US Economy Fixes 1

Income inequality is one of the concerns of the liberal US government. It is true that there is a widening gap between the rich and poor and it is also true that Barack Obama really wants to tackle this problem. I am somewhat confused as to why the government only blames the conservative capitalists and not itself in causing the income inequality. The US government has helped make the few rich in many countries the world over, including the US.

One solution the liberals suggest in solving income inequality is raising the minimum wage. You can raise the minimum wage all you want, but that'll only decrease the income inequality by very little. Let's say that we make the minimum wage $15 an hour. Waiters and waitresses typically make $3.00 an hour plus tips. So no tips for waiters, hairdressers etc. At $15 an hour, you can say goodbye to any international expansion plans for discount businesses like Walmart, McDonalds, Costco. These businesses will still be searching for places with the lowest costs, but their human resource costs will go up. Add to the new minimum wage, the new healthcare costs. The price of hamburgers and discount goods will go up. A hamburger may be priced at $12 instead of $6. Employers will use less employees so more people will be unemployed. All employees will probably become part-time employees because of the concerns about the new healthcare laws. Small businesses, which have been disappearing over time, will not really be able to compete because of their small margins.

Michael Porter, in competitive advantage, outlines the economic forces that shape an industry. Michael Porter assumes that everything is microeconomics, that we really do not need the government. However, in an age in which most of our cheap supplies come from China, Vietnam, and India, we really cannot divorce politics from economics as easily. There was supply side economics which dumped government money on manufacteuring businesses which were dying like sinking ships. Supply side economics did not work. Unique well-differentiated products with premium price tags can bring back manufacteuring at good wages, but even these places are not paying $15.00 an hour.

I suppose, in the end, the $15 an hour wage may convince China, India, and Vietnam to try to control the value chain. Costs of cheap supplies will definitely rise and China may once again invest in natural resources to corner the market on items that are used to make bottles, etc. Also, they will definitely consider opening their own stores in the US instead of selling to Walmart, Costco, Target, etc. So the US would have given the discount market to Asia for possibly higher wage jobs in Asia which is a rotten deal. Meanwhile in the US, the cost of food, the cost of apartments will go up... we will become more like Europe I suppose. Actually, I want to make a point here. Anything the US government or the top economists in America suggest is a zero sum game. They are just tweaking the peripheries of the economic system. The more things change, the more things remain the same.