To President Obama and OWS:
Income disparity in a nutshell:
1. When the cost of running/starting a business increases, fewer businesses remain/are started.
2. With fewer businesses, there is less overall demand for employees.
3 With less demand for employees, employees income declines.
4. With fewer businesses, existing businesses face less competition.
5. Less competition means that remaining businesses can raise their prices.
6. Higher prices and lower wages mean more profits for the owners of remaining businesses.
7. Lower wages to employees and higher profits for owners means increased income disparity.
Now let's reverse the process:
1. When the cost of running/starting a business decreases, more businesses remain/are started.
2. With more businesses, there is more overall demand for employees.
3 With more demand for employees, employees income rises.
4. With more businesses, remaining businesses face more competition.
5. More competition means that remaining businesses must lower their prices.
6. Lower prices and higher wages mean less profits for the owners of remaining businesses.
7. Higher wages to employees and lower profits for owners means reduced income disparity.
So, the net-net is that anything that increases the cost of running/starting a business (say Obamacare, 10 years of wars,...etc.) increases income disparity and increases prices and anything that reduces the cost of running/starting a business will reduce income disparity and reduce prices. With that in mind, it should be noted that practically everything the Occupy Wall Street crowd and our President would like to impose on the rest of us would increase the cost of running/starting a business so much that income disparity in the United States would eventually be expected to resemble that of the Soviet Union and Communist China, where party bosses lived like Kings and the rest like serfs. [Granted, with the huge income disparity already seen in America, that may not seem like much of a change but at least no one is standing in line for toilet paper yet.]
If only our "leaders" had any working sense of economics. Nice job RM.
ReplyDeleteYour use of the KISS method to explain Income Disparity is outstanding.
ReplyDeleteToo bad most of today's college grads still wouldn't get it.
I agree in principle. I live in Ontario (in Canada) and we have what we call OHIP (Ontario Health Insurance Plan). It is flawed in many ways and fantastic in others, but one of the relatively unmentioned and under recognized advantages is that is reduces the healthcare burden of the employer, so it effectively reduces the cost of running a business. Now one can quibble with the numbers, and arguments, persuasive and otherwise, can be made in both directions, but it has given the province's manufacturing sector what can only be considered an unfair advantage over our competition to the south. So to just say Obamacare raises the cost of running a business is a bit disingenuous in that if it meets its desired goals (granted, unlikely) it will actually reduce the employers' healthcare obligations.
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