CONNECTIONS: Fully consider what it is you are asking for!

Our recent economic discussions around immigration, employment, wages, etc. revealed once again that we often times react to an issue, that we create, without fully thinking about all the consequences of our proposed solutions. I used “connections” in the title because of the TV show I used to watch by the same name. It showed how events today connect to future events totally unanticipated when the original event occurred. Some of these “downstream” events are good, and others are bad. But all are connected to that singular event. The short version of this is of course, “The Law of Unintended Consequences”.

Having a desire for our fellow humans to lead a better life is a noble thing, in my view. But having these desires is one thing. What you do about it is entirely a different thing. I think so much of the things going wrong today can be linked to actions taken to solve these human problems in the past. People are poor, give them a Govt Check. Problem solved. Ooops, now we have new social problems, increased crime, dysfunctional families. Things directly tied to the human cost of Social Welfare programs. Things that were warned about, like industriousness, but were ignored for the more noble cause of reducing poverty.

My intent is not to focus on “welfare” but on the basic idea of trying to control or interfere in broader forces (economic, social, psychological, cultural) to achieve a goal dealing with a more narrow focus. People want to come here to work, so we should just let them all in. We ASSUME they will find work and affordable housing. No thought of how the volume of that migration will strain existing infrastructure and services of a quasi welfare State, like the USA. The effects on economic forces are ignored or downplayed for convenience. We just assume things away, or change definitions of things to align with our desires.

There are some basic laws of economics, which is human behavior, that should not be ignored. The laws of supply and demand are real. When either moves up or down it affects the price or cost of things.

When you give people handouts you interfere with basic human needs to produce in order to live. You create not just dependency, but laziness and apathy.

Say’s law is a real thing. goods pursue goods. Demand for a product/service don’t exist before that product/service is created. And the jobs to pay for that new good/service come FIRST from all those connected to its production.

Contrary to the theories of Marx and other dubious characters throughout history, the price of goods and services depends on the value of those goods/services to the person who wants them. And not all people have the same values. Obviously, pricing strategies try to find some large number willing to pay the same price. The key point here is that just because you artificially raise the cost of production, via minimum wage or other laws, doesn’t mean the price will increase to pay those costs. So the business closes or moves on to another product/service.

Money is just another commodity. Its value will behave according to the Laws of Supply and Demand. Govt intervention will only delay bad outcomes and/or make them worse. I give you 10% Inflation as evidence of this. If the cost of money is cheap you will encourage borrowing. If it is high, you incentivize savings.

Inflation destroys not just the value of money today, but our future wealth as well Example: Assume 5% inflation of goods and wages. But wages increase annually while inflation increases every month. Over just 20 years of work, the adjustment factor for your wages will be 2.65. That is your wages will be 2.65 times greater than today’s wage. The cost of goods, on the other hand, will have an adjustment factor of 2.71. You lost ground over that 20 years even though inflation was the same for wages and costs. The only difference was the compounding period of time, 12 months/yr vs. 1yr. Expand this for a work life of 40 years and you get factors of 7.03 (wages) and 7.36 (goods). Of course this ignores the reality that once you “retire” your wages not only shrink but won’t keep up with inflation while the cost of goods continues on up and up and up.

I have one more, that is of my own construct. The price of something is not necessarily related to the quality of something. It might or it might not. I give you public education as an example. Some of the best outcomes are in areas with lower per unit costs. Obviously there are upper and lower limits on all such correlations. Just like supply and demand curves, they are curves, not straight lines.

Those who do not live within their means, will eventually come for yours.

There are of course many other rules and realities that I could post. But this should be enough to give everyone something to consider. So when you propose something like opening up the borders and legalizing the millions who arrive so they can work, you might want to think about all the “connections” to that idea.

Before I forget there is one very critical lesson that needs to be shared. Maybe not with those at SUFA but with their kids or the kids of friends. That is this: Assets – Liabilities = Equity. And it is Equity that equals Wealth. While this obviously applies to money you can use the same equation for your life in general. Your friends or acquaintances for example. There are assets and liabilities. And if your assets do not outnumber your liabilities you will be poorer for it.