In today’s current economic state in the U.S., a few key elements are in dire need of discussion. Unfortunately, one only has to peruse click-bait pages like Bored Panda, Buzzfeed, and Texts From Last Night to see that a large segment of the population, especially among the younger generations, that some basic economic principles are grossly misunderstood or ignored. The disconnect primarily revolves around housing, minimum wage, supply versus demand, labor, and government regulation and how they relate to cost, availability, and value.
Yet, all of these elements are interconnected, and how they influence one another and impact one has second and third-order effects on the economy, society, and even culture. This article will provide a basic breakdown of some common misconceptions and hopefully mitigate some emotionally charged arguments driving many progressive narratives and political agendas. Some of the article’s points will seem redundant or repetitive, but it will demonstrate the interconnection and correlations between the different topics.
Housing and Rent
There is a common misconception that landlords are greedy land barons only out to make a dollar at the expense of the average citizen. On the contrary, most landlords in the U.S. are themselves middle-class Americans trying to supplement their income with an investment. The eviction moratoriums and rental freezes resulting from Covid-19 response government mandates hit these property owners hard, and there was little to no relief provided. Many of these landlords use the rent they collect to pay the mortgages on their rental properties, and nonpayment puts them in precarious financial situations without adequate relief or reimbursement. Landlords are providing a service – housing – and they expect appropriate compensation like any other service provider. One would not expect a grocery store to provide food free of charge because of nationwide economic hardship and unemployment. Similarly, tenants should pay rent regardless of the state of the nation’s economy and employment. Additionally, by this standard, if the government is suspending rental payments, they too should have suspended mortgage payments, not that this article advocates for that for many reasons.
Many people characterize evictions as villainous or malicious acts. However, this mentality is emotionally stunted and intellectually dishonest. Evictions primarily result from a breach of contract by the tenant, generally for nonpayment of rent or associated fees. Renters enter into a contractual agreement with the property owner, which establishes monthly dues for rent, possibly utilities, late fines, deposits, pets, lease length, and due dates. Similarly, landlords have no obligation to renew leases and can terminate the agreement at the end of the established term regardless of the tenants’ desire to stay. Nonrenewal of leases typically results from tumultuous relationships with tenants (damage to property, habitual late payment, and issues with neighbors, for example) or the sale of the property. None of these conditions equate to villainy by landlords, and people should not perpetuate this characterization or retribution, especially when the renter is more often than not the party at fault.
Another important topic to discuss is housing and rental costs. These costs are almost always market-driven and out of the hands of the seller or landlord. Availability of housing will cause an increase in market price: supply and demand. If there is less of something, it holds a higher value, regardless of the product. Limited availability is often associated with population booms. For example, Colorado saw a massive influx of new residents after legalizing recreational marijuana and the exponentially increasing cost of living in California. As a result, housing prices dramatically increased throughout the state, but particularly in urban centers. Availability and market value similarly influence rental costs, and landlords will raise the rent for their properties to reflect supply and demand. Rent control, especially those imposed by the government, ignores supply and demand and can cause significant damage to the housing and rental markets by disincentivizing both. Once again, this is not greed or malfeasance but fiscal common sense, but this article will delve more into supply and demand in a later section.
Minimum Wage and Labor Value
Minimum wage is a very contentious topic and the source of many heated ideological battles. The government imposed minimum wage standards to mitigate exploitative labor practices by unscrupulous employers, but there are some critical elements in understanding minimum wage that seemingly eludes many people. First, the minimum wage is often associated with entry-level positions, not necessarily intended to support the current cost of living. Second, it is reflective of minimum skilled jobs with a large candidate pool. The latter is the focus of this section, but the article will touch on the former later.
As the previous section briefly discussed, supply and demand dictate the market value, even labor. If one hundred people can do a job with twenty positions, then each station holds less worth. If there are suddenly 1000 candidates for those twenty jobs, each potential workers’ marketability decreases at least tenfold. Thus, population booms in urban centers, like in the Colorado example, lower the marketability of minimum-wage laborers. Similarly, the mass importation of low-skilled workers has further diluted the job market for minimum wage positions and further stagnated minimum wage increases. A related subtopic is the value of the service provided and the investment in the associated skill. To put it in lay terms, a doctor earns more than a Walmart cashier because the former has spent years and significant personal cost in time and money developing the skills necessary to practice medicine. Conversely, an employer can train anyone to be a cashier with little cost in time and money.
The final aspect of the minimum wage dispute is overhead, operating costs, and profit margins. Raising the minimum wage without offsetting other expenditures or expenses cuts into profits, which businesses and small business owners use to fund expansion or product development/improvements. Similarly, operating costs have not gone down, and current inflation makes raising wages without passing the increased costs on to the client or consumer an unrealistic expectation. For example, when Seattle first initiated its fifteen-dollar minimum wage requirements (per-Covid), many restaurants cut their labor force in half to offset the costs. Many also added an eighteen percent service fee to the final bill to supplement the decreased service availability, such as the popular waterfront seafood restaurant “Cutters” (see below photograph).
Many businesses, particularly restaurants, operate with very narrow profit margins. As the government-mandated Covid closures and current supply chain issues demonstrate, the slightest increases in costs can cause a company to fail. Not paying a “living wage” or increasing the minimum wage is not because business owners or companies are evil, greedy, and malicious (like the previously discussed landlords) and do not care about their employees. Instead, they are simply practicing sound business management techniques and fiscally responsible strategies to ensure their company succeeds and can grow.
Supply Chains, Operating Costs, and Cost of Living
This section covers some very diverse economic principles, but all are closely interconnected and significantly impact one another. For a perfect example, the government and private sector responses to the Covid-19 pandemic have demonstrated the vulnerabilities in the global supply chain and how market prices of everyday goods have skyrocketed due to these poor decisions. However, these challenges do not indicate the failure of free-market economies or capitalism, as some economic illiterates would like to claim. On the contrary, they demonstrate how government interference and over-regulation cause inflation and increases in the cost of living.
Supply and demand are at the center of this principle. If there is less of something highly desired, it holds higher value, as discussed above. On the other hand, if there is an ample supply of something and not much demand, its value decreases. Similarly, if there is a limited supply of certain items or items with limited use, they too have diminished value save to those who desire it. For example, if an unusual cold snap across the southern U.S. decimates the orange groves, oranges will cost more. Still, the oranges will be cheaper if favorable environmental conditions the following year produce a larger yield. In the latter case, a tool designed for a particular job will not sell often, so it will generally need to be specially ordered or in short supply but will also be more expensive than the more common tools.
Covid restrictions placed a considerable burden on both supply and demand. With restaurants closed or operating in limited capacities, there was less demand for agricultural and other commercial cooking goods, reducing production. Production and processing facilities also faced Covid restrictions and closures that similarly reduced the volume of products made or distributed. Finally, because fewer products needed distribution, many shipping and transportation vendors had to downsize their operations significantly. As the country began to reduce the restrictions on communities, the need and desire for goods rapidly increased and often outpaced production or distribution. The labor shortages caused by the questionable characterization of essential and nonessential jobs or industries and the subsequent unemployment benefits and enhancements further exacerbated the supply chain and production issues and market volatility. These impacts manifest in restaurants being short-staffed and still limiting capacity, empty shelves in supermarkets and items on backorder, and flotillas of cargo ships off both U.S. coasts.
Supply chain issues translate to increased operating costs and are often self-perpetuating towards economic downfall. One example is that employers have to incentivize candidates to apply by paying above the market average, which cuts into the company’s overhead. However, without an adequate labor force, the business will struggle to remain in operation. Similarly, Reduced or backlogged production and distribution also means companies cannot provide enough products to consumers to turn a profit or, in some cases, even remain in business. The only way for businesses to offset the increased operating costs is to raise the prices for their goods and services. These prices increase,s in turn, raise the cost of living for the average consumer. Again, when the price of everyday goods – gas, milk, meat, bread – dramatically increases, and wages stagnate, people buy less and do not insert the much-needed capital into the economy. Similarly, artificially inserting money into the economy to stimulate it only devalues the currency and overall buying power, especially within the global economy. The same is often true of stimulus checks and corporate bailouts because the capital does not get spent on the root causes of the economic woes, only the second and third-order effects.
One final note in this section that bears mentioning is “price gouging” – dramatically raising prices on items, particularly during all-hazard events and disasters, as it directly ties to supply and demand and logistical challenges. People primarily characterize price gouging as immoral, unethical, exploitative, and unscrupulous, to name a few tamer adjectives associated with the practice. However, the rapid price increase of highly desired goods serves two essential purposes, especially in disaster scenarios. First, it encourages rationing within the community. If items like water are more expensive than usual, individuals will buy less, making it available to more people. Second, times and events that encourage price gouging are incredibly disruptive to the supply chain and product distribution. The imposed rationing allows businesses to recoup some of the losses they will incur during that time to have the capital to recover afterward once things start returning to normal. Unfortunately, emotion all too often is the driving force behind the vilifying of price gouging, and people lose sight of the recovery component, sacrificing the long-term benefits over short-term blind altruism.
In closing, economics is a complex science that many different macro and micro variables can influence results. The article sought only to briefly cover some of the more basic misconceptions currently touted across social media and political pulpits. A few of the key takeaways from the writing is that landlords and employers are not greedy barons out to oppress the everyday person, people do not have a right to the goods or services of others, and government intervention or regulation rarely improves the situation. Those are, of course, a gross oversimplification of much more complicated subjects that the article did not even thoroughly discuss. However, the brevity does illustrate just how intellectually dishonest, obfuscating, and disingenuous many of the progressive click-bait articles and political punditry are on the subject.
Ben Varlese is a former U.S. Army Mountain Infantry Platoon Sergeant and served in domestic and overseas roles from 2001-2018, including, from 2003-2005, as a sniper section leader. Besides his military service, Ben worked on the U.S. Ambassador to Iraq’s protective security detail in various roles, and since 2018, he has also provided security consulting services for public and private sectors, including tactical training, physical and information security, executive protection, protective intelligence, risk management, insider threat mitigation, and anti-terrorism. He earned a B.A. and an M.A. in Intelligence Studies from American Military University, a graduate certificate in Cyber Security from Colorado State University and is currently in his second year of AMU’s Doctorate of Global Security program.
© 2023 The Havok Journal