For every action, there are equal and OPPOSITE reactions. That law not only applies to physics, but economics as well. People and businesses are constantly adjusting to new economic conditions. When the wages are FORCED up, companies have to scale back in various ways (two of which are illustrated herein). So customers find themselves paying MORE for less, and many employees who were excited about the prospect of a forced wage increase find themselves unemployed. What happens next? Lets extrapolate this out further... The greedy politicians who are buying votes with their benevolent actions on behalf of underpaid citizens have just increased BOTH unemployment and the cost of living within their jurisdictions. This means that people will be buying fewer products because they cost more than before. This means reduced sales, which causes reduced revenues, which often lead to more layoffs. Of course, the unemployed are certainly buying LESS too. This then increases unemployment claims and other social safety-net costs for that governments jurisdiction. So their expenses go UP. However, the tax revenues are based upon company profits. So their revenues are going DOWN. To make up for the reduction in tax revenues, the local government will either borrow or raise taxes. Typically, both will happen because they need the money right away AND have to pay the coupon payments on the bonds (debt securities) that they have sold to cover those shortfalls. This burdens the businesses, property owners, and even local consumers (e.g., through more price hikes and even increased sales tax rates). So, people and businesses MOVE to places that have lower costs of living and doing business, which again exacerbates the problems created by the initial benevolent FORCED minimum wage increases. Thus, a vicious cycle has begun that will only get WORSE for the localities who were this stupid. Interestingly, other localities (e.g., Texas right now as a state, and four of its major metropolitan areas in particular; Dallas/Fort Worth, Austin, Houston, and San Antonio) get INFLUXES of businesses AND home-buying people as smart money seeks places with intelligent tax laws and other favorable conditions. Maybe that is why Texas is the #1 fastest growing economy right now...and why four of its major cities (just names) are listed among Forbes Twenty Fastest Growing Cities in America. So we here in Texas THANK the economically-ignorant politicians in those states for fueling our economic growth even further. ;)
Posted on: Sat, 16 Aug 2014 00:04:01 +0000