Socialism vs Capitalism

Why Capitalism works and Socialism doesnt work:

Why does capitalism get a bad rap when it works so well and why does socialism get too much undeserved attention? These questions I hope to answer and enlighten those who believe we should be changing economic policies from a powerful economic system towards a tried and failed system.  

Capitalism is an economic society which we currently thrive in, where anyone with the courage and innovation to be successful, can do just that. Its economic system is the true definition of how economics works. A system in where the financial platform is controlled privately, and not by the state. And as any system, there are merits and flaws, but mostly merits, as it drives innovation, creates more jobs, and income potential is only limited to the supply and demand model of economics.

Socialism is an economic platform in which the production, exchange, distribution, and income are determined by the collective community. So what does this mean in laymen terms? Its a community of people decide what you should have or own instead of yourself. So in some aspects, its good as it provides shelter, food, education, and health benefits for all, but it also promotes those who are less willing to be productive to benefit off of others hard work.
So lets break down the key components of socialism. Free or inexpensive healthcare, education, shelter, and food. This is the basic premise of a growing society that everyone needs. Now what about other luxury items, like boats, cars, jewelry, etc? Who would determine if anyone should get these extra perks of life? If socialism is about spreading the wealth, then everyone would have a pretty luxurious lifestyle. But there is a fundamental flaw in the ideology.
Motivation is key to a healthy working society. Captialism gives everyone an equal opportunity to become wealthy with hard work and determination. Socialism would do just the opposite of this, taking money that you worked hard for, and giving it to the lazy, unmotivated, drug addicted populace. Now thats good news for those who aren’t being productive members of society, but not good for those that are working hard to earn every penny they make.
The flawed thought is that if the people were not poor, uneducated, or lazy, that they would be productuve members of society, and helping to fuel the country’s economy. It sounds nice on paper, but the key that not everyone has the motivation or drive to become successful or even productive enough to contribute to society. Who is to motivate someone that wants to sit at home, smoking pot, playing video games, or criticising others via social media all day, to be more productive?

Are we to elect a government to make these people do more or force them to be productive? I can understand wanting to take care of them, but forcing them to do something they dont want to? The saying goes “giving a man a fish will feed him for a day, teach a man to fish will feed him for a lifetime”. This is so true and the reason why we shouldn’t just give homeless the salary of a software engineer, when all they do is beg.

There are also flaws in capitalism, the significant one being greed. Now greed can be a healthy attribute if used correctly, but if used way too selfishly, then it benefits nobody. The fundamental driver in economics is that the desires of an individual are greater than what they are capable of obtaining. The statement may seem flawed, but let me explain the meaning. An individual has the innate desire to want more than what they currently have. The reason why this is healthy is it drives an individual to look for their niche. Someone that looks to make things better to make a profit is healthy for both society and the economy. But if you are hording your money, you will not grow the economy. Allowing other people to be a part of your success is what fuels economic growth.

You hire workers at a decent wage, and they in turn purchase goods and services, fueling economy and future growth.  Crony capitalism is certainly a problem, but considering how much worse socialism is for the economy, it is merely a thorn that we have to fight against to give people a fair wage.
Capitalism is the essence of how supply and demand works. Lets take some examples that we have seen over the years. Ebay is probably one of my favorite examples of a business providing a service to the consumer and the seller. So a seller has a need for cash to buy something other than the items he or she currently has. So they check their inventory of items to see what may be of value to another person. They post the item, and provide the lowest price they are willing to take for the item and then let the auctioning process begin. The highest bidder wins the item and both the seller and the buyer get what they want, for a price. Ebay, being the moderator and facilitator of the auction gets listing, and other fees associated with the auction.
This is all possible because of capitalism. Capitalism allowed a system of auctioning items that are valuable, to those who wanted or needed them. Would this be possible in a socialistic society? If the government provides our food, shelter, and healthcare, would they also provide you with funds for miscellaneous items? My guess is that you would have to earn what you desire. How do we get what we want? We have to either have money or something of value that another person either wants or needs, or break the law and steal it. Lets stay within the bounds of the law and look at the first two. If I have money, I can simply pay for it, given the supplier has the item on hand. If I don’t have the money, I would then trade my services to obtain it.

So it’s easy to see logically why socialism would cause a collapse of a prospering nation. Sure I could provide factual occurrences from other countries who fell behind in several categories to a country with a capitalist economy, but really, it just takes practical thinking to come to the conclusion that America is great because of capitalism.

Minimum wage wrap up

There are a lot of factors to consider when you want to increase the minimum wage to $15 an hour.  Most who want this increase have no idea the consequences involved in such an increase in pay.  In this post, I hope to provide some numbers that show why its not good to demand a wage higher than an employer can offer.  Before I do so, let me stress my personal beliefs on the economy.  I am 100% for everyone to make a fair wage, enjoy living comfortably, and having more than you need.  That being said, it should not come at the cost of requiring businesses to provide a higher wage than what it costs the company to make a profit.  If companies can’t profit, due to wages, they will start cutting custs, and that begins with employees.  Demanding an increase just may cost you, your job, and millions of others who are happy with their current wage.


Have you asked others that are not making $15 an hour if they think businesses should be obligated to provide a higher wage than the skill level of an entry level position?  Think about this for a moment.  Lets use a fast food burger chain as an example. You are not only receiving a wage, but you are learning skills that you take for granted.  You are learning food handling, food cooking, cleanliness guidelines, safety training, customer service skills, computer ordering skills, logistic skills, cash handling skills, other ethical training skills, and employer provided benefits such as health insurance, 401k matching and life insurance. On top of that, they are paying you a wage!  The only cost you pay, is your time.


Now to you, these skills may be negligible for your use in the long run.  You don’t plan on flipping burgers for the rest of your life, and I don’t blame you. It is an entry level position for a reason.  What you are doing though is building a resume of the skills you learned and letting your next employer how dependable of a worker you are, or are not.  


Imagine this is your job, flipping burgers, and you do the best you can, but you prefer more of a restaurant type atmosphere rather than in fast food. So you apply for a job at a restaurant as a cook, and they are going to teach you to not just cook burgers, but even make specialty sandwiches, prepare salads, and even some baking tricks.  You put in your resume and you see another person hand in their resume for the same position.  You both get interviewed, but they only have one spot for the job. You end up with the job because of your previous burger flipping skills and your competition only had cash register and ordering skills. Now see how much more valuable you are that you started as an entry level flipper?

So back to the basics.  When you go through the drive through, how much do you currently pay for a burger combo meal?  How much are you willing to pay for that same meal should the price increase?  At what point does the price of the hamburger turn you away from the drive through or ordering line?  Supply and demand will tell us there is a certain point that the customers will start looking at other alternatives to drive through food.

Currently a hamburger, fries and drink is about 6.99 plus tax depending on where you go and where you are in the country.  Do you know what percentage of the hamburger actually goes to profit?  Do you think its more or less than 33%  You’re wrong if you think more than 33% is actual profit from the sale.  How about 25%? Nope. 20%? Lower.  A company typically averages about 5-10% of profit from the sale of a hamburger.


Lets look at what other costs come from the burger. Cost of food is about 22% and highest portion of the costs.  Hourly labor 17% Salaried Labor 10%  Supplies 5% Utilities 6% Marketing 4% Fees and Licensing 3% Maintenance 4% Other 3% Fixed costs 21%.  So lets add all this up 22+17+10+5+6+4+3+4+3+21= 95% which would leave 5% to go to profit.  Now some of the above expenses can vary, but you get the idea.


Now take into consideration that the hourly labor is already 17% of the costs at 7.25 an hour.  Imagine what percentage it would be if we raised all the wages to $15 an hour for the hourly staff. So if it is currently 17% and we are pretty much doubling hourly wage, its fair to assume the percentage cost would be about 34% now.  With this calculation, we are not making profit and taking a loss.  So how do you get back in the profit column?


Option 1: Raise the price of the hamburgers.  This is not a feasable solution as the supply/demand ratio starts to come into factor.  People will start cooking meals at home or finding alternatives to fast food if a burger and fries cost over 14 dollars for just one person.  When that happens, sales go down, and the demand for employees goes down with that.  You can’t keep the burger the same price and hope to sell twice as much as the demand model tells us it doesn’t quite work that way.  This is just economics 101 talk now.  Demand ALWAYS goes down as supply and the price go up.


Option 2: Cut workers. That could be you! Since you want the $15 an hour wage, are you prepared to put yourself up against your fellow employees as to who gets cut?  Do you think if it was either you or the next guy, that they would be in favor of the wage increase?  Well in either scenario it doesnt work, as then you have to do twice the work you were doing before.  Can you flip burgers, take orders and handle cash at the same time?  Fast food chains typically train you to be fast and efficient at your 7.25 an hour job or else they will find someone that can do what the company needs to. It it’s not feasible for the employer to expect you to do twice as much work when you’re already trained to be quick.


Option 3: Company pays employees from the bottom line.  Well thats the catch 22. Most companies already pay the highest wage that they can to reasonably make a profit to handle things like expanding, bookkeeping, shipping and other logistics, employer paid benefits, training material, licensing, taxes, shareholder dividends, and numerous other expenses.  When you hear that a company makes 2.4 billion in revenue, that doesnt mean they have that cash just sitting around. It goes to all of the above items to make sure the business is still running.  Want to take it from the CEO?  They probably don’t make enough to afford everyones increase.  Even if they did, do you think that is a way to run a good business? 


Put yourself in the shoes of a CEO for a moment. Lets say you spent the last 20 years building up a great business from scratch.  You started working 80 hours a week, often times not bringing enough money home to do anything but pouring it all into the business, then after a few years of hard work, the busness starts to become profitable enough for you to hire a manager to manage people and allow you to finally take a vacation somewhere.  Now the business is growing in leaps and bounds, that you are expanding to new cities and states!  You are pouring money into marketing, licenses, permits, or whatever it is thats an expense on your part.  Then you hire some trusted financial gurus to help make the company more efficient.  Then the brake slamming reality hits, that you now have to pay all your employees double, and they aren’t doing anything different to deserve it.  You were about to expand to another state in just a couple of months, but now what?  You are cutting back and pouring all your saved out-of-state project money into more wages.


Is it hard to imagine because you aren’t a CEO?  Well that is the dream you are destroying.  It’s not just about you making $15 an hour, its a financial crisis for the CEO that has to pay your sorry butt, and for what?  What more are you doing to earn this much when there are already hundreds of thousands that accept the 7.25 rate?  Sure they would be happy with the increase, but is it warranted?  What does it cost the company?  The answer is it’s costing the company from creating more jobs for the unemployed and possibly the company’s future.

To those who dared to look at the perspective of the conservative who is opposed to minimum wage increase, I applaud your objectives to at least get through the blogs. I do see and understand the argument that is in favor of an increase, but my logic and common sense flags went crazy and felt compelled to write and hopefully enlighten some to join my side of the argument. This is a very important topic, one that could dramatically cause a collapse of the American economy.  My blog is a message to those who don’t quite understand what may cause the collapse. Please comment and discuss with me and see if you can prove me wrong.

Wage argument continued

If you have read my first article on minimum wage, then this next piece should be a good place to continue.  But if you haven’t, I encourage you to take a look at the Minimum Wage Argument article that was published on Sunday March 26th.  Here I will continue making different points of how minimum wage affects our nation and people socially, economically, and even politically.

Yes, I did say that the minimum wage may impact how we decide to vote politically, but for now we will focus on the social impact of minimum wage.


Do you think that a family that make less than another family does so by choice?  The obvious answer is yes. Any capable worker in America can control how much their family makes, how much they spend or save, and how their income affects the choices they make socially.  A family that makes less money, is less likely to eat out, travel on vacations, buy a house, or new car, and have a savings and/or retirement account.  That being said, is it America’s fault that you are not doing all of the above?  If not, then why would you insist that you need $15 an hour to do all these things?  If you think you have a right to $15 an hour, can you tell me on what premise that right resides?  You live in America, the country of UNLIMITED POTENTIAL.  It is up to you to decide what your family makes, not the government or the American people.


To go further into income and spending, is a family that makes less than another family worse off financially? Of course not. There are many different factors that affect what a family spends, and how much they have left.  These factors include but not limited to, where they live, how big is their family, expenses, government assistance, and spending habits.


Lets take a look at a few examples of how spending factors play out with income and minimum wage.  A married couple that has no children, could struggle to make ends meet, where as a single income earner who makes as much as the two combined and has 3 kids, maybe doing well, saves for retirement/savings, and for their kids college tuition.


So why is the couple that doesn’t have any kids struggle paycheck to paycheck?  Maybe they have high rent payments, they spend too much on car payments, or maybe they just are not good stewards of money.  So that being said, why would raising the minimum wage to $15 dollars an hour help families who don’t know how to manage it?


A successful family lives on a budget.  Some families may have different incomes each month, where as others have a steady reliable income.  Each family that lives within their budget is making every penny count, regardless of how much they make. If you think you need $15 an hour minimum wage, ask yourself, have you made a budget to live off of first?

Let me emphatically say this again, I am FOR each and every single person and family living in America to have a decent wage.  That being said, the federal government should not be setting the minimum wage. They should only be determining what wage their employees make.


So back to how your wage may determine how you vote.  If you currently rely on the government for assistance through, subsidies like food stamps, housing, Medicaid, welfare, or other government benefit, there is a good chance that you are a democrat.  If you are think you deserve $15 an hour for flipping burgers or waiting tables, there is a good chance that you are a democrat.  How would I know this?  Well because democrats are typically dependant on the government for assistance.  Some even believe the government owes them or should take  care of their needs.  Ask yourself, if you made $15 an hour or more, would you still need government assistance?  If you answered yes, then what point is there in raising the minimum wage if its not going to take care of your financial needs?  

If you said no, then why aren’t you doing more to make more?  Why wait on the government, when you can make whatever you want to make?  Sure it takes time to get to a decent wage, but thats what goals are for.  Start with reasonable expectations, and before you know it, you will be hitting your goal and setting new ones.  If you are limiting your income potential to what the government will give you, then you will be stuck, making less than $15 an hour and putting the burden on the tax payer.

So at this point, if you’re for $15 minimum wage and for government handouts, you have what I call an “entitlement complex”.  You are under the impression that we are to support you from birth to death.  You believe that you have a right to make at minimum, $15 an hour, no matter if its an entry level burger flipping, table cleaning, trash emptying, or grocery scanning worker, you should make as much as a skilled laborer, who can operate a fork lift, assist end users on computers, prepare  taxes, write computer code, work on cars, or manage a store.  This type of mentality, is a hinderance on wages and is why the tax payer will be stuck supporting you, instead of taking care of yourself.

Minimum wage argument

Which side is right and which is wrong? Is there a wrong side to this argument? Hopefully through logic, I will provide factual arguments that help you determine what side of the argument you should be on.

Let’s first look at the argument for $15 an hour. From a family’s perspective a person earning a higher wage is always a good thing. A family that makes more is less stressed, and has more to contribute towards the economy. That in turn creates more revenue for other businesses. Also, a worker making the same wages as a competitor’s company worker will have less desire to switch companies, which drives down costs for business dealing with attrition.

First let’s both agree on one thing.  Whether we are for or against a $15 minimum wage, we agree that a family with a higher wage is good for the economy. The method in which a family receives the wage is where conflict comes into play.  Employees should not demand a set wage from employers, and employers should not use minimum wage as a guideline for determining the employee’s worth.

The ugly truth about minimum wage is that it forces companies to cut costs or wages elsewhere to make up for the mandatory minimum increase.  What most proponents of the wage increase don’t realize is that the companies decide the wages based off several factors, including production, sales, customer service, logistics, and employee benefits to name a few. So to raise a salary for a particular position, there should also be a beneficial factor to increasing the businesses production or sales proportionally.  Unfortunately, a minimum wage increase does not guarantee that production will increase.

What am I saying when I say that the increase must justify the means? Well let’s take a look at a few examples. I will use a fast food burger place to state many of the examples. So a worker that makes 8 dollars an hour must be able to produce almost two times more than normal to justify the increase. For every one burger the employee’s made before, it must now make 2. For every customer served in line, they must serve an additional customer. For every minute spent on cleaning the bathrooms, they must now do in half the time. Now imagine what the company must do, not just for one employee, but for all of them that receive a mandatory increase.

Not convinced yet? Do you think that the distribution of wealth should come from the top, down? Well let’s look at why this doesn’t work.

Ask yourself this fundamental question. Do you think that all employee positions are created equally in terms of wage? Does a person that can manage people efficiently have the same wages as an employee that just flips burgers? If you answered yes, then you are naive to the obvious reality. There is a reason that management and higher level positions have different pay brackets. For one, the manager has a different, but necessary skill set to ensure that am employee is properly trained on their job, knows how to order inventory, make schedules, sends hours of all employees worked to payroll, and even flips a few burgers or sweeps the floor when it’s closing time. So, now that you see what a manager that is already making $15 an hour does, let’s now give Joe who only flips burgers and fries French fries the exact wage of Jim the manager. How will it effect Jim’s desire to efficiently manage Joe if he now makes the same as Jim? What about Joe’s desire to do all the things that Jim does? Would Joe want all the responsibilities of a manager that makes the exact amount of money that he now makes? If you said yes, then you are just fooling yourself.

There would be no desire or drive to accept more responsibilities of a person that makes the same amount. That is why wages need to be competitive in terms of responsibility and skill level.

So to offset a $15 an hour minimum wage, Jim’s wage would need an increase to offset wage competition. Otherwise, there would be no desire for managers everywhere to compete for a higher position. So more costs to the company that has to pay the wages must be considered. Should it come from the CEO or another higher position? Do you not remember me discussing the desire to make a higher wage based on skill level? 

Let’s take Jill as an example. Jill is a district manager for 5 burger restaurants. She provides reports to her boss about how much revenue her stores are making, which sites need more or less employees, strategies about how to market to new and existing customers and provides feedback to her store managers to name a few of her responsibilities. Now, because of a minimum wage increase, the company decides to pay Jim the same as Jill who pretty much manages Jim and 4 others. Jill has a bachelor’s degree in business management and Jim does not. If Jill that spent 4 years getting a bachelor’s degree now makes as much a Jim, what desire to get an education at a college is there if an entry level burger flipper, who worked up to management makes as much as she does? There would be a decrease in the desire to be educated and would cause a considerable blow to the education industry.

So let’s go higher up the pay chain. The CEO s and other officers that are at the top of the pay scale. Should the wages of Jim Joe and Jill be paid out of Jason’s pocket? What incentive does Jason, the CFO have to do his job if he is now taking a pay cut and making as much as Joe the burger flipper? Is it too unreasonable to suggest that Jason makes as much as Joe? Remember, Jason is having to take a pay cut to pay Joe and everyone at his skill level their new $15 hour minimum wage.

Let’s say there are 5,000 employees who were making 10 an hour but would have to pay out 15 an hour for wages. To pay all 5000 people that exact wage would cost the company $52,000,000. Jason only makes 400,000 for his position. How could he possibly supplement the income of the other 5000 employees not making the minimum wage? Simple answer is, he can’t, and exactly why the minimum wage is a detriment to a company. 

If you want a higher wage, earn it. If you are still in favor of minimum wage, then by all means, please explain to Jim Jill and Jason what you are willing to do to offset the 52 million dollars the company will lose to pay in increased wages.