Thursday, August 7, 2008

Magic or Economics?

Why do you work?

Think deeply on this for a few minutes. Do you work to earn a paycheck? Do you work for personal fulfillment? Do you work because you want to make the world a better place? Do you work because you'd be bored otherwise? Do you work because you hate to be alone?

Now let's flip that around.

Why did your employer hire you?

Because you're cute and he likes having you around? Because you're stupid and easy to intimidate and your boss enjoys the power? Because your employer is rich and has nothing better to do with her money? Because the government told him to hire you?

In economic theory we learn that a free market employer will hire employees to enable that employer to meet customer needs for goods and services at a price the customer is willing to pay. A government employer will hire employees to enforce government mandates, no matter what the cost. So from an economic standpoint, government has no checks & balances, which is why government programs cost so much and produce so little good. While in the free market, customers and employees provide the checks and balances. Which is why American have access to the richest offering of goodies money can buy.

So why do you get paid what you get paid?

For this article, we will ignore the drivers for government programs. Its not a pretty picture and you, as an individual, can't do a lot to change it.

But in a free market job let's be honest. How much work do you really get done at the office each day? What is that work worth to your employer's customers?

Let's take a very simple example, sadly culled from my personal experience.

You are hungry and want to buy lunch. You walk up to a sandwich shop counter and ask for a sandwich. The person behind the counter is rude, not very clean, and extremely slow. When you order the sandwich, you are told you can't have the salami/ham/pastrami combo because they are out of ham & pastrami. You ask if you can substitute roast beef and turkey for the ham & pastrami. The sandwich maker says yes, but she'll have to charge you for 2 extra meats because those aren't part of the sandwich. So the $5 sandwich you want is now a $7 sandwich that you didn't want.

What do you do?

As a free market customer, you will probably walk out of the store and go somewhere else for lunch, a place where you can get the sandwich you want for $5.

But what if I tell you that this sandwich shop is the best place to work because they pay above minimum wage, offer medical coverage, generous vacation benefits, and a 401K plan? Does that make a $5 sandwich worth $7 to you? Or would you rather pack lunch and eat at the office and pocket the savings?

There's no right or wrong answer to this question, just a choice to be made. In a free market, you have the right to make that choice. But when the government passes laws requiring small business to provide benefits they can't afford, the end result is usually a "Going out of business" sign in the window of a formerly successful sandwich shop. Because most people care about their money and how it is spent.