Friday, May 13, 2011

Protecting GM Products

Suppose the government decided that GM cars are so great that consumers should take much better care of them than they do. So, to protect GM cars, henceforth all GM owners will be required by law to have them washed and waxed once a week. Surely their owners can afford that...that would only be about $ 35 per week for the wash and wax. Definitely affordable.

Would that affect the sale of GM cars?

Apparently, the answer, according to the government is no. Since owners can afford to wash and wax their GM cars every week then they should be required to do so.

What about Ford cars? Let's suppose the government doesn't like them, so it doesn't care whether Ford cars get washed or waxed, so they decide not to "protect" them with legislation requiring a weekly wash and wax. Why "help" those guys?

How would all of this effect the sale of GM cars? Ford cars? Who wins with this kind of legislation GM or Ford?

The answer is obvious: Ford wins. Consumers can afford the wash and wax, but if they simply buy Ford they need not bother with the wash and wax. That was easy.

So, it is with American low-skilled labor. Congress has loaded American labor up with various "protections." Unemployment compensation, medicare, social security, the right to sue for real or imagined indignities, and so forth. Think of American low-skilled labor as GM cars. The government is protecting them and business can afford it. But will they do it?

Nope. Why hire American low-skilled labor when you can outsource or simply buy labor-saving equipment? Labor saving equipment requires no unemployment comp taxes, no social security taxes, no medicare taxes, no health care benefits and, best of all, the machine can't sue you!

Cutting taxes, raising spending, conservative schemes, liberal schemes.....none of this really matters. The government is "protecting" low-skilled employees by making them much more expensive than outsourcing or capital equipment. The market response is the same as in our GM/Ford example. If you protect GM cars, then Ford will be the winner. If you protect low-skilled labor, low-skilled labor will be the loser.

That, in a nutshell, is why we are now entering a "new-normal" for unemployment among the relatively unskilled part of our labor force. They have been artifically priced out of the market by overt government policy. Highly skilled employees need not fear -- they are less likely to sue and all of these add-on costs are a relatively smaller fraction of their overall compensation.

Once again government welfare schemes hurt the poorest among us.