How business economics differs from bureaucratic economics

Most people who gravitate toward government jobs have little or no experience in business – what is referred to as the “private sector”

Likewise, most people who have run a business or held a position in one that requires them to understand business economics rarely become government employees.

It’s probably for the best. Once a person learns business economics that person would have difficulty understanding the economics used by government agencies – and vice-versa.

There are some similarities. Both a business and a bureaucracy work toward growing bigger and…well…that’s the only similarity.

A business grows by producing more of something people want and are willing to pay for. A bureaucracy doesn’t actually produce anything, but it does offer something people need. It also does not have to concern itself with offering those things at a price people are willing to pay because their “customers” can’t go somewhere else to get things that only the government has to offer. Bureaucracies can charge whatever fees they like.

But a bureaucracy doesn’t have to increase its offerings in order to grow. In fact, if it can convince government that its services are being under-used, it can claim to need more money to reach more people who need those services. A business whose products are being under-used just goes out of business. Bureaucracies never go out of business.

To put the difference simply, a business grows by acquiring a bigger customer base.
A bureaucracy grows by acquiring a bigger budget.

Of course, people who work in business frequently want a bigger budget for their departments. To get that increase, they need to convince management that more money supplied will produce more business and more profit. Bureaucracies don’t have to worry about producing a profit. They just don’t.

Which brings us to Obamacare.

The President says the website failed because so many people want the coverage it offers. But if people don’t sign up, they will pay a penalty to the IRS. I can’t think of any private-sector business with such a coercive marketing strategy. Not that a business owner wouldn’t like to have that advantage, but such methods are limited to government. If Amazon’s website was as glitchy as that, people would just shop somewhere else. If people weren’t signing up under penalty of a fine, I wonder how many people would make the effort?

So, since the website isn’t working, the government’s answer is…increase the budget to hire more people to fix it. Because as it stands, they are not reaching all the people who “want” the services offered.

Business people don’t understand, but that’s because they haven’t learned bureaucratic economics.

What we can learn from the government shutdown

As you all know, the government is experiencing a partial shutdown due to the inability of our elected officials to agree. No, that’s not today’s lesson – we already knew that.

We also know that our government has to borrow 30 cents for every dollar it spends. Some of us wonder how it can continue to do that. We know that if we ran our personal budgets that way, we would eventually end up in bankruptcy court.

And yet, we are constantly told that there is no room in the budget for cuts.

Over the past few days the Congressional impasse has forced some severe belt-tightening. Some of it has been overblown (like barricading the Veterans War Memorial that never had a fence around it) but most of it was necessary. The government, which never had enough money to pay for all it did, now has even less.

So, each government department has been forced to evaluate it’s work force to determine which positions can be furloughed and which are too critical to live without.

For example, the EPA determined that 6.6% of it’s employees are “critical”. The other 93.4% have been sent home temporarily. Similar decisions have been made by most other government agencies.

This had been very informative. One has to wonder why we have been borrowing money to fund these departments in full for all this time when the departments themselves acknowledge that only a small percentage of their employees are actually needed.

The truth is out. The bureaucracy has confirmed what most of us already suspected. It is bloated, filled with many unnecessary positions not actually required to fulfill its mission.

It’s time to trim the ranks. The government itself has shown us where to make the necessary cuts.

Minimum Wage

There is talk – again – of raising the Minimum Wage. Some bad ideas never die.

We are usually told about some poor soul trying to raise four kids on this meager income, and we are encouraged to believe that employers should be responsible for the needs of their employers. That could be a difficult task. A single student has very different needs than a mother of four. If the employer paid on the basis of need, the mother would earn much more than the student. But that wouldn’t be fair, would it? So how is this dilemma the responsibility of the employer?

Still, we are told we should pity the poor minimum wage workers, because they don’t make enough to live on. How can we help them? Should the minimum be raised?

First, let’s find out why they don’t earn more. After all, a lot of people do, so what makes the minimum wage earner so unfortunate?

There are no minimum wage doctors or lawyers. You can’t hire a plumber, an electrician or an auto mechanic for $7.25 an hour. We are willing to pay those people a lot more for their expertise. Employers pay more for skilled workers, too.

So, the best way to help those who are only making the minimum is to provide them with knowledge, skills and experience so they can command a higher wage.

It’s the difference between giving a man a fish, and teaching him how to fish.

Of course, that would take time and effort. In these days of instant gratification, we don’t like having to actually DO anything, or being told that we might have to wait for results.

Let’s do something NOW! Let’s just raise the minimum wage. So, instantly, everyone who only gets $7.25 today will get $9.00 tomorrow. Problem solved, right?

Every action has consequences.

The Minimum Wage earners probably have co-workers with a little more time and experience on the job, and who are paid a little more. Let’s say they make $7.50. Then, there must be a supervisor for these workers. That person earns even more. Let’s say $8.00.

If we give the first person a raise, to $9.00, what about the person who worked there awhile? Does he/she still make $7.50? Of course not, but don’t they still deserve more than the minimum? That person is going to have to get a raise, too. How about $9.50? That’s only fair. Then there is the supervisor. Let’s give him $10.00 per hour. Of course, if there is anyone above the supervisor who is making less than $10.00 per hour now, they will need raises, too.

If the minimum wage goes up, EVERYBODY gets a raise! Wonderful!

Or is it? Let’s take a look at your favorite fast-food emporium. That’s probably a good place to find people making the kind of wages we’re talking about.

When you buy your cheeseburger, you are paying for the wages of everybody who works there … and the people who baked the buns, the people who slaughtered the cattle, the people who made the patties and the paper products, the people who milked the cows and made the cheese, the people who harvested the lettuce, and the people who delivered all those things to the restaurant.

And ALL of those people got a raise!

The price of your cheeseburger just went up so much that you might want to reconsider getting fries with that! But you can afford it, because you got a raise, too, didn’t you?

Well, you pay taxes, don’t you? When you get a raise, part of it goes to the government. The more you make, the more you pay in taxes. In fact, for every dollar you earn, you’ll take home about 75 cents to 80 cents, if you’re lucky. But the price of EVERYTHING is going up to cover the FULL cost of everybody’s raises. (Not just your raise, but the actual cost of that raise. For every dollar your employer gives you he must contribute to your Social Security, Medicare and Unemployment Insurance. $1.00 of wages costs the employer about $1.12). Now a dollar won’t buy as much as it used to – and 80 cents will buy even less!

After the government takes its raise out of our paychecks, we might find that we can’t afford as much as we used to. And when there is less demand for products and services, businesses need fewer employees. So some people will lose their jobs, while others will get a raise that won’t be enough to cover the higher cost of everything!

And here’s the worst part. Guess who will lose their jobs first? The people with the least skills – the minimum wage earners – the people you were trying to help!

Even if they keep their jobs, the unskilled workers are still on the bottom of the heap, making MINIMUM WAGE, and that will never be enough because everything costs more!

Did you help them? Did you help anyone? In fact, you hurt most everybody – especially retired people who are on fixed incomes. Because they are out of the workforce, minimum wage laws won’t affect them, so they won’t get a raise. Yet, everything they need to buy went up in price.

The Minimum Wage earner thinks he got a raise, so he doesn’t see the need to improve his skill level, which is the only way he will ever improve his earning potential.

Did anyone benefit from this? To find out, follow the money.

The more you earn, the more you pay in taxes.

Remember this the next time your nice elected officials tell you they want to help you by raising the Minimum Wage. Before we had this little chat, you probably would have voted for the candidate who seemed to “care about the working poor”. Politicians rely on a voting populace that doesn’t think too much.