‘You can’t fake reality’ forever

Reality: Although government does perform some necessary services, like military and police protection and a judiciary to enforce our laws, and provides an infrastructure like highways and dams, that facilitates the production of wealth, it almost never creates wealth itself. Instead, government takes large amounts of resources away from people and businesses, keeps a big part for itself, and re-distributes the rest. So increasing government spending does not spur economic growth – mostly it is the reverse.

Reality: Since almost all wealth is created by the private sector, the more jobs there are in the private sector, the more economic growth our country will realize.

Reality: Employers in the private sector will not hire new workers (or retain present ones) unless those workers cost less than the income they produce. Thus the old saying “You can’t fake reality” is true, although I would add that you can’t fake reality forever.

All of this means that if government imposes market artificialities upon employers – who are there to make a profit – they will do one of five things for their own health or even survival: try to work around or avoid the mandates; cut expenses, usually by reducing their labor force and often by replacing the workers with machines; increase their prices if they can still stay in business by doing so; move to locations that do not require those rules, if they can; or simply go out of business. This analysis applies to things like minimum wage laws, increased union wages, healthcare mandates and legions of intrusive and complicated government regulations.

Consider customer self-checkout stations now found in many retail stores, computerized robots in automobile assembly plants, and automatic crop-picking machines. All of these have been implemented to reduce those companies’ labor expenses, because those labor costs were greater than using the machines. Yes, the workers who were fortunate enough to retain their jobs make more money, but the ones who are less productive lost their jobs completely.

Is this result heartless? Are these employers greedy? Those are the wrong questions to ask.

The right question is: Is this reality? And the answer is yes it is – and that reality will not change.

My friend the late David Sills, who was the presiding justice of the Court of Appeal in Orange County, told a story a long time ago about what he had observed during his trip to the Soviet Union. He was staying in the best hotel in Moscow, where he noticed that a worker was assigned to vacuum the rug in the lobby. So that is what the worker did: Every morning he plugged in his vacuum cleaner, turned on the switch and vacuumed the rug. Unfortunately, the vacuum cleaner had broken a long time before, and there were no spare parts. Nevertheless, the worker continued to do what he was assigned.

Justice Sills forecast that no society that would tolerate such conduct could survive – and he was proved to be right. With so much interference in the marketplace by our government, in many ways we are headed in the same direction.

The most positive thing about laws such as those setting minimum wages is that they make government lawmakers feel better about themselves. But that should not be the case, because those laws penalize many of the very people the lawmakers are trying to help, who are mostly low-wage and unskilled workers.

If lawmakers cared about unskilled workers at the low end of productivity, they would repeal all minimum wage laws, and address their situation by other means. That would result in more workers being hired, thus giving more people an opportunity to get a job – particularly the younger ones who are entering the workforce for the first time. This would, in turn, give all of these workers an opportunity to learn and demonstrate the positive work ethic of showing up on time and being reliable and cheerful, as well as the pride of earning a paycheck. Then the reality for most of those workers who learn and display that work ethic would be that, with time, they would either be given a pay raise because they would bring more value to their employer, or they would find work at another company and be paid more according to their increased value.

There would also be another important result from this approach: Those workers would see firsthand how they could profit by furthering their education.

All of this would also benefit society because, for example, it would be more productive sociologically for society to have 100 people working at $10 per hour, than having 65 people working at $15 per hour. This would be particularly true in poor urban neighborhoods, where unemployment and the lack of opportunity are pervasive, which, in turn, foster increased crime and despair. And greater employment is the only realistic remedy for that problem.

Finally, if it must, society can address welfare through a program of a “negative income tax.”

This means that, with these numbers only being used for purposes of illustration, everyone with a Social

Security card would be entitled to receive a stipend of $15,000 per year from the government. Then this stipend would be reduced by 50 cents for every dollar each person earned, up to earnings of $30,000 per year. Thus people who earn less than $30,000 would be subsidized; those who earn exactly that amount would receive nothing but pay no taxes, and those who earn more would only pay taxes on money they earn above that amount.

Obviously there would be many wrinkles to iron out in a program of this kind but, overall, since this approach would entirely replace the bureaucracy, arbitrariness and expense of the welfare system, it would generally be beneficial for all concerned. And not only would it be a simplified, more fair and less bureaucratic system, it would have the critically important factor of always furnishing an economic incentive for people to earn the extra dollar.

Yes, there must be some government regulation of the marketplace, but those regulations should not be nearly as intrusive or complicated as they are now. Why? Because they add huge government bureaucracies and expenses without achieving their desired effect. And they never will until they more fully take into account economic realities. And you can’t fake reality forever.

Judge Jim Gray (Ret.)