Sunday, August 10, 2014

A Compact Insight

The esteemed CDR M at Ace of Spades' place presents us with a revealing photo and a very insightful assessment. First, the photo, of a restaurant receipt issued in Minnesota:

Now for the enveloping story:

A small cafe in Stillwater has thrown itself into the big battle over Minnesota’s minimum wage increases, inundating the cafe with dozens of phone calls and online comments this week after it tacked on a 35-cent fee to meal tabs.

Oasis Cafe owner Craig Beemer said the fee is needed to offset the 75-cent wage hike that took effect Aug. 1, the first time Minnesota’s minimum wage has increased in a decade. Even with only half a dozen servers, Beemer says it will cost him $10,000 more a year to pay servers $8 an hour instead of the federal rate of $7.25 an hour. Instead of adding it on to food prices, he added the “minimum wage fee” — the only restaurant known to do so in Minnesota so far.... “We believe that the industry is overreacting,” Wade Luneburg of the MN State Council of UNITE HERE Unions told the Star Tribune this week. “Putting [minimum wage] fees on tickets and passing the cost on to consumers directly is strange at best, and creates an ‘us against them’ mentality while ordering dinner.”

Finally, CDR M's highly valuable insight:

Democrats do hate people knowing what they're paying for and why.

Ponder that for a moment.

When you know what you're paying for and why, and you receive the good or service into your own hands, you're capable of making the most important decisions in the marketplace:

  • Is this what I need or want?
  • Is it of the quality I seek?
  • Is it worth what I've been asked to pay for it?

Normal, "dyadic" or two-party transactions, in which a seller and a buyer exchange goods for money without the intervention of some third party, enable the buyer to answer those questions without deflection or distortion. However, when the State gets into the act with laws that compel or constrain something about the transaction, the matter becomes murky. This is particularly the case with minimum-price laws -- and a minimum-wage law is exactly that.

Milton Friedman was especially candid about it in his book Free To Choose: "Economists may not know much, but we do know how to create shortages and surpluses." The brief disquisition that follows on maximum and minimum price laws is more illuminating than the entire text of the Congressional Record.

When the labor market is unencumbered legally, a "market-clearing" equilibrium is swiftly established, in which the entire stock of persons willing to do that labor for the prevailing wage is employed by employers who want the work performed and are willing to pay the market wage for it. Let's imagine that the equilibrium results in 100 persons employed as waiters and waitresses at the prevailing wage. Other things being kept equal, were the wage to increase, then more persons would be willing to work at those jobs; were it to decrease, fewer persons would seek such employment.

Conversely, employers will only pay a certain wage for a certain job if it's consonant with their own objectives: i.e., their ability to stay in business at an acceptable level of profit. A free market causes the prevailing wage level for a job to settle at a level determined by the stock of willing workers and the ability of employers to profit from their labor at that level. As bloodless as it sounds, it's merely what arises from enterprise in a free market.

A minimum-wage law for a particular category of labor increases the number of persons who will seek that wage, while it reduces the number who will pay it for that labor. Thus, the "market-clearing" equilibrium that had existed before the minimum-wage law is ripped asunder, leaving:

  • A surplus of persons willing to perform that labor;
  • A shortage of persons willing to pay to have it performed.

What's most poignant about the situation is that it literally creates unemployment, for while the number of persons willing to do those jobs will be greater than the previous number -- say, 110 rather than 100 -- the number employers are willing to hire at the new, legally-mandated wage level will be fewer: no longer 100, but 90. Thus, the law will result in the dismissal of previously employed persons.

Surpluses and shortages are always about a particular price level: what the buyer must pony up for the thing being offered versus what the seller will accept for it. The buyer's readiness, willingness, and ability to pay that price is what determines how much of it he'll buy. The most basic of economic truths tells us that as the price increases, all three of those things will decrease. There's no escape.

And all that is before we introduce yet another factor: those times when the buyer is only purchasing the good or service indirectly, as part of a package whose parts he cannot separate or discriminate.

In a "bundled" purchase, where the parts cannot be purchased separately, the buyer might well be either indifferent to one or more components or actively hostile to them. In the former, more benign case, the component may be seen as a transaction cost, without accepting which the larger transaction cannot occur. This is definitely the case with table service. No one goes out to eat specifically to enjoy the attentions of a waiter.

Thus, when the cost of dining out rises because of an increase in waiters' wages, the ultimate purchaser -- the restaurant patron -- can easily be misled. He might not be aware that the increase derives from that source. If it's sufficiently large, it will discourage him from returning, to the detriment of the restaurateur and all his employees, the more highly compensated waiter included. Yet another route by which a supposedly benevolent law gives rise to exactly the opposite of its supposed intentions! But should the restaurant go out of business from the loss of patronage, who will be blamed?

Hint: It's seldom the proponents of the "supposedly benevolent law."

Craig Beemer is doing his patrons an unusual service by telling them explicitly where the increase in their restaurant charges is coming from. He cannot unbundle table service; it's an unavoidable cost in the restaurant business, "cafeteria-style" restaurants excepted. He must either allow it to reduce his profits or pass the cost along to his patrons. The former case might reduce his willingness to operate his cafe below the threshold of a positive decision, if not drive him out of business entirely. The proponents of the minimum-wage increase are undoubtedly furious about Beemer's decision to disclose his increased expense so candidly. As CDR M has already noted, they don't want you to know what you're paying for, or why: a key motivation behind ObamaCare and much else. To the extent that you're aware, you'll place the blame where it belongs: the ultimate statist's nightmare.

Let's give them more such nightmares. Many more.


emdfl said...

"...create an us against them..."??? It is to laugh; as if TWANLOC haven't been doing that for years, Especially scum like Luneburg.

Anonymous said...