economics

Bears Repeating

Let’s say that you are making and selling a product. You sell that product for $4 each, but no one really wants it. You won’t sell any. What to do? You change the product you are making to one that people actually want, and now you can sell them at $4 each all day long.

Until someone sees how much you are making on it and offers a similar product, but for $3 each. Your sales drop as customers buy your competitor’s product. So you make changes to make it even better, and now everyone wants it. The problem is that you can no longer keep up with demand, so people who NEED that product offer you $5 each. A bidding war ensues, and eventually you are offered $100 each. Do you turn it down? After all, that would be price gouging…

Of course you take the money. All transactions are a combination of a willing seller and a willing buyer. All sales of all products are negotiable.

That happens every day with your labor. The labor that you perform is the product you are selling. Michael Jordan played basketball like no one else, so he made millions. When people saw the shoes he wore, they wanted to be like Jordan, so millions bought his shoes. He added hundreds of millions of dollars of value to the Air Jordan brand, so they paid him.

Robert Downey Jr made the Avengers movies what they are. Few people would pay $20 to see a movie starring Steve Smith. However, tens (hundreds) of millions of people did so to see RDJ in the Avengers movies. That’s why he makes $40 million per movie. Without him, that movie is a losing proposition. Without RDJ, this movie isn’t going to be made at all. This makes RDJ’s value in the movie industry sky high. No one goes to see a movie because some rando that no one has even heard of was 1 of 40 other nobodies in the costume department. That’s why jealousy fueled rants like this are stupid.

If you aren’t happy with the money you are making, you need to find a way to make your labor more valuable. No one is going to pay you $50 an hour for labor that literally anyone can do, because there will be a line of people behind you who are willing to do that job for $40, $20, or even $15 an hour. In order to make more, the value that you add to the deal dictates how much you will make. Simply saying that the employer owes you “a living wage” as you whine and complain on Social Media isn’t helping.

That goes for literally any job. That’s why Gordon Ramsey makes what he does- he adds enough skill to the deal that people are willing to pay $40 for a hamburger (not me, but people). Find a skill that is valuable and become good at it. It may take some time, but the money will follow.

We can’t all be Robert Downey Jr, Michael Jordan, or even Steve Jobs, but all of us don’t have to be making minimum wage, either.

By Divemedic, ago

Just In Time

You all know that we moved to a new home at the beginning of the year. We placed our house on the market about two months ago. At first we tried to do a sale by owner. No dice. We had only one person contact us to inquire, and that led nowhere. After a month or so with no leads, we hired a realtor, who has had at least four open houses, but no dice. So we cut the price by $25k about two weeks ago. Still nothing.

No other houses that are listed in the area are selling, either. It looks like the bottom is falling out of the housing market. Nothing is selling. The realtor says that he isn’t moving inventory, and he thinks that people are waiting to see if sleepy Joe is going to get ousted, which will change the nation’s economic course and lower the insane interest rates.

In the meantime, Zillow is still showing that prices are falling like a rock. The price that Zillow is estimating for our house is a full $60k less than it was six months ago, and $10k less than it was two weeks ago.

All I know is that we have decided that, should our house still not sell by the end of our contract with the realtor, we are not going to cut our price again. Instead, we will convert it into a rental and ask for $2500 to $3000 per month in rent for an 8 month lease. Then we will see where the market is in 8 months.

In the meantime, sleepy Joe is talking about passing a law for nationwide rent control. Rent control will actually increase costs more than simply letting the market do it. I have posted on that numerous times.

By Divemedic, ago

Here It Comes

Kissimmee, one of the more liberal city governments in Central Florida, wants to pay people to house the homeless.

Homeless people aren’t simply ordinary working families who have fallen on some hard times. The vast majority of them have drug, alcohol, and mental health problems. Now imagine that you can’t evict your “tenant” or charge the market rate for rent.

That’s right: according to the city, the initiative would have some requirements: the homeowner would have to live at the property in a neighborhood that doesn’t have an HOA and the rent cost would have to be approved.

Did you get that last part? The rent has to be approved by the city. That means you won’t be able to rent this apartment that is in your home without getting the permission of the city, who will tell you how much you can charge. The city will own your house from that point forward, not you.

It gets even better:

Eligible homeowners would need a two-car garage in a home that’s homesteaded, and not governed by a homeowner’s association (HOA). If the city were to provide funding for the home expansion — Eady said she’s looking into government grants that support that — 25 percent of the rent would go to the city to defray those costs. 

That’s right: The city gets to keep 25% of the rent that you collect for the privilege of allowing homeless people to live (and use drugs or even manufacture meth) in your home. Of course, this isn’t being done out of altruism. No, the commissioner is trying to get the homeless out of her neighborhood.

Her motivation, she said, came from a family who she’s heard drives into her neighborhood very late each night to sleep in their car.

So what will be the benefit?

According to national apartment listing service RentCafe, 50% of one-bedroom apartments in the city are renting from $1,400-1,600 per month.

Said Eady: “Not everyone who needs a place can afford all that.”

So I think we can assume that you will not be able to charge more than $1400 per month for this “deal.” The city gets to keep 25% of that. You get to keep $1050 per month, with the city getting $350 of it.

Here’s the financial side of the problem:

  • Now your house is going to be valued higher, and the portion of your home that is rented out is no longer eligible for homestead tax exemption. That means your taxes will increase.
  • Your homeowner’s insurance will have to be changed to a commercial landlord’s insurance. There are very few companies that offer this, and it’s more expensive.
  • You are going to have to pay taxes on the additional income.
  • The renters will likely be using your electricity and water. That means more expense for you.
  • Now you have all of the legal liability for complying with the fair housing act, local building codes, and other regulations. If your tenant has a dog that bites someone- that could be YOUR liability.

It’s only a matter of time before the left begins mandating the housing of people in your “spare” room.

By Divemedic, ago

Economy

Biden’s profligate spending is destroying the US economy. The cumulative effect of persistent inflation is devastating. Since President Biden took office in 2021 the CPI is up by 19%. For basic necessities, the situation is even worse. Groceries are up 21%. Gasoline prices are up 47%. The cost of shelter 20%, and electricity almost 30%.

American workers simply can’t keep up. Since President Biden took office, average income after inflation has fallen over 2.5%. A typical American family must pay $12,000 more per year simply to maintain the standard of living that it enjoyed when President Biden took office, yet their income hasn’t risen by that much.

Biden likes to say that this is being caused by the greed of corporations who are seeking profits and using inflation as an excuse. “Price gouging” has been the mantra of a left that is desperate to prove that their economic ideas aren’t complete rubbish.

“If you take a look at what people have, they have the money to spend. It angers them and angers me that you have to spend more,” Biden told CNN’s Erin Burnett, pointing to the shrinking size of Snickers bars and other food products. “It’s like 20% less for the same price. That’s corporate greed. That’s corporate greed. And we have got to deal with it. And that’s what I’m working on.”

In February, Biden said there are “still too many corporations in America ripping people off. Price gouging, junk fees, greedflation, shrinkflation.”

“America – we’re tired of being played for suckers!” Biden said.

Because it simply can’t be socialism’s fault when socialism fails, the rest of the administration echoes the talking point:

“These markups should have reversed as we recovered from the pandemic—the fact that they haven’t means prices can come down if corporate profits come back to earth,” Edwards said. “President Biden has repeatedly called on large corporations to pass their record profits along to their customers by lowering prices. And he is taking on corporate rip-offs like hidden junk fees that costs families billions of dollars a year. The President will continue to call out corporate rip-offs and fight to keep money in Americans’ pockets.”

Which is complete bullshit. Prices didn’t increase during the pandemic and its aftermath because of the pandemic itself, but because of the trillions of dollars that were conjured into existence as if by magic. Those dollars are still in the economy, more dollars being circulated in the chase for even fewer goods. What’s worse is that the success of Biden’s political future depends upon tossing money from helicopters onto his voting base. That’s why he continues to rain student loan forgiveness in opposition to SCOTUS’ decision that doing so is unconstitutional. It’s why he continues to send thousands in gift cards and free rent to illegals.

Tax and spend. It’s all socialists have, and it will continue to make things worse.

If you think it’s bad now, wait until after the election.

By Divemedic, ago

Price Controls

The Socialists are following the socialist playbook.

  • Institute profligate government spending policies
  • The spending causes massive, uncontrolled inflation
  • Blame business owners for the increased prices <——– You are here
  • Institute price controls
  • This causes scarcity of products,
  • Which puts pressure on the supply side,
  • Causing runaway inflation
  • Food shortages and famine

The reason why prices of food are outpacing inflation is that the government doesn’t include food and energy as a part of the consumer price index. It’s ridiculous.

Price controls don’t work. An artificially low price set by the government leads to a spike in demand, while the producers are not willing to sell at that price, considering that their profit margins drop considerably or even lurch into the negative. As demand exceeds supply, shortages emerge and consumers are left to cope with them or deal with inferior quality goods in the market. Those who bought up all of the government approved goods then resell them on the black market at the (now even more inflated) market rate.

Ask Venezuela, since they instituted price controls in 2003. The artificial prices set by the government were so low that farmers couldn’t produce food at that price. They had to go out of business. By 2008, the government was spending nearly $7.5 billion on basic food items, but even then high levels of incompetence and deep seated corruption led to the food rotting before it could reach the supermarket shelves. 

Chavez responded to this in 2009 by ordering the military to seize rice farms and make them produce at full capacity. This, and food imported from other countries that was paid for by the nation’s oil exports made up much of the shortfall, and prices stabilized for a couple of years.

Then the bottom fell out from under oil prices. By mid-2011, food prices were 9 times as high as before the price controls. Considering that elections were coming, Chavez persuaded the Venezuelan legislature to pass the 2011 Law on Fair Costs and Prices, which actually made inflation ‘illegal’. A newly created ‘National Superintendent of Fair Costs and Prices’ was empowered to establish fair prices at both the wholesale and retail levels. Companies that violated these price controls were to be subjected to fines, seizures and expropriation. So they simply stopped producing once the prices could no longer support the costs of producing goods.

This caused massive shortages, so people began to hoard necessities like toothpaste and toilet paper, with people buying up 48 rolls at a time. (Sound familiar?) Such trends saw the supermarkets being emptied out even before stockers could get in the supply. The answer for all of this isn’t that the government policies were a failure, nope. Instead, it was the greed of companies and of hoarders, so they had to go.

In 2014, Chavez’s successor Nicolas Maduro passed the Fair Prices Act through which it banned profit margins above 30% and chalked out prison terms for those caught hoarding and over-charging. 

By the year 2020, a dozen eggs cost more than a month’s wages. People were eating the animals in the zoo, as well as their pets.

That’s where we are headed.

By Divemedic, ago

Printing Your Way Out of Debt

The US Treasury just announced that they will be “buying back” outstanding treasury notes during the next quarter for the first time in more than 20 years.

The Treasury Department has undertaken only two previous series of buybacks in the past century. The first took place during the 1920s. More recently, Treasury bought back $67.5 billion of outstanding debt via 45 operations held between March 2000 and April 2002

What followed the first buyback was the Great Depression.

They are claiming that the intent is to make the bond market more liquid. No, what the effect is, is to print our way out of debt. They are going to conjure up $2.5 billion out of thin air, and buy back treasuries with it, in the hopes that people will say “Oh, they aren’t in as much debt now, so I guess I will lend them some more money.”

The first operation is intended for May 29. Through July, the Treasury plans weekly buybacks of up to US$2 billion of nominal coupon securities, and up to US$500 million for Treasury inflation-protected securities (Tips).

This will place more money in circulation and will result in more inflation. There are currently $27.4 trillion in outstanding treasury notes, plus an additional $7 trillion owed to the SS trust fund. A couple of billion isn’t going to do shit, especially when they continue to borrow about $100 billion per day.

This nation and its economy are screwed.

By Divemedic, ago

It Isn’t Gouging

Peter and I usually see things from a similar viewpoint, and I generally respect and listen to his opinions. Not this time. He is saying that:

Businesses aren’t pricing their goods according to what they pay for them, plus a fair and reasonable profit.  Instead, they’re pricing them as high as they think they can get for the product. 

Then goes on to call this “price gouging. This is where I disagree with Peter.

Pricing things according to what people will pay is what everyone does. Let me explain. Let’s say that paying your bills costs you $40,000 per year. Adding on 10% for retirement savings, and 10% for discretionary spending would make your total $48,000 per year.

Now let’s say that your employer offers to pay you $60,000 per year. Do you say, “No thanks, boss. I only need $48,000, so me taking more would be unfair and unreasonable.”

Of course you don’t. So why would you expect a business to act any differently?

Prices are set by supply and demand. If customers are willing to pay $7 for an apple, then businesses will sell apples for $7. That’s what Whole Foods is selling apples for in Peter’s example.

Now let’s say that another business, call them Winn Dixie, is selling apples for $1. Now consumers have a choice: they can go get the $1 apples at Winn Dixie, or they can go get them from Whole Foods.

So why don’t consumers go to Winn Dixie, rather than Whole Foods? There are a number of reasons, which can include what the consumer perceives as the quality of the apples at Whole Foods, or perhaps the shopping experience (maybe one store is cleaner), or other issues like organic foods, the store supports causes or social issues that the consumer also supports, or any number of reasons not directly related to the costs of the apple itself. In other words, Whole Foods isn’t just selling apples. They are selling a shopping experience that some consumers are willing to pay more for.

That’s a choice we each get to make every time we purchase something. That isn’t gouging, it’s the market at work. Even when something IS considered price gouging, I maintain that it isn’t unfair. Let’s say that a hurricane hits my area. The law says that charging more than normal for products like gasoline is price gouging, and that is illegal.

Let’s say that before the hurricane, I was selling fuel for $4 a gallon, but buying it for $3 a gallon. So what happens when the hurricane hits, and everyone wants fuel? I could continue to sell fuel until I run out, then wait for more fuel to come in from my regular supplier, in which case no one gets fuel from that point forward.

Or, I can pay someone to haul more fuel in, even though it takes longer, and I may have to outbid someone else to get that supply from a different supplier. So now I can buy fuel at a higher price, pay more to have it hauled in on a chartered truck, and my cost to have the fuel delivered is now $7 per gallon. The only problem is that the law says that it is price gouging for me to sell that fuel for more than the $4 I was charging before the storm. So I stay home and don’t sell any fuel. Now there is none available at any price.

How did that help anyone, except the 10 guys who came to my establishment before the storm and bought up all of my fuel in anticipation of a shortage?

So how does the market respond? The black market comes in and makes a new, underground market. Now those ten guys are selling fuel for $20 a gallon because they are the only ones with any gasoline to be had.

This is why price controls cannot, and will not ever, work. It’s called the LAW of supply and demand for a reason.

By Divemedic, ago

Warning Signs

Joe Biden’s economy is claiming more victims. I have been saying that restaurants don’t just compete against each other, they compete against home kitchens. When it becomes too expensive to dine out, people begin cooking more at home. That is what it looks like is happening.

Just in the last year, franchisees and chains under the umbrellas of Red Lobster, Chipotle, Taco Bell, Tijuana Flats, Burger King, Hardees, Popeye’s, Wendy’s, McDonald’s, and Denny’s have filed bankruptcy.

It’s getting worse.

By Divemedic, ago

American Dream

From wirecutter, we see yet another article lamenting the loss of the American dream and how it isn’t possible for a family to live in a home with only one breadwinner. I call bullshit.

I hear this all of the time, and I have to say that I disagree with it. Americans don’t want to have the lifestyle of their grandparents, they want to live a life of unbelievably expensive leisure and luxury.

Degradation of the Family

The idea of a basic family: The Father, Mother, and 2.4 children is no longer the case in America. The share of one-parent families with children under the age of 18 has grown from 7.4% of all families in 1950 to 34.3% of all families today. It’s harder for a family to make it when there is only one adult taking care of what used to be taken care of by two adults.

My mother made most of our clothes, and what store bought clothing we did have wasn’t expensive designer stuff. For jeans, we wore Sears Toughskins because my mother claimed that they lasted longer than the stuff she made at home. I was lucky, being the oldest. My younger brother wound up wearing all of the stuff that I handed down after it no longer fit. My brother and I owned two pairs of shoes at a time- tennis shoes for general wear, and dress shoes for church and other “nice clothes” events.

Mom cooked all of the meals. We almost never ate out. When there were dinners out, it was Mom and Dad going out and we got a babysitter.

Owning a home

The average home built in 2023 is 2657 square feet. Just 50 years ago in 1973, the average new home in the US was 1660 square feet. Seventy five years ago, in 1948, the average size of a new single family home was 983 square feet. In 1938, new homes were slightly larger at 1173 square feet, but it was also more common to have multigenerational households then, with grandparents, parents, and children all living under the same roof.
Children shared a bedroom. I remember when I finally got my own room- I was a teenager and thought we had become rich. My parents bought a new house, and my brother and we finally got our own rooms. Looking back, I remember thinking how large that house is. Built in the late 70’s, it’s a four bedroom house that is only 1854 square feet, small by today’s standards.

Materialism

Technology has played a role as well. Everyone in the family now has a smart phone with a data plan that permits them to be online 24/7. Multiple televisions in a house, something virtually unheard of in 1973, are the norm.

The stay at home mom didn’t sit around all day and watch TV 50 years ago. No, the woman of the house cooked, cleaned, took care of the kids, made her own and the children’s clothes, and all of the other household chores.

Back then, Dad had the only car, and the upper middle class families had a second, family car. If one of the kids wanted their own car, they paid for it themselves by getting a job.

School

In 1970, only half of Americans graduated from high school, less than 10 percent went to college. When you were 15 or 16, you went out and got a job. You didn’t spend your whole life in school majoring in smoking weed and getting laid while studying gender roles of non-binary sexual predators. No, you became a mechanic, a farmer, or a factory worker. You did something productive with your life and didn’t waste it making TikTok videos about sex toys.

If you want to live like Americans did in the 50s through the 70s, it is still attainable.

By Divemedic, ago