When government competes with business no one wins
As an unapologetic capitalist, one of my core beliefs is that competition in business is the life blood of American prosperity. In a free-market economy, businesses completing with one another for customers naturally leads to better value in the items and services they provide, and also leads to higher wages and better benefits for the individuals they employ.
A fundamental tenet of this system is a company’s failure to be competitive will ultimately lead to its extinction. In other words, a company that is unable to keep up with its competition goes out of business. But what happens when a business’s competition is the government itself that by its nature is unable to go out of business?
I believe that is what we are experiencing today. Anyone who has gone to a restaurant or a retail store recently has likely experienced firsthand the difficulty business owners are having finding workers. I would argue a large cause of this employment shortage is the additional $300 per week in federal unemployment benefits being provided on top of state assistance. According to the Missouri Department of Labor, claimants are currently receiving up to $620 per week in unemployment benefits. That comes to $32,240 in benefits if multiplied over 52 weeks for not finding a job.
Before I go any further let me just say, I’m not calling a single person making the choice to stay home and collect unemployment lazy. If anything, I would call them smart. For an unskilled worker, perhaps with a couple of kids at home, there is no logical reason to look for a job when these benefits along with the savings they experience on childcare equate to an hourly wage that is likely significantly more than they could receive in the private sector.
I’m not alone in this opinion, several governors including Missouri Governor Mike Parsons have announced their intention to end these supplemental unemployment benefits as a way of encouraging people to rejoin the workplace.
Not everyone in government agrees with these entitlement reductions. Kansas City Mayor Quinton Lucas recently weighed in on social media tweeting “if you’re having trouble hiring people, pay more.” Under normal circumstances I totally agree with the mayor’s thoughts. Businesses losing workers to other companies have to find a way to make working for them more appealing or face hiring challenges.
However, these basic economic principles do not apply when your competitor doesn’t have to follow the same laws of capitalism you do. The federal government doesn’t have to maintain a balanced budget. It also don’t rely on individuals choosing to give it their money as private companies do. Many companies, especially now during the pandemic, are struggling to simply stay alive and are unable to increase labor costs higher even if they want to.
At the end of the day I want to see people make as much money as they possibly can. However, the way that needs to happen is through natural free-market principles, not government interference. This means individuals may have to do things like acquire addition education or experience that makes them more valuable to an employer or even move to an area where their skills are in shorter supply. Forcing businesses to pay more for workers who are being paid to stay home will not ultimately work. More often than not this type of government involvement in the free market is the type of thing that leads to unintended bad consequences regardless of how well intentioned its policy may be.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations.)
Luke Davis is the director of operations and compliance at Stewardship Capital in Independence.