The Wages of Sin

It’s The Mogambo on Monday! The angriest man in economics gets angry…really angry. Ted Kennedy takes it on the chin…and in the head!

This week, I read an essay entitled "The Wages of Sinful Economic Arguments" by Tom Lehman, who is an associate professor of economics at Indiana Wesleyan University. It was posted at mises.org. Lehman says "Forcing larger rival firms to pay higher minimum wages will not necessarily lead them to raise prices for their goods and services, as some small business owners apparently believe."

Well, although he did not mention me by name, I am certainly one of those people who believe that higher wages necessarily lead to higher prices! And if this Lehman dude wants to score some points around here, he had better start believing it too.

Business owners may not be able to raise prices now, but they will, at some point, assuredly take steps of one kind or another to either raise prices or cut costs, because if they don’t, they will make less money.

And the business owner also has expenses, and a wife who gets upset that things cost more, and who complains that her husband doesn’t bring home enough money so that she can buy those Gucci handbags she wants and how her happiness is totally dependent on her getting these things. Of course, these business owners, like me, desperately keep trying to find new ways of bringing in more money, because the last thing we want in this world is for our wives to be less happy than they are now.

Raising Wages: Higher Prices for Everything

So after I spent the whole day on the phone talking to Professor Lehman’s secretary and demanding to be put through so I could scream at him until he changed his opinion, he did finally admit that "It is probable that large firms faced with artificially higher labor costs will find it more advantageous to invest in additional technology and capital equipment that would replace the lowest-skilled employees who earn the minimum wage. In the end, the singular-most likely outcome is that a hike in the minimum wage will harm low-skilled employees who currently have a job working for a large firm by throwing them out of that job."

Well, that may be true. But I could not help but notice that he did not mention that the inevitable outcome will be higher prices for everything, for everybody!

And as bad and sad as the low-income worker’s situation is, there are a hell of a lot of sad-sack people in this damn country whose situation is even worse, because they don’t even have jobs!

They are the old, and the crippled, and the severely handicapped, and the sick, and the chronically unemployed and all the rest. It doesn’t matter who, because every damn person in this whole freaking country is going to be harmed by the rise in prices. I am getting sick to death of people whining about only the minimum-wage workers, because they are just a small, little, tiny subset of the gigantic pie chart of rising-price sufferers; everyone has to pay higher prices.

The only difference between the segments of the population is their ability to pay higher prices. But at least the damn minimum-wage income worker has the ability to command wages, so quit crying for them!

Raising Wages: Their Own Well-Being

The minimum-wage workers can thus directly affect their own well being! The fact that they spend a large portion of their income on crack and booze and tattoos and fancy cars and the luxury of ostentatious bling-bling is their problem. If they would only invest their disposable income on education and if they would just stop buying that silly, dysfunctional crap, they would probably find things gradually start to improve.

In fact, here is a scene from the proposed new movie about the Mogambo, which has the working title "Hot Babes Prancing Around in Skimpy Outfits Use Raw Firepower to Help the Mogambo Seek Righteous Revenge Against the Very Idiots Who Caused Our Misery, Namely the Federal Reserve and Damn Near Every Jerk That Has Ever Been Elected to Congress for the Last 70 Years in a Row."

As the scene opens, there I stand, magnificent and resplendent in my purple cape with fancy gold trim, and my propeller beanie spinning.

As the camera pulls back, I am revealed to be in the office of Ted Kennedy, one of the most infamous manifestations of Leftist Lunacy that eats the guts out of America. I have grabbed this Kennedy bozo by the hair, and I am shoving his unwilling head down onto the desk, upon which is opened a copy of the Statistical Abstract of the United States.

I am screaming at him: "You want a higher minimum wage, you pompous, preening putz?"

He says, "Hey! That’s alliterative!" and I shout back in a loud and abusive voice, so loud that I get specks of spittle on his face, "OF COURSE, it’s alliterative, you disgusting bag of leftist crap! I am the Mogambo!"

With a mighty shove, I again slam his head down onto the book, and he says, "Oof!"

I lift his head by the hair until his face is turned up to mine, and I scream at him, "Let’s just see what has happened to the damn minimum wage since 1960, when you idiot Democrat commie-bastard leftist losers started really cranking up that money machine with your damn deficit- spending and social-engineering insanity, shall we?" With a look of pure evil genius, I say through clenched and gritted teeth, "Sure! Let’s take a look at history!" And with that I slam his head down into the book yet again, so that he goes "Oof!" again, and I turn to the camera and say "Hahahaha! Now it’s YOUR turn to suffer, you silly simpering socialist bastard, like you have made so many millions of people suffer for so long, eh?"

Unfortunately, banging Sen. Kennedy’s head down on the book actually scrambled his last three working brain neurons, two of which were used to prevent him from drooling and thus revealing his staggering mental incompetence. Anyway, this sets up another interesting plot development, so that is all I am allowed to say about the film, and you will just have to go and see it when it comes out. But it promises to be a real tour de force of cinema veritas, and if you actually think that in real life the real Ted Kennedy, the weirdo senator from Massachusetts, has more than three working neurons in his whole brain after you have heard him speak and looked at the things he has done to this country, then I have to assume that you have very few working neurons yourself, so don’t come whining to me.

Raising Wages: Inflation Will Kill You

In 1960, the minimum wage was $1.00 per hour, and at various times it was raised. In 1997, it was increased to where it is now, $5.15 an hour.

And I know from pure deduction that no Democrat knows how to use a financial calculator, or else they would not say the stupid things that they say. So once again an adult (me) will come to their aid and give them the answer. The rate of inflation in minimum wage works out to, compounded, 4.53% per year! And it is still not enough to keep up with the rise in prices as it is!

And you can tell by the way I am gritting my teeth in raw, seething anger that I am working myself into one of my "spells." I am here to tell you that every time a new higher minimum wage goes into effect, there are at least a dozen American guys who retire on a defined-benefit pension. And each of these guys watches in growing despair as their standard of living declines, month after month, year after year, as prices climb but their incomes remain constant.

And it just gets worse and worse and worse, until the day they die in utter poverty. And if you could bring these guys back from the dead, they would say, in a ghostly unison, "Listen to the Mogambo! Inflation will kill you! And since inflation is a monetary phenomenon, and since a monetary phenomenon is a central bank phenomenon, the Federal Reserve will, ipso facto, kill you!" Which is, you gotta admit, pretty astute for a bunch of dead guys.

And if you think for one minute, and I am checking my watch to make sure that you get all the time you need to think about it, that the recent and current monetary excesses of the Greenspan Fed and all the central banks in all the world, which together comprise an unprecedented monopoly exercise in absolute monetary insanity, will NOT cause you to suffer the miseries of price inflation that inexorably follow the irresponsible increase in money and debt, then there is something very, very, very, very, very wrong with you, because even dead people show more smarts that you do.

Regards,

The Mogambo Guru
for The Daily Reckoning
August 16, 2004

*** The Mogambo Sez: I am scared. The stock market went up over a hundred points as soon as the Fed increased fed funds by a lousy quarter-point, which has been advertised for over a month. This makes no sense. Now you know why I am scared. And now you know why I suggest buying gold and large-caliber guns.

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of the Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning, and other fine publications. If you’re inclined to read more, you’ll find the whole Mogambo here:

"Leave No Child Behind"

Markets, moods, lives, seasons – everything gets conjugated…just like verbs.

They are in the future. Then in the present. And then in the past.

That is life, dear reader. We take no responsibility for it. It’s not our fault.

Future. Present. Past.

Twenty-five years ago, we told the audience in Vancouver, the Great Boom…the Reagan years…the Internet…the tech bubble…reality TV…the collapse of the Soviet Union…the rise of China…the euro…9/11…

…they were all in the future.

Stocks, bonds and real estate were low. But then, interest rates were high – over 15% on T-bonds. As the quarter century moved along, interest rates came down – which allowed a boom in financial assets. The boom that was future tense in 1980 became present tense a few years later.

But what tense it is now? According to every survey and sentiment indicator, Americans still think the good times are present and future. Stocks will rise, they say…they always do. The sluggishness in the economy and the stock market is only temporary, explained Alan Greenspan as he raised interest rates earlier in the week.

The past tense seems to have disappeared from investors’ language. Stocks rose. Stocks have risen. What comes after the pluperfect; what comes next?

The life cycle of the typical bull market on Wall Street is about 17-20 years. That has been so for the last 200 years. Analysts find plenty of reasons why the bull market that began in 1975 and ended in 2000 should continue. But there are just as many reasons why it should not. And Mr. Market – bless his heart – doesn’t give a hoot about reasons anyway.

Mr. Market will do what he wants. But the past tense is in the language for a good reason. Just as there is future… so is there past. The falling interest rates that so delighted investors for the last quarter century are now going up. The days of ever-cheaper money, apparently, are past. So is the bull market in stocks.

Erit. Et. Erat.

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Addison Wiggin, from 33,000 feet over the Great Midwest…

– It was a fitting end to the week. Like most cities, Vancouver has its share of vagrants, vagabonds and ne’er- do-wells. But the Canadian variant is different. They seem quite attracted to your editors. Naturally, we thought they must be hyper-intelligent.

– On Saturday, the final day of our wealth symposium, Tom Allen of HoweStreet.com staged a series of television interviews with your editors on the steps of the Vancouver Art Gallery on Hornby St. (not far from where we saw that woman get hit by a car on Tuesday). Just as we began the interview, a band of vagabonds set up shop right behind us and lit up a few marijuana cigarettes.

– As we chatted about the effects of artificial stimulation by the Fed on the housing market, puffs of the exhaled cannabis wafted by. And while we prattled on about the deleterious effect of easy money on the very fiber of society, the aromatic herb enveloped us. By the time we began exploring the outbreak of wanton licentiousness, a la Berlin in the 1930s, thick smoke was permeating our nostrils.

– At about the same moment, Hurricane Charley was clearing a path through the trailer parks in Punta Gorda. Mr. Allen pitched a softball question: "Do you believe," he asked, "we’re setting up for a perfect economic storm?"

– Mr. Allen was, of course, referring to a nasty confluence of market events. On Friday, we received news that June’s trade deficit had hit an all-time high. "It was a perfect storm," said one analyst (conveniently) in the FT. "Everything that could happen to push the deficit wider, did." Imports jumped 3.3%, while exports fell 4.3%, the worst drop since September 2001. "It should be clear that the United States is experiencing a real and accelerating deterioration in its international accounts," said another analyst.

– The price of oil, too, is raising eyebrows around the globe. Friday saw the 11th-straight record-breaking high for the black goo. Adjusted for inflation, crude is only about half its early 1980s’ price of $80 a barrel. Still, historically, its nominal price has never been higher than $46 a barrel…as it was last week.

– And Greenspan, with his band of merry pranksters, tacked on another quarter point to the overnight lending rate and another straw to the consumers’ back. And now consumer confidence, as measured by the University of Michigan, is falling, says the Financial Times. "[The fall] was partially attributed to concerns about higher energy costs, which also added to producer inflation data."

– Still, despite the gathering winds, the market remained calm last week – the S&P was up only 1 point by close on Friday. The Dow, suffering equally from ennui, added 10 points. But the Nasdaq defied its more staid cousins – and fell 20 points. Investors weren’t happy with statements from a handful of technology companies – including Cisco – that warned of "soft demand."

– Perhaps this isn’t the perfect storm, after all. Here at The Daily Reckoning, we envisage something more akin to a slow-moving low-pressure system that will threaten the economic skies for years to come. "America will have to find a new economic model," we wrote in our book, "for it can no longer hope to spend and borrow its way to prosperity. This is not a cyclical change, but a structural one that will take a long time. Structural reforms – that is, changing the way an economy functions – do not happen overnight. The machinery of collectivized capitalism resists change of any sort."

– And resist they have. But for how much longer? On the front cover of the weekend FT we find this headline: "Concern over softening of world economic Growth." Growth in both Japan and the eurozone was timid. Japanese second- quarter growth fell far short of expectations, and nominal GDP shrank. Eurozone growth, at 0.5%, was abruptly lower than that of the first quarter.

– By the end of the interview, we felt distinctly queasy. "We’ve had a good run," we heard ourselves saying. "Americans are generally happy… and delusional. But the end of the world as we have known it IS coming. So…you might as well enjoy it." At least the vagabonds appeared to be enjoying our monologue…

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Bill Bonner, back in Vancouver…

*** We didn’t spend much time in California. Driving from Las Vegas, we stopped in Bakersfield, Calif., for gas and lunch. The city fathers had erected a huge thermometer in the town center. It registered 114 degrees. It must be cooler in some parts of hell, we thought.

"Is it always this hot?" we asked the waitress.

"Not always…but this is not too unusual."

"Guess you have to stay inside."

"No, we go out in the evening, when it cools down. The temperature goes down to about 100. Then, we go out. But there’s nowhere to go anyway…so we stay inside."

Leaving Bakersfield, we crossed more desert and soon looked down on a lake of smog. The smell of the inland desert changed to a sweeter odor of sea air and auto fumes.

Before we got into the city, we noticed mile after mile of new houses in various stages of construction. The houses appeared to be huge things; thrown up with two-by-fours and flake board. They are building hundreds, no thousands, of them all at one go. You see one style for a mile or two…and then another style for another mile or two…and then what looks like a shopping mall…and then yet another style of new house in a further stage of completion. Left unchecked, the houses seem to be spreading like some form of virus, filling up all the land all the way up to the foothills and barren desert. What Godforsaken hole must people crawl out of to make these places seem like an improvement, we wondered. One of the trailers on the other side of Barstow? Here, they are far from anything…and stacked one against another with barely 10 feet between. Why not live in an apartment or a condo closer to the center of town?

It was a mystery to us. But then, so much of what goes on in America is a mystery. Why do people live in mobile homes – in the midst of abundant stone and timber? Why do people live in places hotter than Hades…in the middle of a desert with nothing to do…and where even a blade of grass – should it pop up in the early morning – would be dead by noon? Why do people drive four hours from L.A. in order to stay in a tacky hotel in Las Vegas…and lose money gambling? Why would anyone want to buy Google.com at 125 times earnings? Why do parents spend $150,000 to send their children to college – when most of what they learn is useless nonsense? Why do people think they are getting richer – when their incomes are falling and their debts are rising? Why do people drive heavy four-wheel-drive vehicles in places where it never snows and hardly rains? Why do people spend themselves into debt when there is so little worth buying? Why do so few people plant vegetable gardens? Or save money? Why don’t they make the coffee stronger?