In the last few years we seem to have gotten more and more divided.
Oh, we were talking about politics. I'm sure it is just a coincidence.
Well logically, in any free system, the top 1% is going to end up more wealthy, by a massive margin. It's just natural.
Consider this:
Say that I own a restaurant "Food R us".
So I have a few part time people, earning minimum wage. Some full time people, earning 9/hr. I have a couple of shift managers, making $10 to $11 or more based on experience, and job history.
Then you have me the owner.
Now as with all business, I make my profit off of the margin. So after I take out the money to pay for power, heat, food product and goods, and then deduct taxes, government fees, and lastly all the hourly wages, I end up with $100,000.
However, that's not really true. I have to set aside a large chunk of money, for capital repairs and improvements. When that big sign out front gets worn and faded, that's several thousand. When the A/C unit goes out in the summer, that's another $10,000 grand. When the parking lot needs resurfaced, that's multiple grand.
So $30,000 ends up being set aside. My real profit is $70K. Meanwhile my top employee is making $20,000.
Is that fair? Yes, absolutely it is.
One of the cheapest franchises to startup, is McDonalds. The base amount to open one, is $700,000. Often the top end, is over $1.5 Million.
Now, you can finance most of that, but you are required to bring no less than $300,000 in raw non-borrowed cash, to open a store, and that does not include the franchise fees.
If earned only $40,000 a year, which would be double the wage of my shift manager, it would take me 18 years to earn back the amount of money I spent to open the restaurant, not including interest on the debt. With a debt that large, and my income so low, I'd likely never pay it back, and end up bankrupt, closing the store.
Instead, I would never open the store to begin with, never hire anyone, and never provide goods and services to the public, which grows the economy and makes the country more wealthy.
Instead, everyone is unemployed, and I keep my $300,000 by buying property, or stocks, or some other investment.
The incentive to make more money, is why people take the risk of opening a business. If you deny them that, because you don't like that burger flippers earn $20,000 a year.... then you will earn zero. Because no one would take the cost and chance to open such a store, only to earn $40,000, while being hundreds of thousands in debt.
But here's the second half of argument.....
Let's assume for the moment, that you grasp the prior concept, but suggest that people are not earning just $100K, but millions, and that's the problem.
Well back to my Food R Us store.
So I save up money, and open another store. Now have the fundamentals of the business changed? Nope.
The food is still worth exactly the same to the customer. They don't pay more for a product, just because you have a second store.
So the margins on the product are the same. Thus the wage rates for the employees are the same.
And I still end up with $100,000 profit. Or... do I?
I can't be the manager of two different stores, at two different locations at the same time.
So now I have to hire a good quality store manager to run my store. Good quality, trust worthy managers, don't work for $11 an hour. I have to pay him a good wage. So I pay him $50,000 a year to run my store.
Now my profit is down to $50,000. But again, now the new store will have it's own capital repair problems, so I need to set aside another $30,000 for that store as well. So my real profit, is only $20,000 a year.
So with this new store, my income goes up by $20,000 in profit. With each additional store I open, my income goes up by $20,000.
If I open 50 stores across the US, how much is that in income? $1 Million.
Does that mean I can afford to give everyone a raise? No. Because my income is going up on the margin at each store. The marginal profit, is exactly the same, as when I only had one store.
The new stores are not charging a higher price, just because I have more stores. The profit margin per employee has not changed at all, thus their wages can not change either.
Maybe I should prove the concept?
Easy. Mike Duke, CEO of Walmart, earned a total compensation package of $18.7 Million.
Which would you rather have? A 1¢ raise, or distribute the entire CEO compensation to the employees?
Would you rather earn ONE PENNY per hour more, or would you rather have Mike Duke's compensation package distributed to all the employees?
Trick question: Most of that compensation was in stocks and non-cash compensation. He didn't actually get a check for $720K every two weeks. But let's pretend he did.
Walmart has 2.2 Million employees. $18.7 Million dollars divided by 2.2 Million employees, is $8.50. That's per year. That's less than one half of one cent per employee.
You should have taken the 1¢ raise, over the CEO compensation package.
The point again, is that the amount of money the wealthy are earning off of the employees, is exceptionally tiny. But as you get more and more stores, which provides more and more jobs, providing more and more wealth and products to the public... naturally the guy at the top is going to earn more. But that doesn't mean that the economics of each individual store, is going to be any better, nor can they pay any more.
