A Lesson in Economic for Liberals

[BluePhantom]

Nice theories. I'm assuming tomorrow you're going to actually present real world examples that actually happened to support your theories, rather than just making up more hypothetical examples that - not surprisingly - always support your view? Or do we need not concern ourselves with the real world, real history, what actually happened? Heck - why look back in history and see how tax rates, unionization, etc. actually affected the economy and the real people in it - when you can just make shit up that works out perfectly to support your view? It requires far less reading and research on your part, and since the examples you provide are made up by you with the sole purpose of illustrating your points, they nicely and neatly fit in with your theories instead of introducing the complexities that a real world example would provide.

Ok now that Thanksgiving is over I can get back to this. Sure...I will be happy to provide real world examples.

Let's start with Netflix who recently raised rates up to 60%. They did so because their own costs for postage, handling, and licensing fees from the movie companies were increasing. "...between the cost of mailing DVDs and paying increased licensing fees for content, a Netflix rate hike was inevitable." (1) In other words they were facing increased cost obligations and passed them along to the customer. The company does not simply eat the additional cost burden. Netflix lost 800,000 subscribers because of this price increase which obviously means they lost market share. (1)

Now Redbox on the other hand raised prices 20% in response. Why? Several reasons. One, because they knew that Netflix was going to lose a portion of their market share due to their increased fees and that meant Redbox could boost their prices just slightly, generate more profit which will be used on expansion, and still grab a portion of that market share that Netflix sacrificed. Two, Redbox itself was dealing with increases in operating expenses due to the Durbin Amendment which regulates (there's that word again) debit card transactions. (2,3,4,5)

This is a perfect and very simple real world example that you requested that demonstrates the point. It includes prices increases due to government regulation, operating expenses within the chain of distribution, reactive price increase by a competitor, and market share adjustment.


1) Showbiz Sandbox 112: Why Netflix Had To Raise Its Prices : Showbiz Sandbox

2) Redbox Raises Price On Rentals To $1.20 | TechCrunch

3) We've Seen This Movie Before: Redbox Raises Prices

4) Redbox to Raise DVD Rental Price 20% Per Day - The Hollywood Reporter

5) The Durbin Amendment Explained

 

[BluePhantom]

You're misunderstanding the tax code. Businesses pay taxes on their profits, not gross revenue. Google "schedule c". Or ask anyone who's ever owned a business.

You mean like me? You start with your gross and then start deducting costs. You deduct every little thing you can to reduce your adjusted taxable income. At the end of the day yes, that is primarily (not completely) profits. But it really doesn't matter. Look at it this way.

Let's say I sell a product at $5.00 and I earn $1.00 in profit off of that. Now if you impose a 20% tax (let's calculate it off profit just for argument), that's $0.20 I pay to the government meaning I only get $0.80 in actual profit. I am not going to just eat that cost. I am going to raise my price to $5.25 which results in a $0.25 tax which returns me to my original profit of $1.00.

If you allow taxation or any cost to negatively impact profits your stock prices will decrease, investors will lose money and they will raise all holy hell and pitch the CEO out on his ear.

Rule #1 in business: you don't pay for your expenses, your customers do.

Now in regards to the market setting the price, this creates a situation where if your financial obligations are such that you are overpriced compared to the market guess what will happen? You will lose customers. (GASP) Translation: You lose market share. If all the companies that make a given product face the same conditions it becomes a competition to see who can streamline their chain of distribution and production procedures to create the highest quality at the lowest cost and everyone is playing on an even field. But when you add in foreign companies that face a completely different set of operating conditions the playing field is not even. Sometimes a nation has operating conditions that are just as bad or worse than ours (you don't see a lot of American companies opening manufacturing plants in France for example). Sometimes they are a lot better (India and Brazil for example).

Regardless of where you are there is a minimum price you can sell your product for (known as BEP - Break Even Point). As the name would suggest if you sell your product any lower than this you are slowly going bankrupt. When regulations, taxes, unionization, etc combine in such a way that the BEP results in a high enough price that you are still priced above the market your company is screwed and you have no choice but to go somewhere that has favorable conditions that allows you to reduce your operating expenses.

It's as simple as that.

 

[BluePhantom]

Nice theories. I'm assuming tomorrow you're going to actually present real world examples that actually happened to support your theories, rather than just making up more hypothetical examples that - not surprisingly - always support your view? Or do we need not concern ourselves with the real world, real history, what actually happened?

Let me provide you with a couple more. Let's look at the price of oil as it relates to food prices. You may think on the surface one has nothing to do with the other. You would be completely wrong. A farm requires machinery which run on gas and oil. It requires electricity, it requires manufactured good such as fertilizers, secondary goods such as feed for animals, etc. The food must be sent to processing and inspection facilities which run on electricity and oil. The food is often packaged which requires machinery (electricity, oil, etc). The food must be transported to a store (gas and oil). At every step in the chain of distribution some form of oil based product is present. So when the price of oil increases, the price of food increases as well and it's passed on step by step through that chain of distribution. Indeed, the price of oil and the price of food rise and fall in an almost exact proportion. (1) It does this because the farmer is not going to simply eat the increased price of energy, the processing plant is not going to simply eat the increased price of their own energy plus the increased price of the farmer's energy, and the retailer is not going to simply eat the increased price of all of it.

As the chart below shows, when the price of oil fluctuates, the price of food follows suit.

Now let's look at a different effect....ethanol. In an effort to find a cleaner energy alternative the government introduces a subsidy on corn production used for ethanol. Farmers suddenly start growing corn out the ass which means they are no longer growing other crops at the same rate. For other crops this decreases supply resulting in a higher price for raw materials. With corn, farmers started selling their corn for the production of ethanol instead of for food in order to gain the subsidy. The result was a decrease in supply of corn and in other agricultural goods. Simple supply and demand takes over at that point and prices increase. (2,3)

The CBO stated in their study:

"In 2008, nearly 3 billion bushels of corn were used to produce ethanol in the United States. That amount constituted an increase over the previous year of almost a billion bushels. The demand for corn for ethanol production, along with other factors, exerted upward pressure on corn prices, which rose by more than 50 percent between April 2007 and April 2008. Rising demand for corn also increased the demand for cropland and the price of animal feed. Those effects in turn raised the price of many farm commodities (such as soybeans, meat, poultry, and dairy products) and, consequently, the retail price of food." (2)

Now in this case the factor that generated increased prices was an unforeseen effect in a government subsidy driven by "green energy" (which I might add was a waste of time and money since environmentalists now say ethanol is worse than oil and gas in regards to the environment [4]). But what we see with ethanol is government regulation affecting the price of raw materials which ripple through the chain of distribution increasing prices at every step. The person who pays the cost for all of that is ultimately the consumer.

Got it now? Finally?

1) Oil and food prices | Energy Bulletin

2) http://www.cbo.gov/ftpdocs/100xx/doc10057/04-08-Ethanol.pdf

3) Ethanol pumping up food prices - USATODAY.com

4) Study: Ethanol Worse for Climate Than Gasoline : NPR

Additional

5) Farmers worry ethanol uses too much corn | Detroit Free Press | freep.com

 

[Flopper]

Rule #1 in business: you don't pay for your expenses, your customers do.

Whether you can make a price hike to cover added expenses stick, depends on your competition. If the additional expense hits all competitors equally, then you probably can. However, in most cases it's not that simple. One competitor may not raise his price in order to gain market share and thus eat the added expense. Even a tax increase will not hit all competitors the same. There are many reasons why an added expense will not increase price, just as many reason why a reduction in expense may not translate in a lower price.

 

[BluePhantom]

Rule #1 in business: you don't pay for your expenses, your customers do.

Whether you can make a price hike to cover added expenses stick, depends on your competition. If the additional expense hits all competitors equally, then you probably can. However, in most cases it's not that simple. One competitor may not raise his price in order to gain market share and thus eat the added expense. Even a tax increase will not hit all competitors the same. There are many reasons why an added expense will not increase price, just as many reason why a reduction in expense may not translate in a lower price.

Essentially that's correct yes. A business may predict that they will earn larger net profits by accepting a lower profit margin if it results in an increased market share. There are a lot of reasons why a company might do that...to screw the competition is one reason. If they think they can undercut their competition to the point that they drive them out of business they might be willing to accept smaller short term gains in exchange for future dominance of the market.

The only way a company will not raise prices in the face of an additional tax burden is if they believe, for whatever reason, that accepting a lower rate of return will result in an increase in market share that will compensate for it. But at the end of the day when facing a situation where multiple companies face the same additional financial burden, someone is going to blink and jack their prices and everyone else will react according to what they believe is in their best interests considering price vs. market share.

This is especially true when looking at corporations because investors demand a yearly increase on their rate of return and if the CEO or governing body does not meet that rate of return, the investors will boot them out. Smaller businesses are usually stuck in a position where they are forced to react because they lack the liquid assets to battle the corporations in terms of advertising, lobbying, brand name recognition, etc.

So I would say that yes there are times when a a company will accept a lower initial profit margin, but again I emphasize, only if it results in an increase in market share that is considerable enough to compensate and that is usually reactionary in nature (i.e. a competitor blinks and jacks prices and they decide how to proceed in response). As we saw with the Netflix example below, Redbox chose to increase prices in reaction to Netflix with the intention of using the additional revenue to launch an expansion campaign that would both increase profits and market share...at least that appears to be their plan.

 

[Dragon]

The reason that Netflix had to raise its rates for shipped DVDs is because their rates were very low. I remember thinking at the time I signed up for the service that it was ridiculously cheap -- $2 over and above the rate for on-line viewing (which didn't change) for as many as ten DVDs per month, and easily five or six. I'm not sure why Netflix priced the service so low, although it may have been simply to seize market share early. The price was near the bone, and when costs increased there was no room to simply absorb the cost.

Normally, businesses price their products well above the amount they HAVE to charge, unless for some market-related reason that's impossible. As a result, normally prices do not increase automatically when costs of production go up for whatever reason. Netflix is a cherry-picked example.

 

[NYcarbineer]

Today, class, we shall attempt to explain to the liberal mind how taxation, regulation, unionization, and entitlements (such as Obamacare) stagnate the economy, diminish market share for American industry, enhance foreign profit margins, discourage domestic investment, and increase unemployment. To accomplish this we are going to set up a hypothetical set of businesses, a basic chain of distribution, and some basic initial assumptions.

First consider an American company that manufactures widgets. We will call them Widgets Inc. They require 2x4s to make the widgets which they get from Lumber Inc., and Lumber Inc. requires raw materials (logs) which they get from Loggers Inc. Additionally, we have Foreign Inc. that also manufactures widgets and begins with the exact same parameters as Widgets Inc. except that Foreign Inc. is located in a foreign country we will call “Foreignavia”. Both Widgets Inc. and Foreign Inc. sell their widgets to “Phantom-Mart” in the United States for distribution to the American consumer. We will also assume that the quality of the widgets produced by each company is the same and each year 1,000 widgets are sold by Phantom-Mart. We will also assume that one log produces one set of 2x4s which in turn produces one widget.

Let’s toss out some economic givens:
Loggers Inc. has the following factors: $1.00 on logs, $1.00 on labor, and $1.00 profit for a selling price of $3.00 per log

Lumber Inc. has the following: $3.00 on materials (logs), $2.00 on labor, and $1.50 profit for a selling price per bundle of 2x4s of $6.50

Widgets Inc. has the following: $6.50 on materials (2x4s), $3.00 on labor, and $2.00 profit for a selling price of $11.50

Foreign Inc. has the exact same parameters as Widgets Inc. except that it costs them $1.00 to transport their widgets from Foreignovia to the United States so they have a selling price of $12.50

Phantom Mart has the following: $1.50 for labor and $2.00 profit, meaning they sell widgets to the consumer at a price of $15.00 for widgets from Widgets Inc. and $16.00 for widgets from Foreign Inc.

We will calculate market share as the percentage differential in price between the two so since Widgets Inc. sells at a price that is 6% lower than Foreign Inc. we will assign a starting market share of 56% - 44% in favor of Widgets Inc. We will also assume that a factory can produce 100 widgets per year so Widgets Inc. requires six factories to meet the consumer demand of 560 widgets and Foreign Inc requires five factories to meet the consumer demand of 440 widgets a year.

Now that we have that established, let’s start taxing. The government imposes a 10% tax on production and manufacturing. Now one might think that this will raise the price of the $15.00 American widget to merely $16.50. But that’s not the case at all. It must be applied across the entire chain of distribution. Neither can a company simply add 10% to their selling price in order to maintain their profit. Loggers Inc. for a $3.00 price per log must add more than just $0.30 to their cost because at a new selling price of $3.30 the 10% tax is $0.33 translating into a profit of only $0.97 per log instead of the $1.00 they had pre-tax. So in order to maintain their $1.00 of profit they must raise the price to $3.33 representing an 11% increase. This is then passed on to Lumber Inc. who now has to pay $3.33 per log increasing their pre-tax price per bundle of 2x4s to $6.83 but again they now have a tax to pay as well which initially would be $0.68. Again however they cannot simply add $0.68 to their price as it would reduce their profit. They actually must raise the price $0.76 to cover their tax and the increased cost of logs. Their final selling price is now $7.59 which represents a 17% increase in against their initial price of $6.50. This will continue to Widgets Inc. who in the same way will now be forced to charge $13.99 per widget.

We will assume that the tax does not apply to sales so Phantom Mart will not get taxed but they must now pay $13.99 for an American widget as opposed to the pre-tax price of $11.50 which means they must sell the American widget for $17.49 instead of the pre-tax price of $15.00 and vs. the Foreign Inc. widget which remains at $16.00. The 10% manufacturing tax has resulted in a final increase of nearly 17% for the American consumer. But Foreign Inc. does not just sit back and do nothing. They realize they can increase their price and realize a greater profit and still sell at a lower price than their American competitor. So they split the difference and raise their prices from $12.50 to $13.25. With the new selling prices in mind when we calculate production for the next year Foreign Inc. now gains a 54% - 46% market share advantage (a ten percent swing) and they are realizing a 38% increase in profit. This means that out of the 1,000 widgets to be sold next year Widget Inc. will only sell 460. They have six plants that produce 100 widgets each but with only a demand for 460 they are forced to close one plant or they will be overproducing and lose their profitability. Foreign Inc. on the other hand now needs to produce 540 widgets and as such they must build a new plant to accommodate the increased demand. This means American workers just got laid off, they will be requiring fewer 2x4s from Lumber Inc, who will in turn be requiring fewer logs from Logging Inc.

Now here is an important point. Even if we now eliminate that tax the selling price for Widgets Inc. will not revert to its original price of $11.50. This is because over time people become accustomed to paying the higher price and if that tax is eliminated Widgets Inc. will merely split the difference and lower their price to $12.75. They realize greater profits and the consumer still thinks they are getting a good deal with a lower price. The longer a tax is in place the greater this effect. So once you assess a tax, the damage is done. Prices will never revert to their original pre-tax price.

Now let’s regulate!

Environmentalists are pissed at Logging Inc because they are destroying the habitat of the Northwestern Checkered Sloth, and they are demanding that action be taken to clean up the carbon emissions coming from the factories at Lumber Inc. and Widgets Inc. Government imposes emissions standards that increase the cost of production at Lumber Inc. and Widgets Inc. by $0.75 and declares part of Logging Inc’s forests as federally protected. This forces Logging Inc to go into areas that are more difficult to access and further away to provide logs. The additional cost is $0.50 per log. So where Logging Inc was producing logs at $1.00 a pop they now pay $1.50 to produce the same thing. This increases not only their base selling price but the amount of tax they must pay as well since that is calculated as a percentage. Their selling price now goes from $3.33 per log to $3.89 per log. Lumber Inc. now pays that higher price for raw materials, has to deal with their own regulations, and the increased tax burden and they have to raise prices from $7.59 to $9.04. Same thing with Widgets Inc who must raise their price from $13.99 to $16.43 and now Phantom Mart must sell American widgets for $19.93 compared to their pre-regulatory price of $17.49. Again, Foreign Inc sees an opportunity and raises their prices by half of the difference to $14.84. Foreign Inc has now seen their profit margin grow 117% compared to their original price while the American companies have seen no increase in profit. The price for consumers has risen 22% even for the cheaper foreign widget that has done nothing to demand an increase in sales price.

Again we must recalculate market share and we find that Foreign Inc now has a 58% - 42% advantage. With this and the rate of production per plant there is no need to build or shut down plants although Widgets Inc will certainly be forced to suspend operations for part of the year. More workers are laid off, less 2x4s required from Lumber Inc, less logs required from Logging Inc.

Now let’s apply Obamacare!

Obamacare we will say will cost an additional 15% against labor. You know what’s coming by now. The price of logs jumps from $3.89 to $4.06. The price of 2x4s from $9.04 to $9.57. The price of widgets from $16.43 to $17.52. But this time Phantom Mart gets hit too because they have employees as well they must provide for and so the selling price for an American widget jumps from $19.93 to $21.25 (a 6.6% increase) but the foreign widget only jumps from $18.34 to $18.57 (a 1.2% increase). This time Foreign Inc does nothing to their prices. They decide they are going to go for the market share and squeeze Widgets Inc. and by doing so they grab a 64% - 36% market share advantage. This means Foreign Inc will have to produce 640 widgets when they only have the capacity to produce 500. They must build two new plants. Widgets Inc. now only has a demand for 360 widgets but they have the capacity to produce 500. They must close another plant.

Now about this time along come Billy Bob. Billy Bob is a manager at Phantom Mart and he’s saved some cash and he wants to invest. Well he could invest in the American Widgets Inc. but over the last couple years they have shown a market share decrease of 20% and they have not shown any increase in profitability. Foreign Inc on the other hand has shown a market share increase of 20% and profitability has increased 117% meaning a trend of a strong return on investment. Who do you think Billy Bob is going to invest in? This means American money generated through goods and services is now going to help Foreign Inc to build their two new plants.

Now let’s unionize!

The workers unite across the board and strike a deal for an initial 10% increase in wages and a mandatory 5% increase every year. I will skip to the bottom line because by now you are surely getting the point. In the first year American widgets increase to $22.11 while foreign widgets increase to $18.72. At this point Foreign Inc makes a bold move. They slash their profit margin back to the original level and start selling again at $12.50 because they know that within six years American Widgets Inc. will be forced to charge double the price of their own product enabling them to grab a full 100% market share and driving their American competitors out of business.

This is not lost on Widgets Inc and they realize they have only one choice that will keep their company from a total collapse. They are forced to close all their plants and move to Foreignovia where they can compete with Foreign Inc. at an even level. Of course this means they are no longer buying 2x4s from Lumber Inc and in turn Logging Inc gets slaughtered as well. The result is that we have taxed, regulated, Obamacared, and unionized our American business to the point that it simply cannot compete while foreign profits and employment have increased. Because of the closure of all these plants due to a decreased market share American workers are out of a job, unemployment has skyrocketed, and the economy has ground to screeching halt. Thankfully though, the Northwestern Checkered Sloth is happy as a pig in shit.

At this point, liberals, environmentalists, and union workers start scratching their heads wondering where all the jobs have gone and their solution is “raise taxes and increase union influence”. And they wonder why we are where we are.

Class dismissed.

You need to read the first line of my signature, and take it to heart.

 

[NYcarbineer]

At this point, liberals, environmentalists, and union workers start scratching their heads wondering where all the jobs have gone and their solution is “raise taxes and increase union influence”. And they wonder why we are where we are.

Class dismissed.

Let me ask you one question (despite my lack of hope I'll get a straight answer, I'll ask it anyway).

Why do we have trade deficits with countries like France, Germany, Japan, Canada and quite a few others where

1. labor is not cheap
2. regulation is not limited, i.e., environmental laws etc.
3. energy is not cheap
4. taxes are not low
5. healthcare is universal

 

[OohPooPahDoo]

At this point, liberals, environmentalists, and union workers start scratching their heads wondering where all the jobs have gone and their solution is “raise taxes and increase union influence”. And they wonder why we are where we are.

Class dismissed.

Let me ask you one question (despite my lack of hope I'll get a straight answer, I'll ask it anyway).

Why do we have trade deficits with countries like France, Germany, Japan, Canada and quite a few others where

1. labor is not cheap
2. regulation is not limited, i.e., environmental laws etc.
3. energy is not cheap
4. taxes are not low
5. healthcare is universal

Labor isn't cheap in Japan? Thought it was.

Get what you're saying though. The answer is that the make better cars. Straight up, its a fact.

 

[cbirch2]

Today, class, we shall attempt to explain to the liberal mind how taxation, regulation, unionization, and entitlements (such as Obamacare) stagnate the economy, diminish market share for American industry, enhance foreign profit margins, discourage domestic investment, and increase unemployment. To accomplish this we are going to set up a hypothetical set of businesses, a basic chain of distribution, and some basic initial assumptions.

First consider an American company that manufactures widgets. We will call them Widgets Inc. They require 2x4s to make the widgets which they get from Lumber Inc., and Lumber Inc. requires raw materials (logs) which they get from Loggers Inc. Additionally, we have Foreign Inc. that also manufactures widgets and begins with the exact same parameters as Widgets Inc. except that Foreign Inc. is located in a foreign country we will call “Foreignavia”. Both Widgets Inc. and Foreign Inc. sell their widgets to “Phantom-Mart” in the United States for distribution to the American consumer. We will also assume that the quality of the widgets produced by each company is the same and each year 1,000 widgets are sold by Phantom-Mart. We will also assume that one log produces one set of 2x4s which in turn produces one widget.

Let’s toss out some economic givens:
Loggers Inc. has the following factors: $1.00 on logs, $1.00 on labor, and $1.00 profit for a selling price of $3.00 per log

Lumber Inc. has the following: $3.00 on materials (logs), $2.00 on labor, and $1.50 profit for a selling price per bundle of 2x4s of $6.50

Widgets Inc. has the following: $6.50 on materials (2x4s), $3.00 on labor, and $2.00 profit for a selling price of $11.50

Foreign Inc. has the exact same parameters as Widgets Inc. except that it costs them $1.00 to transport their widgets from Foreignovia to the United States so they have a selling price of $12.50

Phantom Mart has the following: $1.50 for labor and $2.00 profit, meaning they sell widgets to the consumer at a price of $15.00 for widgets from Widgets Inc. and $16.00 for widgets from Foreign Inc.

We will calculate market share as the percentage differential in price between the two so since Widgets Inc. sells at a price that is 6% lower than Foreign Inc. we will assign a starting market share of 56% - 44% in favor of Widgets Inc. We will also assume that a factory can produce 100 widgets per year so Widgets Inc. requires six factories to meet the consumer demand of 560 widgets and Foreign Inc requires five factories to meet the consumer demand of 440 widgets a year.

Now that we have that established, let’s start taxing. The government imposes a 10% tax on production and manufacturing. Now one might think that this will raise the price of the $15.00 American widget to merely $16.50. But that’s not the case at all. It must be applied across the entire chain of distribution. Neither can a company simply add 10% to their selling price in order to maintain their profit. Loggers Inc. for a $3.00 price per log must add more than just $0.30 to their cost because at a new selling price of $3.30 the 10% tax is $0.33 translating into a profit of only $0.97 per log instead of the $1.00 they had pre-tax. So in order to maintain their $1.00 of profit they must raise the price to $3.33 representing an 11% increase. This is then passed on to Lumber Inc. who now has to pay $3.33 per log increasing their pre-tax price per bundle of 2x4s to $6.83 but again they now have a tax to pay as well which initially would be $0.68. Again however they cannot simply add $0.68 to their price as it would reduce their profit. They actually must raise the price $0.76 to cover their tax and the increased cost of logs. Their final selling price is now $7.59 which represents a 17% increase in against their initial price of $6.50. This will continue to Widgets Inc. who in the same way will now be forced to charge $13.99 per widget.

We will assume that the tax does not apply to sales so Phantom Mart will not get taxed but they must now pay $13.99 for an American widget as opposed to the pre-tax price of $11.50 which means they must sell the American widget for $17.49 instead of the pre-tax price of $15.00 and vs. the Foreign Inc. widget which remains at $16.00. The 10% manufacturing tax has resulted in a final increase of nearly 17% for the American consumer. But Foreign Inc. does not just sit back and do nothing. They realize they can increase their price and realize a greater profit and still sell at a lower price than their American competitor. So they split the difference and raise their prices from $12.50 to $13.25. With the new selling prices in mind when we calculate production for the next year Foreign Inc. now gains a 54% - 46% market share advantage (a ten percent swing) and they are realizing a 38% increase in profit. This means that out of the 1,000 widgets to be sold next year Widget Inc. will only sell 460. They have six plants that produce 100 widgets each but with only a demand for 460 they are forced to close one plant or they will be overproducing and lose their profitability. Foreign Inc. on the other hand now needs to produce 540 widgets and as such they must build a new plant to accommodate the increased demand. This means American workers just got laid off, they will be requiring fewer 2x4s from Lumber Inc, who will in turn be requiring fewer logs from Logging Inc.

Now here is an important point. Even if we now eliminate that tax the selling price for Widgets Inc. will not revert to its original price of $11.50. This is because over time people become accustomed to paying the higher price and if that tax is eliminated Widgets Inc. will merely split the difference and lower their price to $12.75. They realize greater profits and the consumer still thinks they are getting a good deal with a lower price. The longer a tax is in place the greater this effect. So once you assess a tax, the damage is done. Prices will never revert to their original pre-tax price.

Now let’s regulate!

Environmentalists are pissed at Logging Inc because they are destroying the habitat of the Northwestern Checkered Sloth, and they are demanding that action be taken to clean up the carbon emissions coming from the factories at Lumber Inc. and Widgets Inc. Government imposes emissions standards that increase the cost of production at Lumber Inc. and Widgets Inc. by $0.75 and declares part of Logging Inc’s forests as federally protected. This forces Logging Inc to go into areas that are more difficult to access and further away to provide logs. The additional cost is $0.50 per log. So where Logging Inc was producing logs at $1.00 a pop they now pay $1.50 to produce the same thing. This increases not only their base selling price but the amount of tax they must pay as well since that is calculated as a percentage. Their selling price now goes from $3.33 per log to $3.89 per log. Lumber Inc. now pays that higher price for raw materials, has to deal with their own regulations, and the increased tax burden and they have to raise prices from $7.59 to $9.04. Same thing with Widgets Inc who must raise their price from $13.99 to $16.43 and now Phantom Mart must sell American widgets for $19.93 compared to their pre-regulatory price of $17.49. Again, Foreign Inc sees an opportunity and raises their prices by half of the difference to $14.84. Foreign Inc has now seen their profit margin grow 117% compared to their original price while the American companies have seen no increase in profit. The price for consumers has risen 22% even for the cheaper foreign widget that has done nothing to demand an increase in sales price.

Again we must recalculate market share and we find that Foreign Inc now has a 58% - 42% advantage. With this and the rate of production per plant there is no need to build or shut down plants although Widgets Inc will certainly be forced to suspend operations for part of the year. More workers are laid off, less 2x4s required from Lumber Inc, less logs required from Logging Inc.

Now let’s apply Obamacare!

Obamacare we will say will cost an additional 15% against labor. You know what’s coming by now. The price of logs jumps from $3.89 to $4.06. The price of 2x4s from $9.04 to $9.57. The price of widgets from $16.43 to $17.52. But this time Phantom Mart gets hit too because they have employees as well they must provide for and so the selling price for an American widget jumps from $19.93 to $21.25 (a 6.6% increase) but the foreign widget only jumps from $18.34 to $18.57 (a 1.2% increase). This time Foreign Inc does nothing to their prices. They decide they are going to go for the market share and squeeze Widgets Inc. and by doing so they grab a 64% - 36% market share advantage. This means Foreign Inc will have to produce 640 widgets when they only have the capacity to produce 500. They must build two new plants. Widgets Inc. now only has a demand for 360 widgets but they have the capacity to produce 500. They must close another plant.

Now about this time along come Billy Bob. Billy Bob is a manager at Phantom Mart and he’s saved some cash and he wants to invest. Well he could invest in the American Widgets Inc. but over the last couple years they have shown a market share decrease of 20% and they have not shown any increase in profitability. Foreign Inc on the other hand has shown a market share increase of 20% and profitability has increased 117% meaning a trend of a strong return on investment. Who do you think Billy Bob is going to invest in? This means American money generated through goods and services is now going to help Foreign Inc to build their two new plants.

Now let’s unionize!

The workers unite across the board and strike a deal for an initial 10% increase in wages and a mandatory 5% increase every year. I will skip to the bottom line because by now you are surely getting the point. In the first year American widgets increase to $22.11 while foreign widgets increase to $18.72. At this point Foreign Inc makes a bold move. They slash their profit margin back to the original level and start selling again at $12.50 because they know that within six years American Widgets Inc. will be forced to charge double the price of their own product enabling them to grab a full 100% market share and driving their American competitors out of business.

This is not lost on Widgets Inc and they realize they have only one choice that will keep their company from a total collapse. They are forced to close all their plants and move to Foreignovia where they can compete with Foreign Inc. at an even level. Of course this means they are no longer buying 2x4s from Lumber Inc and in turn Logging Inc gets slaughtered as well. The result is that we have taxed, regulated, Obamacared, and unionized our American business to the point that it simply cannot compete while foreign profits and employment have increased. Because of the closure of all these plants due to a decreased market share American workers are out of a job, unemployment has skyrocketed, and the economy has ground to screeching halt. Thankfully though, the Northwestern Checkered Sloth is happy as a pig in shit.

At this point, liberals, environmentalists, and union workers start scratching their heads wondering where all the jobs have gone and their solution is “raise taxes and increase union influence”. And they wonder why we are where we are.

Class dismissed.

Ok so what i can tell so far....

Taxes: You basically realized that tax money comes out of the private economy. How profound. You do a great job at proving your case by simply ignoring taxes in foreign countries, so cool little lie there. And even a college microecon student would tell you that taxes are a lot more complex than you portray them to be. The actual price paid by the firm depends on the elasticity of the supply and demand curves. a gasoline tax, for example, will be mostly passed to the consumer and the firms profits will stay fairly constant. but us uneducated liberals probably have no idea about that. huh?

Whens the last time a keynesian had to teach supply and demand to a conservative? Jesus....

Regulation: Again, anyone can make a case based on imaginary numbers. Find me the numbers of to what extent regulation actually impacts the economy and then well talk.

Obamacare: "Obamacare we will say will cost an additional 15% against labor."

See, you went wrong in the first sentence...

Again, you simply dont understand what your talking about. Ok let me explain a whoooole lot to you.

Obamacare doesnt increase costs per worker. Remember, it was passed originally to control rising healthcare costs. What it does do is fine firms with over 50 workers if they dont insure those workers. That sounds bad, so conservatives always cherry pick with that fact. In reality, the amount of that fine is lower than the price that the employers pay for health insurance. So companies that normally pay health insurance for their employees and now opt to pay a fine instead of that premium, are actually saving money.

So your claiming obamacare costs businesses money but in all reality its the exact opposite. Its an effort to shift the cost of rising healthcare premiums away from businesses. Its good for business! My dad started a small business 30 years ago, i can tell you first hand that small businesses support healthcare reform.

 

[cbirch2]

You need to read the first line of my signature, and take it to heart.

Who said the second one? Google cant seem to find it.

 

[Truthseeker420]

2. Corporations should not be taxed because they pass the costs on to the consumer anway.

Well that is definitely true. Tax businesses all you want but they won't pay it...the consumers pay it. This is what I tell people who insist on taxing oil companies. "Fine", I tell them. "It won't hurt them a bit. You will simply pay more for a gallon of gas." People struggle to understand that.

tell them what? people who buy their product should pay the taxes. corporations should get a free ride off of me. I don't buy tabacco why should i have to give a free ride to tabacco companies?

 

[cbirch2]

2. Corporations should not be taxed because they pass the costs on to the consumer anway.

Well that is definitely true. Tax businesses all you want but they won't pay it...the consumers pay it. This is what I tell people who insist on taxing oil companies. "Fine", I tell them. "It won't hurt them a bit. You will simply pay more for a gallon of gas." People struggle to understand that.

Again, the truth is much more complex. The amount paid by the consumer and the producer depend on the elasticity of the demand curve......

To pretend you just cant tax corporations because they always pass on the costs is blatantly wrong. Its just as wrong as claiming they pay the entire tax. It depends on the industry.

 

[OohPooPahDoo]

Taxes: You basically realized that tax money comes out of the private economy. How profound. You do a great job at proving your case by simply ignoring taxes in foreign countries, so cool little lie there. And even a college microecon student would tell you that taxes are a lot more complex than you portray them to be. The actual price paid by the firm depends on the elasticity of the supply and demand curves. a gasoline tax, for example, will be mostly passed to the consumer and the firms profits will stay fairly constant. but us uneducated liberals probably have no idea about that. huh?

We're well aware of it, but thanks for sharing basic knowledge. You surely are impressed with yourself.

 

[NYcarbineer]

You need to read the first line of my signature, and take it to heart.

Who said the second one? Google cant seem to find it.

lol, that's because i made them up.

 

[diptherio]

Kindly explain how Sweden and Norway manage to have highly progressive tax structures, lots of social entitlement programs and high levels of unionization and still outperform our economy?

Second, are you aware that the fossil-fuels industries are highly SUBSIDIZED by the government? I would settle for just removing the subsidies, then we could start talking about taxing. A lot of people seem to not understand that we have NEVER had a free market in this country, and probably never will. The Government has been interfering from day one, and they rarely, if ever, interfere on behalf of small business or consumers. Most all of their big initiatives are meant to provide assistance to large corporate industry, which shouldn't be surprising since that's where the politicians who create these initiatives get most of their campaign money.

 

[cbirch2]

Kindly explain how Sweden and Norway manage to have highly progressive tax structures, lots of social entitlement programs and high levels of unionization and still outperform our economy?

Second, are you aware that the fossil-fuels industries are highly SUBSIDIZED by the government? I would settle for just removing the subsidies, then we could start talking about taxing. A lot of people seem to not understand that we have NEVER had a free market in this country, and probably never will. The Government has been interfering from day one, and they rarely, if ever, interfere on behalf of small business or consumers. Most all of their big initiatives are meant to provide assistance to large corporate industry, which shouldn't be surprising since that's where the politicians who create these initiatives get most of their campaign money.

True. But do you really want 0 government regulation? I'll take my government with the least amount of regulation and bureaucracy as possible, sure. But an economy without a minimum wage or at least some environmental controls? Where owners pay workers the least amount possible and dump the waste products of industry in the most economically viable location?

Maybe we can send children back to work in the factories and set our rivers on fire again...

No. Instead we should opt for a lien, but effective government. Whose rules are comparatively unintrusive. But that doesnt mean eliminating every financial law passed since 1910, from the federal reserve act to the social security act, to the clean water act. Government does important and tangible things that need to be done. It just needs to do them better.

 

[BluePhantom]

Ok most of the stuff that has been posted since my last visit I have already covered in previous posts. I am not going to continually say the same thing to the same arguments. Go back and read the other posts and you will find my responses.

I will address a couple things this morning: trade deficits and economy performance vs. Sweden and Norway. I will take them in separate posts throughout the day (as football games allow). Lets take Sweden and Norway first.....

Define "outperform". Outperform in what way? According to the CIA factbook (1,2,3) I would strongly question whether their economies outperform us. Are you basing that statement on GDP? Well no ours is roughly 24 times that of Sweden and Norway combined. Growth of real GDP? Depends on the year. Sweden beat us in 2010, but we beat them the previous two years. We beat Norway in 2010 and 2008, but they beat us in 2009* (see note below). Strength of currency? No a Swedish Krona is worth about $0.14 and a Norwegian Kroner is worth about $0.17.(4) GDP per capita? Well we hammer Sweden in that category. Norway beats us there but that's primarily because of their aggressive drill and export oil policy. Depending on the year and the source you refer to Norway is usually ranked between #3 and #5 in the world's top oil exporting nations.(5) How about economic freedom? No we slaughter both Sweden and Norway in that one. (6,7,8)

Are you referring to public debt as a percentage of GDP? Oh hell yeah....we have a ton more of that. (1,2,3) Perhaps you also may want to consider that both Sweden and Norway (especially Norway) allow their governments to compete directly in the market with private business. (9,10) That doesn't happen in the United States. We don't want government ownership of industry because it crowds out private enterprise and limits economic freedom.

Frankly, it's amazing that either of these countries can match us in any category but another thing you really need to look at is imports and exports. Both Sweden and Norway have a ratio where exports exceed imports (in Norway's case by a very substantial margin and again you can give oil the credit there). For the United States our imports exceed our exports. In other words more money is coming into their economies than is going out and it's the opposite for us. That's the only reason (in addition to public debt) why those two nations can even compare to us as well as they do.

In short, they live within their means and we are a nation of consumer hogs in both the private and public sectors. This is also a reason for our trade deficits which I will address later on between games.

1) https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

2) https://www.cia.gov/library/publications/the-world-factbook/geos/sw.html

3) https://www.cia.gov/library/publications/the-world-factbook/geos/no.html

4) Sweden Currency Converter - Currency Exchange Rate

5) Top World Oil Producers, Exporters, Consumers, and Importers, 2006 — Infoplease.com

6) Sweden information on economic freedom | Facts, data, analysis, charts and more

7) Norway information on economic freedom | Facts, data, analysis, charts and more

8) United States information on economic freedom | Facts, data, analysis, charts and more

9) 5.2 The Norwegian Government

10) The state as a company owner


*Oh one last thing. I might also point out that the rate of GDP growth as a percentage is also influenced by the raw numbers. For example it's far easier to realize a 5% rate of growth when your GDP is a few hundred billion (Sweden) as opposed to several trillion (United States)

 

[cbirch2]

cool so you can quote a lot of facts you clearly dont understand. and you talk like your amazing.

Are you basing that statement on GDP? Well no ours is roughly 24 times that of Sweden and Norway combined.

Again, your either intentionally being misleading or dont understand. Norway has higher Per Capita GDP, which is the measure you would really look at. sweden is only slightly lower.

Growth of real GDP? Depends on the year. Sweden beat us in 2010, but we beat them the previous two years. We beat Norway in 2010 and 2008, but they beat us in 2009.

Well then the smart thing to do would be to take moving averages wouldnt it? Ill save the work for you, from 2006 to 2010 swedens real per capita GDP growth rate was higher than ours, norways was lower. If we extend our analysis to all of norther europe its obvious that countries like germany and belgium and sweden and even poland vastly outgrew the united states in per capita income.

look for yourself. List of countries by GDP (real) per capita growth rate - Wikipedia, the free encyclopedia

Strength of currency? No a Swedish Krona is worth about $0.14 and a Norwegian Kroner is worth about $0.17.

Again, to make this simple comparison shows a total lack of economics background. Its not as simple as higher is better, not even close. A higher US dollar would ruin manufacturing, for example.

How about economic freedom? No we slaughter both Sweden and Norway in that one.

How about social mobility, life expectancy, infant mortality, quality of living, cost of health care, etc...etc...?

Are you referring to public debt as a percentage of GDP? Oh hell yeah....we have a ton more of that. (1,2,3) Perhaps you also may want to consider that both Sweden and Norway (especially Norway) allow their governments to compete directly in the market with private business. (9,10) That doesn't happen in the United States. We don't want government ownership of industry because it crowds out private enterprise and limits economic freedom.

So we dont want what you admit works so good for the swedes and the Norwegians because of some contrived notion of liberty you personally hold?

Frankly, it's amazing that either of these countries can match us in any category

You could also call their entire system of economic regulation more stable and more prosperous. Northern europe has grown faster than us over the last 5 years. How can you claim the united states is always the best if its not performing the best? Its this blind nationalism that has ruined this country. Were not the best if were not performing the best. We have no right to claim to be number 1 if were really number 20. This conservative fantasy that the united states will always be great no matter what has to stop. it has to be made to happen, it wont happen on its own.

but one thing you really need to look at is imports and exports. Both Sweden and Norway have a ratio where exports exceed imports (in Norway's case by a very substantial margin and again you can give oil the credit there). For the United States our imports exceed our exports. In other words more money is coming into their economies than is going out and it's the opposite for us. That's the only reason (in addition to public debt) why those two nations can even compare to us as well as they do.

In short, they live within their means and we are a nation of consumer hogs in both the private and public sectors. This is also a reason for our trade deficits which I will address later on between games.

This is actually about right. Our trade deficit is essentially our fundamental problem. Mostly caused by when we hit peak oil in the 70's.

 

[cbirch2]

"*Oh one last thing. I might also point out that the rate of GDP growth as a percentage is also influenced by the raw numbers. For example it's far easier to realize a 5% rate of growth when your GDP is a few hundred billion (Sweden) as opposed to several trillion (United States)"

Thats just...so wrong...

The real comparison is between developed and developing countries. In fully developed countries a small country can achieve the same % GDP growth as a larger one.