Reading through some of the other blogs today a simple fact smacked me upside the head. Most people dont understand the simplest of economic theory! And yet, I bet they practice it day in and day out without understanding why they do.
Take the issue of outsourcing Jobs. Forget the fact that in the net, the US in-sources more jobs than it outsources. For now, lets look at WHY jobs are outsourced. The answer is simple. Profits. Now that is a dirty word to many who fail to understand that PROFITS for a company does not go into some super secret cave to be greedily counted by the CFO and CEO. No, the profits go to 2 things.
1. To grow the business. That is they expand their capacity and physical plant so they can sell more and make more money. Why?
2. For the stock holders. These are everyday people, you me, your mother, your sister and brother, who took some money they had EARNED and decided to try to make more money with it. So they bought stock (or their mutual fund, 401k or IRA did) in the expectation that the company would grow and make money and pay them dividends or increase sales so that the actual price of stock goes up, thus making MONEY for the individuals.
So the next time you jump on the outsourcing bandwagon (that has been going on long before Bush came to office and actually accellerated under Clinton), think about that $500 PC you bought. Would you voluntarily spend another $200-300 for that machine so you could keep the jobs in the US? I think not or you would not have bouth the $500 PC to begin with.
Another area of ignorance is in wages. Everyone wants to increase wages for the lowest paid to give them a living wage. Yet these same people fail to understand that the money for those magnificant wages do not come from the money tree, but from the employer's pockets. While it may be stated that the employer is a rich fat cat trying to keep the poor man down, I would again point out that there are not a lot of those around unless you count everyone in the explanation above.
No, if you increase the wages arbitrarily, 2 things will happen. Once is the employer will figure out how to get along with fewer employees. That is called automation, or lately, out sourcing. The second, for the fortunate few that do not lose their job over it because the employer has to have the worker, the money will go to pay the higher prices that is caused by the higher wages!
Yes, a very little known and sorely misunderstood fact is that to pay the higher wages, the employer will increase prices. Thus negating the apparent (and illusory) raise the lowest paid people got.
Finally, when I say you practice economics on a daily basis, I meant you make decisions based upon price and quality every day. You are maximizing the return on your hard earned dollar. Want that new car? Do you buy it from Dealer A for $20k or dealer B for $18k? It is the exact same car, but one is having a sale.
So to do employers maximize their payrol dollar. You want $10/hr but Sam wants $8/hr? Well, as long as you and sam are both qualified, the employer is going to hire Sam not you.
So before jumping on the "Out sourcing is just a greed grab" or "everyone should make a living wage", just think who the 'greedy' are, and where the money is coming from. Chances are the greedy are you and I, and the money is going to come out of our pockets.
Unless we buy made in India instead. Then we just outsourced a job, but kept money in our pockets!