This is What Pisses Me Off About The Democrats

[DeistPaladin]

MBA eh? Here’s where’d you would whine about fallacious appeals to authority.

Appeal to authority is only a logical fallacy when the authority doesn't provide any evidence. Even experts must have reasons to believe what they do. Had I just said, "I'm an MBA and I say so" without making a case, that would be a fallacy.

Let me map it out for you in greater detail, complete with number crunching, since your slow to accept the facts. Here's the scenario: I and two other businesses, run by conservative Tea Baggers, make and sell widgets. Our companies are the same size at first. We each have five employees, sell 100 widgets a day at a price of $100 each. Our fixed costs are 35%, our variable costs are 60%.

So daily sales of Teabagger Widgets inc., GOP Widgets Inc. and Progressive Widgets Inc. (me) are all currently $10,000 a day. All of our fixed overhead costs are $3,500 and our variable costs are $6,000, making $500 our net daily income.

In theory, "variable costs" such as supplies and labor, will vary with the unit sales. In practice, greater inefficiencies can be attained when you are close to capacity. During slow times, your labor costs will be less efficient even if you are careful to lay off workers. When workers are close to peak capacity, they are going to be more efficient in production. However, to keep it simple for this exercise, labor is considered variable.

In theory, "fixed costs" will remain the same no matter how many units you sell. These would include insurance, rent on the building, certain office staff members, etc. In reality, these too may be somewhat variable. If your production increases to a point, you may need a larger building, for example. Again, to keep it simple, fixed costs will be fixed.

One day the government comes along and raises the minimum wage we can pay our workers. Our variable costs (including labor) increases to 62%, making the total $6,200 and our net daily income is reduced to $300.

Tea Bagger Widgets lays off a worker. GOP Widgets raises their prices to $102 a unit to compensate. I decide to bit the bullet and maintain prices and labor force as they are, accepting the reduction in my contribution margin.

Teabagger Widgets is now expecting 4 workers to do the work of 5. Without some competitive advantage in automation, this is impossible without something suffering. If automation WERE possible, we'd all do it anyway, regardless of the government. So your bringing that up is a red herring. Quality goes down, mistakes from a fatigued, overworked labor force goes up, delivery times are delayed.

Teabagger's sales suffer with disgruntled customers getting upset with the reduction in quality and the late deliveries of the product. Let's be nice and say they only lose as many customers as needed to re-establish production equilibrium and their sales go down to 80 units a day.

GOP Widgets also loses customers as some of them will go for lower priced competition. Why pay him $102 when you can pay me $100? To keep it simple, let's say he loses sales to the same equilibrium. He has to lay off one worker and is now down to 80 units a day.

Progressive Widgets hires both laid off workers and picks up the extra disgruntled customers, bringing my sales up to 140 units a day. Since 35% of my costs are fixed, some of that sales increase is gravy that goes to my bottom line. But to spell it out in numbers:

Teabagger Widgets
Sales: $8,000
Variable Costs: $4,960
Fixed Overhead: $3,500
Net (Loss): ($460)

GOP Widgets
Sales: $8,160
Variable Costs: $4,960
Fixed Overhead: $3,500
Net (Loss): ($300)

Progressive Widgets
Sales: $14,000
Variable Costs: $8,680
Fixed Overhead: $3,500
Net Income: $1,820 (increase in profit of 264%)

News of the change in the market reaches Wall Street. In finance theory, the stock's price reflects the net present value of future returns, as forecast based on reported corporate earnings, against the current prime rate of interest, which currently at 3.25%.

Previous, annual net income was reported at $130 K (52 weeks, 5 days a year). This makes the NPV (net present value) of the company roughly $4 M. The price of all outstanding stock has sold and been traded accordingly at that price.

This year's net income is going to be $473 K (and change). The NPV of the company has changed now to $14,563 M. Stock prices soar accordingly, more than tripling in value.

Meanwhile, stock prices for my competition crashes.

While my labor costs have gone up, I have more than made up for it in volume. My employees are happy. I'm happy. My stockholders are VERY happy. I'm going to get a lot of atta-boys at the next Board of Directors meeting and take home a nice bonus. The CEOs of my competition are going to be fired and their replacements will have a big mess to clean up.

Are we learning yet?