Friday, July 24, 2009

Ever heard of the "Law of Unintended Consequences"?

Sure, we all know what the "Law of Unintended Consequences" is--an action is taken that causes reactions that the instigator did not foresee. Usually this is because the instigator is a myopic idiot with the cognitive abilities of a garden slug.

{Cue the US Congress and the latest minimum wage increase.}

The headline in the Charlotte Observer reads "Minimum-wage boost has mixed benefits". This is funny in itself, because the article simply chronicles the inevitable outcome of government meddling in the marketplace--and if any of these are "benefits", well, Sparky, you have some seriously skewed values.

At Bojangles' restaurants operated by the company's largest franchise, a chicken biscuit costs a little more these days. So does the sweet tea.

Those higher prices are because the people behind the counter are getting paid a little more.

Funny how businesses pass along increased costs to the consumers. Gee, they're so greedy--they don't want to help the poor-and-starvin'. Or maybe they do, by avoiding joining their ranks.

“We're already experiencing a decrease in sales because of the economy,” said Tommy Haddock, president of Tri-Arc Food Systems, the largest franchise of Charlotte-based Bojangles' system, with locations from the Triangle to southern Virginia. “When you have an increase in costs with a decrease in sales, it's a double whammy.”

Annual expenses at Tri-Arc, which employs about 2,100 at 40 restaurants, will rise by $1.2 million because of the new minimum wage, Haddock said. The company raised prices by about 3 percent across the board to help offset, though not completely cover, the higher expense.

So because a bunch of Congresscritters wanted to feel good about "doing something to help the poor" (along with pandering for their votes), Bojangles customers, many of whom face economic problems of their own, get to pay 3% more for a meal.

Personally I think Tri-Arc is crazy. I'd have raised prices enough to cover the entire increase.

The Economic Policy Institute, a liberal-leaning think tank in Washington, predicts that today's increase will generate $5.5 billion in additional consumer spending during the next 12 months.

I suppose that's going to happen, but I also suspect that it won't be as much as that, as some folks are simply priced out of buying as much. Of course, those that loose their jobs will spend even less...

Meanwhile, David Neumark, a professor at the University of California at Irvine, predicts that the wage increase will kill 300,000 jobs held by young workers.

As a father of teenagers, I can tell you that jobs for them are difficult to come by for a number of reasons. This isn't going to improve things.

The article goes on, but the upshot is this--the economy is bad, people aren't spending like they used to (which I view as a good thing), jobs are hard to find, and this is causing prices to go up, which will lead to less spending, which leads to fewer jobs, which will lead to even less spending and so on. Eventually the loop runs out, but how far down the road?

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