Free Markets, Free People

They call them “economic laws” for a reason

So the citizens of San Francisco voted themselves an increase in prices, er, excuse me, a “$15 minimum wage” and thumb their noses at the laws of economics.

Reality hits back.  Borderland Books, an iconic SF bookstore, provides the perfect two-fold example with this announcement:

In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st. The cafe will continue to operate until at least the end of this year.

Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.

The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.

Note the key lines.  “The change in minimum wage will mean our payroll will increase roughly 39%.”  Yet, there’s not 39% room in the earnings to weather that increase, because an 18% increase in operating costs puts them in the red.  Borderland Books explains why – retail price is almost impossible to get anymore so they can’t increase the price of the product to cover the cost.  Result?  The workers in the bookstore will have a wage of $0 as of March 31.  I’m sure they’re thrilled.

Meanwhile the cafe will stay open because it can do what?  Pass the cost on to the customer.  So in essence, those who voted for the increase in minimum wage voted dollars out of the pockets of those who opposed it as well as their own.  While the workers in the cafe will get their $15 an hour minimum wage, it will be achieved in an increase in the price of the goods the cafe sells (about 20%).  And if their experience is anything like Seattle’s (which also instituted a $15 minimum wage) tips will dry up to next to nothing, while perks (such as free meals, parking, etc.) will be discontinued now that the workers make enough money to pay for most of them.

Yes, economic illiteracy has a price – and here it is.  Fewer jobs, higher prices, all a result of fools who thought they could magic “a living wage” out of a vote without that having any consequences to the workers or themselves.



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20 Responses to They call them “economic laws” for a reason

  • Unfortunately, the lesson taken by Bay Area liberals will be that “certain areas of the economy must be given special treatment”.

    They will forever and ever deny that making the market more free can take care of problems. Nope, we definitely need more and more regulation by wise liberals, who personally have never run so much as a lemonade stand, but who are such super-geniuses that they can make decisions for the entire community.

    We need a pool on when the first “bookstore exemption” change to the law is floated. And a pool on what type of business will be next to see agitation about how unfair it all is.

    • This is all Wal-Mart’s fault!

    • Simple! I don’t know how we missed this answer. Just pass another city ordinance requiring businesses to maintain a number of employees equal to or greater than the number on the payroll the day when the minimum wage increase was passed. Pass a second ordinance to allow an additional “living wage” surcharge of 40% to be added to the total cost of a purchase. This surcharge can be collected by the book store and paid to “The collective committee for the sustainment of a living wage.” This committee will have the ability to determine, by fiat, the hourly rate that would consititute a living wage, assess surcharges to be paid by consumers in order to allow for the living wage to be achieved and to provide waivers to compliance of their rules. Waivers are typically granted for certain protected and underrepresented groups. The committee can take it’s 12% haircut to cover the cost of “oversight and enforcement” and pay the bookstore it’s share of the surcharge. The bookstore can then pay its employees the living wage. Who says you can’t get around that silly invisible hand! This can’t fail.

  • “They’re lying. They’d rather burn the place down than go along”

    I’m sure that will be the message to the faithful that just got burned by the ordinance.

  • “Support in principal”??? Funny that a book store would make such an error. You support something in principle.

  • No Doubt Obama will mention this in a speech, and shame them for ‘fleeing’ San Francisco.

    After all, you’re not supposed to worry about profit, your damn company’s job is to provide employment for people.

  • I have some news for the Borderlands spokesbeing. The cafe WILL have difficulty coping with the new minimum wage. Their statement is science fiction. The science fact is that customers have some say in the matter, and the science of economics says that their willingness to pay for a product decreases as the price goes up. The cafe will probably close along with the bookstore.

    • They’re banking on the theory that loyal customers will keep coming only because they think the rising wage will swamp ALL the cafes anyway.
      As you observe, what they’re not dealing with is people NOT going to cafes at all because it’s gotten too expensive to keep up the habit and luxury.

      Keurig is your friend, but not the friend of a minimum wage increase.
      and you can’t browse books that aren’t there while you sip your more expensive coffee and nosh on your more expensive danish.
      They better have an awesome view of the bay.

    • The cafe might stay open for a month or two after the bookstore closes, but not much more. What the owners apparently fail to realize is that a restaurant doesn’t sell food and drink: it sells ambiance. People come to that cafe because it’s part of a bookstore, and that’s the ambiance they seek. Remove the bookstore, and there’s nothing to distinguish it from hundreds of other places.

      • Nobody buys books anymore, at least from a brick and mortar store, those books aren’t going anywhere anytime soon. The cafe was likely floating the bookstore all this time anyway.

        • I highly doubt that. The profit margin on restaurants is so thin that it’s unlikely the cafe was floating the bookstore. A cafe attached to a bookstore would have limited seating, and not many table turns over the course of a day. If the bookstore was of a decent size, the rent and power bill would have been very much greater than any profits generated by the cafe.

          • We know this because the bookstore side folded first?

          • We know this because the bookstore side folded first?

            Weak. The bookstore folded first because it couldn’t pass the increase in labor costs to its customers, by way of increasing the price of its products. The cafe, on the other hand, is able to increase its prices in order to absorb the boost in labor costs.

            The fact that the bookstore folded first is not evidence that the cafe was floating the bookstore.

          • And those factors weren’t in play before the minimum wage increase?

            And there’s apparently a semantics problem, here. Floating something is bringing it up to where it just doesn’t go under. Doesn’t mean carrying the entire burden, although it can but not required in my perception of the slang term. And we don’t know the size of the cafe. And a SF cup of coffee is almost the price of lunch anywhere else.

  • Damn, those copy book heading gods come roaring back with a vengance, do they not?

    • “In the Carboniferous Epoch we were promised abundance for all,
      By robbing selected Peter to pay for collective Paul;
      But, though we had plenty of money, there was nothing our money could buy,
      And the Gods of the Copybook Headings said: “If you don’t work you die.”

      • The “irony” is that they’re destroying the only jobs being created in CA outside San Diego county, which is solid GOP territory.

        • I just wish the pain from the continuing stupid would hurry up and kill the patient so we can get this over with.

  • The reality is they don’t care what happened. They don’t make the changes they make because they believe it actually ‘works’ for the best. They made the world a better place from a moral perspective.

    Same as Obamacare, their success was getting it passed. They don’t care if fewer people actually have coverage. Whether its functionally superior is far less important than they view it as morally superior. So having it in place, they did their happy dance and patted themselves on the back. They only claim their way is functionally equivalent or superior when then are concerned they have a conflicted portion of the electorate who are troubled by the dilemma of morally superior system vs. the functionally superior system. They tell them a lie that allows them to get on board. They are also concerned a little with damage to their credibility the next time they have to lie. But the media generally has that covered.

    Proper quarantine and isolation procedures may be more practical and saves more lives, but taking the sick into a loving embrace without the burden of restraints is a ‘morally superior’ way to handle the situation.

    Their way makes a more better world wrt to some arbitrary morality focused on your immediate conduct and its wrong to look at it from a results oriented perspective which can be cold and unfeeling in the immediate.

    In their quest to instill a more morally superior world, if they lie in the process, its completely justified. But ultimately they don’t care that they lost a business, workers, and a nice place to visit. They made the world a better place. Not surprising the people who make the holy and most moral decisions live outside of the worst consequences of their decisions. Anything resembling concern is pragmatic damage control.

  • Well, we can predict with a high degree of certainty where at least ONE test-market for robotic baristas will be, huh?

    We can ALSO see where middle-class families WILL NOT be eating, as they are pushed farther and in more ways out of San Francisco as consumers, though the rich and the poor will cluster there happily.