For whatever reason — ignorance, socialist-leaning worldview or laziness — basic economics of free market capitalism seems all but impossible for most of the mainstream media to grasp. And that is a shame. It means they fall for the emotional appeal of fellow Democrats and others who lack an understanding of capitalism, which ultimately ends up hurting low-wage American workers the most — purportedly the people they are trying to help.
Let’s walk through this. Because it becomes blindingly obvious this is exactly what happens. It’s just that consumers of the legacy media may never understand — and alas, they’re unlikely to read this article.
First, the basics on capitalism. At its most foundational, capitalism functions on supply and demand and the ability of a company to make a profit meeting the demand, and the person creating the demand to have multiple supply options to create competition.
Let’s say I need a pair of shoes. Bob sells shoes. The shoes cost him $20 to make. With all of his overhead — building, electricity, employees, benefits, etc. — he needs to sell each pair of shoes for $35 to break even. He puts the shoes on display for sale at $40, to make a $5 profit. I go to Bob’s store in my tattered shoes and decide if I am willing to pay $40. If so, we’ve created a market and a transaction. Bob makes $5 profit and I get my shoes for $40. Everyone is satisfied.
At each step in the shoe-production process, and the building where Bob displays them and pays for electricity, there are more markets of demand and supply happening, creating a broader economy. Now let’s say Bob gets greedy — like many liberals tell us corporations are — and tries to sell his shoes for $60 to make a $25 profit. I may go to a different shoe store to find something more affordable. Enough people do this, and Bob is forced eventually to lower his price. This is the role of competition in capitalism, with hundreds of shoe stores vying for my purchase and that of thousands of other consumers.
These capitalism concepts of supply, demand, profit and competition seems to elude most media reports, allowing people like Sen. Bernie Sanders to claim corporations are evil, gouge employees and make outrageous profits. If you are making $9 per hour and working for a company making billions of dollars in profits without any media explanation of the fuller context, this is very enticing to believe.
But it is also largely and demonstrably untrue.
Obviously corporations are not evil. They are legal entities made up of people with vested interests in those entities earning a profit so they can stay in business. Corporations generally pay their employees through the same forces of supply and demand, but for workers not products. They don’t gouge, they make decisions based on their employee needs and their profit needs. This is obviously rational, albeit a little hard to objectively quantify.
What is not hard to quantify is that corporations make outrageous profits. Liberal politicians such as Sanders, and many in the media, always use the anecdote corporation that just made a huge profit, rather than actual data points.
The average corporation’s profit margin is about 7 percent, according to a New York University Stern database. Grocery stores and retailers make much less, about 2.5 percent profit. And your local liberal’s favorite evil corporation, Walmart, squeezes out a paltry 2.1 percent profit. Walmart’s profit margin is less than one-third of what it pays in taxes.
Yet a 2013 Reason-Rupe Poll found that the average American guessed the typical corporate American profit to be 36 percent — more than four times reality. How did Americans get such a wildly inaccurate impression?
The socialist-leaning, capitalist-ignorant, liberal-sympathetic mainstream media swallowing the nonsense of Sanders and many other Democrats and reiterating it as fair, objective news. This is surprisingly common as media bias and distortion consistently leads media consumers to have opinions that are embarrassingly divorced from reality. For instance, according to a 2011 Gallup poll, Americans estimated that 25 percent of the people in America were homosexual. In 2015, it was 23 percent. The actual number is about 3-5%.
The corporate profits disconnect is a combination of economic ignorance and liberal agenda. The gay disconnect is pure propaganda by the media and Hollywood.
But while the gay agenda has its share of downsides, the economic ignorance and agenda has done material damage to the working poor in America — by the very people claiming to be watching out for the working poor in America. And it would do a lot more if it could.
Let’s take the minimum wage as an example. Compassionate liberals and their media allies constantly strut around such nonsense as seriously intoning that a family cannot live on the minimum wage. Well, no duh! None were ever supposed to. (And FYI, the vast majority of minimum wage workers are young people still living at home and second incomes.)
Let’s look at what happens when the government passes a law to dramatically raise the minimum wage to, say, $15, which has been all the liberal protester/union rage the past few years. And because they have many workers near minimum wage, let’s force that on Walmart.
If Walmart, with a profit margin of 2.1 percent, has to increase the majority of its employees’ pay by 50 to 100 percent, how will they be forced to respond? Remember, the company needs to meet demands while making a profit. Grade school capitalism. It has four options, which it may combine:
1) It can raise prices. Since all of its competitors will be facing a similar problem because of liberal government action, this will almost assuredly happen for some portion of the cost offset. So the price of everything from bread and milk to shoes and shirts will rise — maybe a lot. Who shops at Walmart the most? Low-income workers, including likely everyone trying to support a family on minimum wage. See the problem? If so, you’re ahead of liberals and the media.
2) Cut the number of workers, particularly full-time workers with benefits. Add more part-time workers and employ the use of technology to replace low-skill workers. Who does this hurt? Right. The very people liberals say they want to help.
3) Cut hours. Walmart is open 24 hours, 365 days per year right now. It’s particularly convenient for people working strange hours — which are most often lower-wage workers. If Walmart reduces the number of open hours to 12 or even eight, which would be one shift, that would save money in many areas, including by cutting employees substantially. Who would be hurt? You guessed it!
4) Close the least profitable stores and keep open the most profitable. Closing large numbers of Walmart stores clearly impacts Walmart consumers, the lower end working class.
The ignorant will say, “Walmart makes billions of dollars! It can pay its workers more!” But remember, their margin is only 2.1 percent. The billions comes from scale. Walmart stores just in the United States employ 1.4 million employees. Without some or all of the four adjustments above, Walmart could dole out only about a $3.50-per-hour raise before it erased all of its profits and began losing money.
And no company can do that for long.
But liberals and socialists like Sanders can’t advocate for higher costs, fewer options and reduced employment for low-skill workers. That would be political insanity. Yet that is exactly what would result from a minimum wage hike. It’s also what results from high taxes and too much regulation. But you don’t know any of this if you rely on mainstream media sources such as the New York Times, Washington Post, CNN, the networks or your local news and media outlets.
The final, real-life proof in the pudding is that the GOP tax reform package President Trump recently signed has triggered an avalanche of employee bonuses, reinvestments in domestic production, tens of thousands of new hires and, ironically, several companies choosing to voluntarily increase their own minimum wage to between $12 and $15 per hour.
None of this is because of government fiat and control, but because government go out of the way.
Hopefully, it is getting harder and harder for the media to obfuscate that reality.
EDITORS NOTE: This column originally appeared on The Revolutionary Act. Please visit The Revolutionary Act’s YouTube Channel