Monday, February 01, 2010

More Libertard nonsense

One thing I love about hard-core Glibertarians is that they're economic morons who spew the most ridiculous nonsense as if it was Gospel handed down from upon Mount Hayek when it becomes quickly obvious, reading the nonsense they spew, that they would fail miserably if asked to run a lemonade stand much less a real business. Take, for example, Glibertarian Lew Rockwell's recent spew that the reason there's unemployment is because workers refuse to lower their wages to the point where businesses will hire them. That is, ole' Clueless Lew is saying that I, a small businessman, will hire someone just because he's cheap!

My take on this is that a large number of Glibertarians, like a large number of economists, a) have never run a business before, b) have no idea how business works, and c) would be absolutely appalled about the difference between how things work in actual, real life reality, as vs. in their ivory tower constructs. Clueless Lew says I will hire someone if he makes his wage cheap enough. Uhm, no. As a businessman, my job is to make the maximum profit possible. I do that by keeping my overhead costs as low as possible. I hire the minimum number of workers needed to meet my businesses' demand, and not one more, regardless of how cheap my workers are. Whether they are hired on for $1.00 per day or $100 per hour, I still need three workers in my sandwich shop to get the sandwich made and presented to the customer. The only wage that counts to me as a sandwich shop owner is the wage that my competitor pays to his worker, if my wage base is higher than his wage base then my prices will need to be higher than his to maximize profits and I'll thus lose market share to him. But if we're both paying $1.00 per day or $100 per hour, whichever is required or allowed by law, then there isn't going to be any hiring or firing done, just general inflation and deflation in the economy (and redistribution from affluent to service workers in the case of the latter) which does not in general change demand for my sandwiches.

That's the reality of me as a small businessman. But ole' Clueless Lew and 9 out of 10 "Chicago economists" would glare at me, appalled, and say "That can't be! As labor gets cheaper you'll hire more people to make your sandwiches!" At which point I roll my eyes and say, "Why? I'm a business, not a charity, I hire the fewest people needed to meet demand and not one more, otherwise I couldn't compete with the sandwich shop down the block who operates in that manner!" It's funny how people who claim to support capitalism just don't seem to have the foggiest idea how it actually operates down in the trenches!

-- Badtux the Capitalist Penguin


  1. To say nothing of how their "hire 'em cheap" stupidity leads to the point of "if nobody has any money to buy stuff because their wages are so low, they'll eat crap they drug outta the Dumpster instead of buying my sandwiches." Which is why those gainfully employed Chinese wageslaves aren't buying the plastic Barbie dolls and other junk they make for us...

  2. and will hire them as cheap as possible to up your profit as much as possible while raising prices as high as possible.

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  4. Purple, you have no -- zero -- clue how a fast food restaurant works. We don't hire full time employees. Period. The only full time employee is the owner. Everybody else is an hourly employee, typically scheduled for 20 hours a week and called in for extra hours if someone leaves or there is a spike in demand (or sent home early if demand doesn't merit them being there). As demand goes up, I add more hours, until I have 20 extra hours spread amongst my eight workers and hire another worker and take those 20 hours away from the eight. In other words, my increment is hours, not bodies. My sandwich shop operates on a thin margin, and I keep a close eye on my hours and keep them as thin as possible. If I don't do that, my competitor across the street who DOES keep an eye on his wages and keeps them as thin as possible will be able to out-compete me and will drive me out of business. That's capitalism. It has no place for the sort of sloppiness you hypothesize.

    And you are correct that wages are important, but wages are important RELATIVE TO MY COMPETITOR ACROSS THE STREET. The absolute magnitude is unimportant to me. If the law says I can pay 1c per hour and I can find 8 workers who will work for 1c per hour, I will do that, because if I don't my competitor will and he will run me out of business. If the law says I must pay $10 per hour, I will *still* have 8 workers because relative to the surrounding restaurants my prices will be the same, and demand won't fall because I'll still be able to price my sandwiches at a price that my customers can afford (that is, within limits, demand for my product is inelastic and is set by the number of people working in the surrounding office buildings and by the quality of my product). Either way I will be keeping my man-hours as low as possible, because that's the difference between profit and going out of business in a small business.

    That's capitalism. It's a cut-throat business, but it is what it is. At the bottom of the barrel small businesses like I mention, wages are almost irrelevant for determining how many people get hired. The demand for sandwiches is pretty much a constant regardless of whether I'm paying $10 per hour for my workers or 1c per hour for my workers and thus the pay rate of my workers has no -- zero -- bearing on how many people I hire. I hire the minimum people needed to get those sandwiches out the door or I go out of business because the shop across the street out-competes me. That's just how it is. Capitalism. It's not only a good idea, but it's how things work here in the U S of A.

    - Badtux the Capitalist Penguin

  5. I'm about as far as you can get from an economist, but:

    1) It seems to me that this argument--both sides--is predicated on a labor surplus. I remember well, back in the heady late 90s driving across the country (from Santa Fe to Boston) and seeing everywhere--and that's a lot of wheres, 2500+ miles worth--signs for Wendy's &c begging for employees starting around $10/hour. Now, at that point anyone with a pulse and 10 minutes of computer experience had a tech job of some kind [except me, I'm a genius and wanted to go to grad school *in the fine arts*] so minimum-wage jobs were being offered for far more than the federally mandated minimum.

    So if you need(ed) warm bodies to staff your sandwich shop, you had to pay the going rate. Clearly that is not the case now, but-

    2) It Also seems to me that this argument is directed at the lowest-wage job sector. Anyone who has any interest in keeping employees for longer than "until they stop showing up" puts a premium on good help. Even in the theoretical sandwich shop it'll end up cheaper in the long (or even medium) run having competent people who do their jobs on time, and so forth.

    Good service, and, perhaps, a better-made sandwich are ways other than just pricing to compete with the falafel cart (or whatever) across the street.

    Transferring this to any position which requires a modicum of specialized skills adds another layer of complexity, as the labor pool is smaller and will demand better pay.

    Also, Bukko is right about being able to buy what you produce.

    Good post, 'Tux. Keep 'em coming.

    Ah--perhaps we need to lower the pay of congresscritters to the point that only people *interested in governance* will apply.

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  7. Purple -

    Did you strategize worker hours to keep them below whatever the "full time" limit is, so they wouldn't have to be paid benefits?

    I don't recall BT ever saying wages have no bearing on employment or the ability to hire. So, if you're going to argue, please argue against what was said, not some mental construct of your own design.

    Maybe you didn't notice this:
    "And you are correct that wages are important . . ."

    And to say this:
    "To pretend that wages have no bearing on when you're able to hire someone is just plain naive"
    illustrates that, at the very least, you're either not paying attention, or are incapable of comprehending the argument.

    In fact BT talks at some length about what really drives a hiring decision.

    My take: Payroll cost per employee, in and of itself, drives nothing. You'll hire if you expect the new employee will generate more income than you pay him, over some time frame you're considering. Otherwise, you won't.

    This is true whether your new hire is a sub-minimum wage part-time floor sweeper or a $150,000 per year research scientist.

    Sure a lot goes into that business decision. But there is only one driver: the desire to make more profit.

    "I know this firsthand, because I've helped an owner crunch the numbers to see if additional help could be hired yet or if we had to wait for more of an uptick before she could afford to do so."

    See. I know you understand this.

    "But then again...maybe that owner was just another 'tard like all the other people who don't agree with ya, eh?

    No. A 'tard is someone who can't stay on topic or construct a rational argument.


  8. Purple, my experience was 20 years ago, with pizza restaurants, but the reality stays the same. There are times when lack of access to capital can cause you to restrict supply (created by the number of people you hire) below demand because the incremental cost of hiring another person to meet that incremental increase in demand outweighs the income you'd get from fulfilling that incremental increase in demand in a more timely manner, but if there is no demand for your product because the economy is down and people are out of work, you don't hire *regardless* of how cheap your labor is. If you have four people, and four people are all it takes to meet the demand for pizza or sandwiches or whatever, you don't hire a 5th person even if you could hire him for $1 a day.

    You keep dancing off all around the fringes and failing to see my point, which is that unless there is demand to justify hiring another employee, there will be no hiring regardless of how cheap that new employee would be.

    - Badtux the Back-to-basics Penguin

  9. Human subsistence sets a minimum wage. The Brits used to call this the Iron Law of Wages: If wages go down beyond a certain point, the working class experiences population loss (from illness, usually, aggravated by malnutrition and more-than-usual squalor). If wages go up enough, the working class population goes up (less infant mortality, plus the reverse of the above). In the very long run, working class wages tend toward the price that keeps the workers' population stable (or, more properly, in line with growth in labor demand).

    America has been unusually labor-poor for the past few centuries, so the Iron Law hasn't been so relevant on this side of the pond. When Keynes said that in the long run we are all dead, I doubt he meant it that literally. But the working class population in America has been expanding for centuries, and exponential growth always hits a limit somewhere.

  10. Thanks for that, Jay. I have made that point before, but not recently (and not, I believe, on this blog), and shall remedy that shortly.


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