the more those healthcare services will cost. That is, unless the government intervenes once again to put controls on certain, if not all prices for the healthcare. If that happens, there will prove to be some dangerous consequences in that scenario (read my article on The Danger of Price Controls).

The word or idea of “supply” in this scenario can also be explained by using the word “competition”, as they are closely related. You see, when there are two or more suppliers supplying the same or similar product to a set of consumers (“wanters”), then that is what causes the phenomenon of competition. The more the suppliers, the more the competition, and the better off the consumers become. In a competitive market (a lot of suppliers supplying the same or similar products), a decrease in price will naturally occur, without any government intervention to control prices. Let’s explain this in basic terms.

Let’s say you have one company that manufactures latex gloves for the entire medical industry. Now, if that were true, then that company could literally charge just about any price to its customers for latex gloves. This company knows that the customer has no other option but to buy latex gloves from them and as such, the company has no incentive to sell the latex gloves at a lower price. This is not a good situation for the customers. Enter in another company that manufactures the same, or similar latex gloves. To incentivize the existing consumers to buy from their company, this second company prices their latex gloves a little lower to attract business. When this happens, the first company becomes aware of this development and is then forced (by natural and fair competition) to reduce their price to a price that is closer, if not lower than what the second company charges. The first company (by the effect of competition) now has an incentive to lower their price of latex gloves. This can only be good for the customer. Now, these two companies could get together and agree to keep their prices the same, or similar in order to keep their desired share of customers. Despite being illegal to do this, you see how this cannot be good for the customer.

Enter in a third company that manufactures the same latex gloves and is uninterested in “fixing prices”, as the first two companies are. They set their price lower than the “fixed price” (but at a price that still provides a profit) to incentivize the existing consumers to buy latex gloves from their company. Again, you see how this can only good for the customer. This could go on and on until you have several companies competing for the same number of customers, driving the price lower and lower, ultimately to the benefit of the customer. And this happens naturally in free market, without any legislation to control prices.

Another by-product of competition in the free market is that is creates an incentive for the manufacturers to improve the quality of the product. Using the previous example, when there are several companies that are manufacturing latex gloves and they are competing for the same customers, it is not only in their interest to lower the price as much as they can (and still produce a profit) but also to make their product better, and more desirable. Not only does a lower-priced product (that is similar in quality to the other manufacturer’s product) cause customers to buy a company’s product, but a better quality product at even a higher price will cause some customers to buy their product.

Now let’s circle back around to the ACA. Again, I’m not interested in getting involved in the discussion about why there are a limited amount of suppliers of healthcare services as related to this legislation. That is another topic altogether. But, as we can see in the example of the latex gloves, a limited number of suppliers of products (in this case, services) will ultimately serve to keep the cost of healthcare high and reduce the quality over time. As in the example of the latex gloves, when there are a small number of suppliers of healthcare services, the incentive for those providers to reduce their costs (by the natural effect of competition) is reduced, in relation to what it would be if there were several suppliers involved. The incentive for these service providers to be efficient and to increase the quality of the healthcare that they provide is also reduced.

Many suppliers leads to more competition, which leads to lower customer prices, which leads to better quality of service and increased efficiency.

Please comment.