Theories of Economics and Government Controls

Date: Nov 22, 2018

The Broken Window

The broken window fallacy can be summarized as an ideology that destruction does not benefit the economy at all. It may benefit one individual or industry, but it hurts many others; thus, nullifying the positive effect on the society. With this in mind, it can be said that there are many ways, in which the window being broken may benefit an individual. For instance, if the entire community is made of glaziers, or the economy relies on the sale of windows. Broken windows need to be repaired, and these repairs need money for labor and new glass. The money in this case is very scarce and needs to be channeled into production, not maintenance. In this sense, the window being broken hurts the economy by taking money out of production and into maintenance. This, however, is the general picture.

Building a house is a onetime thing that leaves the glaziers with no steady flow of income after every member of the community has built their house. This means that after the “production” is done, the glass industry greatly relies on the occurrence of destructions, such as on the broken glass fallacy for business. So the window being broken provides steady business for glaziers and keeps their workforce employed (Hamilton 212).

The broken window, however, has a negative effect on the community as a whole. Once the people are spending their money on maintenance, there is no money left for other industries, such as clothes and beverages. These industries, thus, end up having to shut down for lack of business. The ending result is, thus, a community that has very few operational industries. Therefore, it leads to the high poverty rates given that other people are not employed and are spending their savings on maintenance, as opposed to productive investments and luxury consumer goods. The broken window, thus, destroys the economic potential of the community by enriching one industry, while destroying the rest.

The Fetish of Full Employment

The basic objective of a business is to maximize profits or at least stay profitable and not operate in a loss. In order to do this, the business has to be able to cover its operational expenses. These include paying the utility bills and the staff salaries, as well as benefits and allowances. A company that cannot fulfill any of these obligations is, thus, not doing the right thing by its shareholders and employees.

With that in mind, it is not reasonable to operate a business, which is on the borderline failing with full staff, just for the sake of keeping people employed. The people in the company may have their jobs, but they will be constantly worried given that they know the state of the company’s affairs. This will, in turn, impede their efforts in production and further drag the business down due to the poor performance. Moreover, keeping too many employees in a failing company simply leaves the management with two bad choices. The first one is to spend all the available money on paying the workers at the expense of utility bills and other necessary outflows, or convince the workers to take pay cuts in the hope of backdating salaries and allowances “when things get better”. The second choice is the popular one and yet, history shows that things rarely get better; thus, the employees often end up jobless and broke, when the company finally goes down. The ending result is a good number of court cases suing for payment, and another good number of very broke, angry, and unemployed workers on the streets.

With this in mind, it is more prudent to adjust staffing patterns to fit the needs of a company until the improved strategies allow for greater productivity and profitability. This may cause a lot of aggression and opposition from the workers, but it saves the company from debts and poor performance. A company with a lean workforce is much cheaper and efficient to run during the difficult times (Hamilton 104). As much as people are scared of being unemployed, they are not willing to work without being paid. This leaves it to the employer to decide when he or she cannot afford a workforce, and when he/she needs to trim the numbers for efficiency and cost effectiveness.

Saving the X Industry

Each industry has its own unique characteristics and lifespan. This means that each company within an industry has a place and a role to play. From this perspective, all companies are fundamentally equal with regard to the national economy. When considering bailouts, the government needs to consider industries as a whole, not individual companies. Bailing out one company in an industry that has other numerous companies is like creating a monopolistic environment by giving the bailed company an advantage over the others. Companies fail for a reason. If the entire industry is failing, it is probably due to the lack of innovation. The sector, probably, needs a complete overhaul in line with technological advances and changing consumer needs and expectations. In this sense, the industry does not need to be saved, but rather upgraded in order to match the market. It would be all right for the government to facilitate such upgrades, but at an industrial level and not with special focus on the individual companies.

When a company fails, on the other hand, it is due to the bad decisions on the part of management. Bailing out in such cases may not really be helpful, as the problem is often not financial in its root. Injecting money into a failing company may bring it back to life, but it will not sustain its operations unless something is done about the management and organizational structure. The bad decisions that made it fail have to be noted and avoided, if the same thing is to be avoided.

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With that in mind, failing companies should not be bailed out, but rather left to outlive their mistakes and to become the examples to the rest of the business fraternity. Bailing these companies creates unfair competition that ends up hurting the economy even more than the collapse of an individual company can.

Minimum Wage Laws

Increasing minimum wages seems like a quick fix for the poverty rates in the country. Most of the low-income populations have the highest crime rates, prostitution, drug abuse, child abuse, diseases, civil unrest, and many other negative aspects that the country is not proud of. This brings up the idea of eliminating poverty by giving these individuals more money for the work they do, most of which is in the unskilled labor category (Hazlitt 93). However, this is only an outsider’s perspective, and were it practical, then most of the nations in the world would have some impressive minimum wage bills in order to avoid such shaming statistics.

The reality on the ground, however, is that high minimum wage hurts the employer, who transfers the pain to the consumers and the employees. If an employer has to pay high wages for an unskilled job, it is logical for them to not hire at all. The objective of the business is to maximize profits and this can only be done through cost effective operations. This, thus, results in much higher unemployment rates for the unskilled workforce.

In addition, in cases, where the company cannot operate without the unskilled labor, the employers will be forced to increase product prices in order to accommodate the high production costs as raised by the high minimum wage. This would also imply high prices in the international market; thus, hindering businesses from global competition. Another possible action would be to outsource to cheaper production destinations that have much lower minimum wages; thus, losing jobs for the people and revenue for the government. Moreover, considering that workers in the non-profit organizations are paid on minimum wage basis, maintaining these outfits will be too expensive and they may be forced to shut down or start generating an income for maintenance purposes.

With all these in mind, it is important to note that increasing minimum wages hurts people more than it benefits them. The idea is noble in some way, but it is neither practical nor sustainable in its objectivity. The means, in this case, cannot justify the aim.

The Real Cause of Declining Black Education

The real cause of declining black education is more in the American dream or a lack thereof. Initially, after the abolition of slavery, and the “emancipation” affair, as well as the noise on “equal but separate rights”, the black people actually believed that they had a chance to be just like their white counterparts. The war against racial discrimination and segregation, however, took so much time that it almost became the core of the existence of the black community. Minorities became so focused on self-defense that they forgot about self-development. With the American dream, it was assumed that everyone had an equal chance of succeeding in the United States.

So many years later, with the affirmative action in place, it is finally settling in that the American dream was actually purely American, and not African American or Hispanic. People of color have worked so hard on the American soil for so many years and most of them still belong to the working class and earn minimum wage. The myth about hard work paying seems to work only in the cases, where the parents are rich. Numerous researches have shown that individuals were likely to top their parents’ income, if they were middle class, while the low class families were likely to remain in the low-income range. In other words, getting out of the suburbs has been proven exceptional, and exceptional is not quite encouraging.

At some point in time, blacks were driven by the desire to become better people. However, after years of trying and failing and after so many researches on the viability of the American dream for the African American citizens of the United States, giving up is almost normal. The black communities have lost hope of ever climbing up the social ladder; thus, have resigned themselves to being the worker-bees of the nation. This is the major and real reason behind the declining black education in the country.

Who Plays the Biggest Role in Deciding Where Spending Goes?

Just like many modern day “democracies”, the United States is a capitalist state. State capitalism basically implies that the state operates like a large corporation. The means of production may be privately owned at a large scale, but the government has control over it through the regulatory bodies that claim independence and have lots of mandate. The state, in this case, is seen to play the role of protector of the interests of the private corporations, who dominate the market in partnership with the government. In such a system, most, if not all corporations, are jointly owned with the government and this puts the owners in a good position. A capitalist state basically operates as an economic system. This is because all the decisions are made based on the interests of the economic powerhouses of the country. The political class that consists mainly of the elected representatives, thus, remains as a bunch of “croaking frogs” that have no effect on the elephant that empties their pond. They are there to entertain the country with colorful arguments and debates, but the main decisions are made in the boardrooms of corporations and pushed on them by the corporate executives, their lawyers, and sometimes even professional lobbyists. The political powers are, thus, usurped by the already very powerful economic system (Breton 73).

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With this in mind, it can be clearly stated that these are the lobbyists, who hold the power of the purse. They manipulate government officials and hold the nation at ransom whenever their interests are not protected. They make critical decisions behind closed doors and let the government officials undertake orchestrated debates and arguments in Congress. Most decisions regarding expenditures and almost everything regarding the country’s economy lie in the hands of lobbyists and corporate bodies, where the government officials are simply used for public relations.

On Whose Interests are Our Elected Officials Working For

Elected officials are supposed to represent their electorate and work on their behalf. However, the government is not really run by the executives. Being a capitalist state, the corporate executives have more power than the elected officials. However, they need the officials to maintain the farce of democracy (Koch 67). These officials are, thus, assimilated into the capitalist operation by appealing to their self-interests through giving them monetary compensation, highly valued stocks, or memberships in elite boards and committees. In the end, it becomes more about them than their electorate. As much as they are not necessarily as powerful as they should be, they sell their authority to the corporate bodies at a cheap price; thus, they cannot be exonerated from their sins. These corporate bodies are also looking out for themselves. That is why they constantly need people in power to be on their side and act as their pawns. The fact that these elected officials end up giving in to them implies that they value the rewards and promises more than they value their people.

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