Three economics lessons I learned from my Dad

As long as I’ve known him, my father has always been the entrepreneurial type. Even now, in his seventies, he picks up side jobs both to keep busy and to have a little extra spending money. […]

Growing up, the idea of going to work for a big company for 30 or 40 years, and then retiring to a golf course or rocking chair somewhere, was something completely alien to me. […]

In short, Dad has always been part of a small minority group in America: people who make their living from running their own business. It is estimated that only about 10 percent of Americans actually make their living from businesses they own. The numbers are higher if we look at people who have some small-business income on the side. But when we’re talking about people whose main source of income is their own business, the numbers are smaller.

Not surprisingly, people who are in this minority group have a different way of looking at the world.

For them, there’s no boss or manager to complain about when your income isn’t as high as you like. If there’s not enough money to make payroll at the end of the month, business owners stare failure in the face, and they know they may even be taking some other families down with them. Ultimately, the most important question is always this: How can I get more customers to voluntarily give me their money? A failure to answer this question leads to the failure of one’s business.

This may seem like a very simple observation, but for those who are daily forced to ask the question, it leads to a worldview that can be quite distinct from millions of other workers who work for wages.

Thinking back on things Dad taught me about business ? whether explicitly or by accident ? there are three main lessons I was able to learn:

One: Increasing Income Requires More than Just Raising Prices
Business owners hate to raise prices. After all, raising prices alienates customers and annoys them. Higher prices mean fewer sales. Sticker shock may be unpleasant for the customer, but it’s often even worse for the business owner ? who wants to make the sale just as much as the customer wants the product or service.

So how to avoid raising prices? The answer lies in lowering the costs of doing business. A business owner can lower costs by finding ways to more cheaply produce the goods and services one sells for a living. This can include finding a cheaper office to lease or finding lower-cost labour. It might mean finding less expensive delivery trucks or a less expensive health care plan for employees. […]

Some wage earners, of course, often take a different view. For them, getting a higher income often just means hanging around long enough to get a higher salary through seniority. Or they might advocate for a “raise” through government mandated increases on health care spending, or mandated family leave, or a minimum wage.

The larger effects of these latter “strategies,” of course, are unemployment and lower real incomes. But wage earners who think they benefit from intervention don’t see it this way.

Two: Politicians Only Drive Up Costs
This brings us to another important lesson one can learn from business owners: “the government won’t help you.”

Oh sure, the government can help in the very short term if one can convince lawmakers to pass laws that help one’s specific business or industry. But such laws don’t exist in isolation. Those same legislators are also busy passing laws that benefit the competition and hurt profitability in other ways.

Given the rapid spread of costly government regulations against business in recent years, it’s a safe bet that the overall effect of lobbying government for “favours,” won’t end well.

Overall, government intervention has the result of driving up costs. And then we’re back having to raise prices again.

Thanks to labour regulations, environmental regulations, alleged “consumer protection” laws, taxes, tariffs, and a host of other government interventions, business owners are faced with constant upward pressure on the cost of doing business. This leads to declining net revenues and declining income. It means being able to hire fewer people, and it means less profit available to re-invest in the business. […]

But tariffs, and immigration controls, and so-called “pro-labour” legislation forces this on the business owners. His customers, however, don’t care. They want the same products at the same prices. Or lower ones. The business owner then finds himself constantly trapped between the government’s efforts to drive up wages and the cost of doing business ? and the demands of the customer.

The business owner, naturally, just wants to please the customer. But governments make this harder every step of the way.

Three: The World Is Changing All the Time
And this brings us to the last lesson Dad taught me: “the world is changing all the time, and you’d better figure out how to deal with the change.”

For many workers, of course, an ideal employment situation looks something like this: learn some skills, find a nice employer to work for, and then do the same thing for a few decades. Then retire. Maybe in the past, some workers even managed to do this.

But it’s not the Old Days anymore, and this model of employment simply doesn’t work. The worker must be entrepreneurial minded. He must ask himself: how can I deliver something to the customer in a way that makes me valuable?

Moreover, producing value as a worker might be inconvenient. One might have to move to another city to make a living. After all, there’s no such thing as a “right” to an employer within a 20-minute commute of where one already lives. […]?Yes, moving around to find work can be extremely unpleasant. Residential mobility has its downside. But so does poverty and unemployment. […]

Ryan McMaken?(@ryanmcmaken) Mises Institute

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