Tuesday, December 23, 2014

Minimum wage...

Say no to the minimum wage hike
by Sovereign Society

When last we left America’s disgruntled fast-food army, the foot soldiers in the burger and chicken wars were angling for $15 an hour — a fair wage, they reasoned, in the world’s (supposedly) wealthiest country. They simply cannot live on $7.25 an hour, the current minimum wage.

So early this month they staged — yet again — another show of frustration by going on strike in 150 cities, protesting to raise the minimum wage. What they lack in economic understanding, they certainly make up for in gumption and perseverance.

But they — and those who support the raise — should be very wary of the effects of a minimum wage increase. To wit, we return to Switzerland.

I was in Zurich the week before Thanksgiving and found myself peckish while walking around the city. I popped into a sidewalk burger joint popular with students and ordered a burger, fries and Coke Zero.

To be clear, this was not a gourmet burger. This was not even a casual-restaurant burger, a la Chili’s or Applebee’s. This was the equivalent of a McDonald’s quarter pounder, cooked on the same type of flattop griddle, served in a place where you stand and eat quickly before moving on.

It was simply, your basic burger.

And it cost the equivalent of $23.80 — for a basic burger, some fries and a Coke Zero in a plastic bottle, no ice.

A few days later, over a pricey fondue with my friend Rob Vrijhof, a Swiss money manager, I asked why such a basic meal should cost nearly $25. I suspected I knew the answer (local wages), and Vrijhof confirmed my suspicion.

Switzerland doesn’t have a minimum wage law, but “what is a minimum wage here gets you to almost 50,000 francs a year [$52,000],” Vrijhof told me between bites of country bread dipped into bubbling cheese. “That’s for the guy who’s mopping the floor at Migros [a local supermarket chain]. So that tells you what educated employees are earning.”

Vrijhof’s daughter is 19. And as soon as she graduates her apprenticeship program, she’ll be working in a local bank earning well in excess of $100,000 a year — at 19!

Fast-food America will look at hourly wages in Switzerland that routinely run toward $25 and argue that it’s criminal for America to pay its minimum-wage workers so meagerly. But, as they say, reality bites. And in this case, it has the potential to bite all of America quite hard if fast-food workers and their supporters win the day.
Trickle-up economics

The guy who made my burger in Zurich would effectively need to work one hour (at $25 per) to afford the burger, fries and soft drink that I bought that afternoon.

And, ironically, the burger-flipper in America who today earns $7.25 would need to work basically the same hour to afford a McDonald’s Quarter Pounder with cheese meal, mimicking what I ate.

This is a crucial comparison, because I routinely read and hear supporters of a radically higher minimum wage comparing U.S. pay to other advanced nations that pay more. But those facts are always presented in a vacuum. Wage increases do not happen without having a commensurate knock-on effect, meaning a tendency toward rising prices. It’s a basic economic fact: A larger sum of money floating around the system will see more money chasing a relatively unchanged amount of goods — and that’s inflation.

Talking heads these days exclaim that states that raised their minimum wage in recent years have not seen inflation and, therefore, rising wages clearly don’t lead to inflation. Way too premature, dudes — and way too small beer. Wait until larger incomes are impacting the economy at a national level, and give the money time to flow through the worker’s pocketbooks, maybe a few years. Then come talk to me.

A minimum wage of $15 an hour will put upward pressure on salaries all the way into the middle class, as it has done in Switzerland. It’s simple street smarts. If I’m a shift-manager earning $15 an hour to manage burger flippers earning $7.25, what do you think I’m going to do when my underling is now making my salary? And what about the store manager who suddenly finds her shift managers are all making her salary? It’s trickle-up economics. And it will, without question, put upward pressure on prices for things all of us buy in America — like hamburger meals.

So fight on, my fast-food buddies. But understand your victory will be pyrrhic, at best. Should you win a higher wage, you will one day soon enough find that the $7 you pay for a burger meal today will be $15 tomorrow — and you will be back in the same box you so loathe now.

Even the Swiss realize that high wages are a root cause of the excessive costs in their country. This past spring, they overwhelmingly voted “No” to setting what would have been the world’s highest minimum wage.

The one salvation for the rest of us: Own gold and silver. Wage pressures will undoubtedly unlock inflation pressures, and gold and silver are your insurance policy to protect your lifestyle when the dollar suddenly drops in rank among the global currencies.

Until next time, stay Sovereign …


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