â??The triumph of persuasion over force is a sign of a civilized society.â?ť
— Mark & Jo Ann Skousen, Persuasion vs. Force
President Barack Obama should have earned an MBA or a Ph. D. in economics at the University of Chicago rather than a law degree. He then would know why wages rise, and why unilateral government edicts like the minimum wage law often backfire.
In Tuesday nightâ??s annual State of the Union address, President Barack Obama highlighted companies, such as Costco, which have raised wages â??as a smart way to boost productivity and reduce turnover.â?ť He also talked about the co-owner of Punch Pizza in Minneapolis, who decided last month to raise the minimum wage to $10 an hour for its 300 employees. â??Itâ??s got nothing to do with politics,â?ť he said, â??itâ??s good business.â?ť
What Obama apparently doesnâ??t understand is that companies canâ??t afford to raise wages unless they have the profits to pay those higher wages. Costco made a sizeable profit before it decided to raise wages. It made $2 billion last year and has $6 billion cash in the bank. Punch Pizza is first and foremost a highly profitable company. It can afford to pay its workers more and only then is it a win-win situation.
Read more about how the real economy is different from President Obama’s vision of it at Eagle Daily Investor.