December 31, 1975

New Wave of Inflation Coming

The inflationary time bomb which Congress cocked a year ago explodes this week.

Certain to be destroyed are thousands of small businesses and tens of thousands of jobs.

Those that survive will congratulate themselves on what appears to be a substantial improvement in their standard of living.  But, before the year is over, it will be all wiped out twice over by higher prices for consumer goods and higher taxes to succor those who will move unto welfare.

This Jekyll-and-Hyde effect will be triggered once again by a government-ordered increase in the minimum wage - from $2.10 to $2.30 per hour.  This amounts to an $8-per-week raise for those workers now earning the minimum and eventual, similar increases for all other workers as the shock wave moves up the wage ladder.

It seems so easy.

With just a few words on a piece of paper billions of new dollars are created in that magic minute between Midnight Dec. 31 and 12:01 a.m. Jan. 1.

One wonders why we don't do this every 24 hours.  We all would be millionaires in a few months.

Except we have tried it every year or so for several decades, and all it ever created was staggering inflation.  Like a giant chain letter, it appeared to work as our increasing population took up the slack and postponed the moment of truth.

Today the population has reached a permanent plateau.  The reckoning for years of fiscal folly is upon us.

Congress orders employers to increase their payroll costs arbitrarily.  But Congress does not order an offsetting increase in sales to pay the higher costs.

The stupidity of the procedure has gone largely unnoticed because those affected are little companies whose demise, individually, is felt only by an owner and a handful of employees.  Always there were growing industrial giants to suck up idle manpower resulting from the small tragedies.

But the world has caught up to America.  Hungry and ambitious firms outside our borders compete successfully for sales of clothing, radios and cars.  The big companies are retrenching so that the recent crop of unemployeds remain largely unemployed.

The next batch of bankruptcies coming up, collectively, will have a more profound effect on the U.S economy.

The employers who provide marginal goods and services - and employment for three fifths of the working population - have spent the holidays searching desperately for ways to cut costs and stay alive.  Some will invest in machines that will, enable one worker to produce what two persons did before.  Prices will be raised and-or products cheapened.

Employees performing desirable but non-essential tasks will be fired.  Low production workers will be replaced.  The fringe benefits so dear to the hearts of big companies and big unions will be curtailed or eliminated.

The resourceful employer will survive one more round.  And the good employees let go will persist until they find a place with larger companies.  In the end, however, thousands of jobs will have disappeared from the total labor market and welfare will become a way of life for blacks, the handicapped, and the least educated.

Congress gives lip service to competition and "private enterprise."  In the real world of today, however, our lawmakers opt relentlessly for a controlled economy and redistribution of wealth to a low, common denominator.

It has a fine ring of compassion and equality.  Yet, it leads only to a new kind of serfdom or to collapse of the state.  The path of history is littered with the wreckage of former civilizations attempting to provide wealth for many from the labor of a few.

Competition for marginal labor is denied.  So the marginal worker must be supported free of charge.

Competition for customers is thwarted as Congress forces up the costs of those who try to furnish goods and services at lower prices.

Competition for growth capital is a one-sided arrangement favoring the already big and discriminating against the beginning firm challenging the establishment.  The giant corporation gets its money at a low "prime rate" while the little company must pay up to twice the interest.

Competition for helpful tax treatment was decided long ago in favor of big business.  The corporate income tax has a sliding scale on profits up to $25,000.  Thereafter every company pays a flat 48 percent tax.  The tax rate is the same for a company making $26 thousand as it is for a company making $26 million.  Inasmuch as capital expansion must come from profits, the little company buys cost-cutting machinery with 80-cent dollars while the conglomerate expands with 52-cent dollars.

The minimum wage law is based on the assumption that fierce competition by small companies oppresses workers.  This is a false assumption based on another false assumption: that workers have no choice to change jobs.

Either we believe in competition, or we believe in socialism.

Very few Congressmen have ever had to meet a payroll and keep a company solvent.  Their judgment on the fate of an economic system that, while unhampered, built the highest state of civilization in history is not to be trusted.

A stable economy will return only when Congress stops meddling and revives a healthy, small-business climate.

Author: Lindsey Williams