If you’ve ever seen a nature program on TV, undoubtedly you’ve seen how the secondary predators, like jackals, hyenas, and baboons bring down their prey differently than the larger predators, namely that one crushing death bite to the throat. Rather, they slowly wear down their prey until the whole pack is able to descend upon the poor creature and devour it alive. In a grotesque duo, the jackals and hyenas often team up to distract the lion or other larger predator by nipping at their heels. At each attack from the scavengers, the lion loses more and more ground until his hard earned game is absconded by the scavengers. Although this illustration may seem a might grim, it does describe how the average wage earner is losing ground in the new norm of this “post-Keynesian” age.
Consider Total Costs
Economist Mark Warshawsky has published a working paper titled, “Earnings Inequality, The Implications of the Rapidly Rising Cost of Employer-Provided Health Insurance“, at the Mercatus Center website. He describes how total compensation, not just take-home pay should be taken into account when deciding on matters of income inequality. In the paper, he shows how health insurance costs have risen significantly in just the last 15 years and have outpaced all other employee costs. This added cost has had an effect on wages as a result.
When an employer considers hiring a new employee total costs, not just wages, are taken into account. Pundits, politicians, and the plebiscite, what I call the deadly three Ps, constantly bemoan a higher minimum wage, a living wage, or even a universal basic income. They believe by arbitrarily raising the wages of the bottom rung of the wage ladder that all wages will increase, without any negative consequences. Any first-year economics student can easily demonstrate how this is not true. In actuality, something known as the Marginal Productive Value (MPV) is considered. That is, how much additional productive value can this new employee add to the total output of the firm. Check out the BCE article, “Fast Food and Reality” to learn more about this concept.
Warshawsky asks, in his paper, just how much value do employees actually believe they’re getting from this trade-off. Would they be better off if the employer didn’t provide health insurance and just gave employees a significant raise? One has to take into account the level of taxation the employee would then be subject to as well as the costs of private health insurance. Personally, I contend if this was the actual trend of all employment then the market would adjust and become more competitive in bidding for your insurance dollar. But, there’s the matter of the deadly three Ps intervening in the market. Because of regulations, mandates and price controls health care costs have become formidable for the average wage earner. Significant health care reform would have to happen before a free market in health insurance could be restored.
Aside from rising health care costs, employees must compete globally. As newer production methods come online, it becomes easier to take advantage of cheaper labor overseas. The comparative advantage of low labor costs in the developing world is what has contributed to Asia’s economic rise. Consider also, as automation become more cost effective for entrepreneurs to employ, cheaper labor in Asia will no longer be the competitor. But advances in production and manufacturing are what consumers are demanding. They want cheaper and higher quality products and automated systems are the means by which this can happen. The bottom line is although competition in labor markets adds pressure for wage earners it still results in a net positive. As labor costs are driven down, prices for those goods produced are also driven down. At least, in a free market economy, that’s what supposed to happen.
Enter the Jackals and Hyenas
One of the largest threats for average wage earners is the ever decreasing purchasing power of each dollar, yen, euro, etc. earned. Central banking and more importantly, fractional reserve lending has so inflated the supply of currency units on the market that wages, for all practical purposes, have been stagnating or declining in real terms. Nominally, wages are higher today than they were twenty years ago, but those higher wages in real terms, adjusted for inflation, have actually gone nowhere. Regardless of Federal Reserve pronouncements, average people are finding it harder to meet their overhead. But prices are not the only way to determine price inflation. As a means to prevent sticker shock at the checkout, food manufacturers have steadily been selling their products in ever smaller packages with a small price increase. Compare the size of a box of breakfast cereal today to that of two years ago. Consumers are making more substitutions in meat purchases also as the price for beef, pork, poultry, and fish have increased. This is something the CPI doesn’t capture because they equate hamburger with New York Strip steak. It is uncanny how bureaucrats constantly ignore that by making personal comparisons of subjective value they directly affect market choices in a negative way.
Speaking of negative, let’s talk about negative interest rates. In reality, there is no such thing as a negative rate of interest. Either interest is applied to the repayment of a loan, a savings account, bond, or whatever monetary instrument we’re talking about or it’s not. What the mainstream calls “negative interest” is actually a fee or charge. Imagine I loan you $100 at an interest rate of -2%. You would owe me $98 when the note comes due. Ridiculous! This doesn’t happen where these rates are being used, namely the European Central Bank. What the ECB is doing is charging additional fees to the member national central banks that borrow from their window. In turn, those national central banks, the Bundesbank, Bank of France, Italy, Greece and so on are offsetting the cost by charging their depositors. In response, customers are withdrawing their cash from the banks. This is a big reason why the war on cash has had so much traction lately and why Bitcoin has had so many gains. This is yet another silly scheme to fleece average people that will end in disaster sooner or later. The market, that is people making choices on how to employ their scarce means, will find a way around this nonsense.
The grotesque duo of mainstream economics and central banking have worn down the wage earner in a significant way. Not unlike our description earlier, each new scheme by the banksters gets explained away by the mainstream as a necessary intervention to save the free market from itself. With each machination, whether it’s low returns to pensions and savings accounts which force people into the casino of the stock market or lost purchasing power through currency dilution, the wage earner loses more ground until these two carnivores abscond with the earnings of average people. Just as in the animal documentary, a wave of empathy overcomes the viewer to watch a hard earned bounty be stolen away by such despicable creatures.
The Congress of Baboons
The third team of predators in our discussion includes the politicians, regulators, and bureaucrats. Often believed to be the defenders of the common man, they are actually quite the opposite. In reality, they are in every way the opportunists the jackals and hyenas are, only with the big club of governmental force behind them.
Referring to the animal documentary once again, we find the baboons grooming each other, acting silly and planning the next hunt. They appear to be smarter and more human-like than the other two. They have a way of communicating with each other by making squawks and yelps and violent gestures. Not at all different, the rhetoric of politicians assures the great unwashed masses that they have everything under control and will pass that next bill that will propel the citizens into that comfortable lifestyle once again. Peace and prosperity are here to stay!
An army of bureaucrats contends for the wage earner’s income by being that department that needs the biggest budget. In the backward world of reverse incentives, bureaucracies must waste more money than the other departments to ensure their budgets won’t be reduced the next fiscal year. More subordinates must be hired to perform fewer and fewer duties, more wasteful and redundant programs must be invented, and more byzantine regulations must be passed. The supreme goal in all of this waste, fraud and abuse is that ever precious and overly generous taxpayer funded pension. All the while the politician explains to the masses how he or she is working hard at cutting spending. Yet the federal budget seems to always increase.
The regulators are required to keep the free market from being… well, free. They step in to reduce the options and choices actors in a market economy could have had. They make sure two consenting parties cannot enter into a wage agreement through minimum wage laws, they add to the cost of employment by mandating universal one-size-fits-all safety and work environment standards. They make sure employers have an extremely difficult time in employing new labor or expanding their businesses by piling more and more regulations, what are better called restrictions, on them. Most importantly, they act to tilt the playing field in the favor of that big player who will most benefit the regulator’s bottom line. This is something known as “regulatory capture” where the regulated sector is actually being overseen by regulators on the payroll, in one form or another, of the very sector they are supposed to regulate. Think of it as a fancy term for bribery. All the while the benighted public clamors for more regulation to guard against “free market manipulation”.
Although a congress of baboons may seem more comical and fun to watch, the reality is they are the most dangerous of the bunch. Understand a lot of power can be wielded by a politician. The whole process begins and is funded by the decree of the legislature. As free thinking people, we often marginalize the importance of a Feinstein, Boxer, Schumer, McCain or even a Hank Johnson but the power of the consenting plebiscite resides with the likes of these. There’s a reason why it’s called a congress of baboons.
Don’t forget, all of this malfeasance is enforced by the threat of overwhelming violence from the state. Comply or be bankrupted, tossed in a cage or killed. The baboons may be more human-like than the jackals and hyenas only because they’re more dangerous. The average wage earner can function by avoiding the banking sector. He or she can become educated to the errors of the mainstream by learning Austrian economic theory. But they cannot avoid the force of government under a surveillance state. It’s either comply or die.
This is only a small example of what the wage earner has to contend with, daily. It’s no wonder people are finding it harder and harder to get by. The public knows something is wrong but can’t quite put their finger on it. They wake up from their nap on the Serengeti plain to find their meal had been stolen. Who took it? The jackals? The hyenas? Maybe a wave of populism overcomes them and they turn to the baboons to watch out for those nasty scavengers. That ought to fix it. All is safe now… go back to sleep.
Image credit: [Barcroft RAW]