Tag Archives: Economics

Honolulu Car Rental Price Gouging

I got an email about this from my friend in Hawaii. It seems with the return of tourism to Oahu (which had been down 90% for almost the entire pandemic), that the demand for rental cars has gone through the roof compared to availability.

No doubt the car rental offices were selling off their fleets to help cover operating costs during the pandemic. Now that it’s ended, their short sighted move has caught them flat footed. In typical predatory capitalism fashion they’ve decided to charge over $700 a DAY for basic rentals and over $1000 if you want a convertible:

$1,000 a day to rent a car? Low supply, surging demand are pushing up prices in Hawaii (hawaiinewsnow.com)

Normally, I’m quite pro-capitalism. I understand that TO A DEGREE, supply and demand are going to factor into cost. Doing so covers the cost of increasing the supply to meet demand.

HOWEVER… Where do we draw the line in this kind of instance? Where does the law of supply and demand become predatory capitalism? I’m not sure I have an EXACT answer there, BUT, 10x the normal going rate would seem to be across that line. We rented a Mustang GT convertible a year and a half ago for our honeymoon and only paid $100 a day, which is still pricey compared to most other locations.

Wouldn’t an ethical business simply go out and buy some cars from local dealerships to increase their fleet size? At $100 a day rental rate, the car loan note can be paid for on 5 days of rental per month.

Just because you CAN do something doesn’t make it right. Look at the price hikes on insulin as another example. Somewhere along the lines the idea of business ethics got flushed and replaced with the SHORT SIGHTED idea that the only duty a business had was to provide as much short term profit as possible to it’s investors. If one has NO ability to ponder consequences, that sounds great also. In the long term though, it destroys a business’s reputation and customer loyalty. Look at Banks and Airlines as two other examples. They’re both hated.

Worse, these greedy businesses are only fueling the call for Socialism or outright Communism by people who don’t understand these are even worse alternatives.

Economics: The Reality of the Minimum Wage

As much as I try, some news topics are really hard to avoid. The recent debate over the minimum wage is one of them. Shockingly, I see the same arguments every time the topic has come up since I started working back in the 80s.

I swore off of political discussion but this is a social and economic issue that has been turned political via class warfare politics. So, let’s talk the truth.

The biggest flawed argument is that raising the minimum wage doesn’t cause inflation. You can find all manner of jury-rigged charts and stats to support the lie also.

Reality is that any good or service has two main costs associated with it; parts and labor. If you raise the labor cost of labor one of three things is going to happen:

  1. The price of the final product has to be increased to cover it’s increased cost of production.
  2. You cut your labor pool and force more productivity out of each member
  3. You decrease the quality of the materials used to make the product.

If one or more of those things isn’t done, the company loses money and risks going out of business. Few people anymore seem to understand that a business has expense of it’s own that have to be paid for out of their gross profits.

Let’s use a restaurant for example. WAY WAY WAY back in the day when I worked at Burger King, the manager and I used to talk alot. He explained that the restaurant has to charge 3 times what the food costs the store to cover all their expenses. You MAY have heard Robert Irvine say the same thing on episodes of “Restaurant Impossible” when coaching the people he’s helping that episode.

What expenses you ask?

  1. Payroll to employees (Labor)
  2. Local State and Federal Payroll Taxes
  3. Mandatory Employer contribution to employee social security (ie more taxes)
  4. Unemployment Insurance (yes the money that you collect as unemployment is first paid to the government by your former employer)
  5. Employee Health Insurance (in some cases)
  6. Business License Fees
  7. Franchise Licensing Fees if part of a chain
  8. Property Taxes
  9. Mortgage on the building
  10. Upkeep on the Building
  11. Utilities (Electricity, Gas, Water and Sewer, Business Phone, Internet)
  12. The actual ingredients to make the food
  13. The utensils and cookware tom make the food
  14. Dishes, boxes, wrappers; however the food is served
  15. Cleaning supplies
  16. Employee uniforms

And doubtless some other things that I didn’t remember. All of that is why a hamburger that costs $1 in food costs has to be sold for $3. That amount allows the restaurant to cover expenses and make a modest amount of money. Remember the owner needs to pay himself also so he can pay his personal bills also.

The proof of inflation can actually be tracked via the that same hamburger restaurant idea. When I was first hired by right out of high school, the minimum wage was bumped from $2.85 an hour to $3.30 an hour.

What happened right after that? The price of a Burger King “Whopper” sandwich combo meal jumped slightly to $3.35. I cashiered, so the price stuck in my head, LOL.

The price of a combo meal at almost any fast food restaurant has stayed almost the exact same amount as the minimum wage also. The Federal minimum wage is currently $7.25 an hour. What does anything actually worth eating in terms of a combo meal cost? About $7.

Yes, you can get cheaper stuff, like the $5 specials that the low quality fast food places (McDonalds, Burger King, Taco Bell) run, but are any of those items worth eating? Typically, the ingredients are cheapened down to the point the food is barely edible. I joke about the typical fast food chicken nugget being made from ground up beaks and claws for example, LOL. Then they drown the junk in some cheap vinegary sauce and hope you don’t notice.

Reality is most fast food and quick serve places have cheapened all their menu item ingredients because they can’t get anyone to work for under $9 an hour but still have to keep prices down. So to balance profits they’re selling $5 meals for $7 and paying the employee $9 to make it.

It’s not just restaurants though. Everybody’s wages go up, so prices go up across the board. Net result, we have inflation and the little guy has no more buying or saving power despite the increase in income.

You can’t squeeze much more productivity out of the average worker either, so cutting labor and demanding more from those who remain isn’t a viable answer.

“Real” minimum wage in the above chart I’m assuming means the legal minimum wage adjusted for inflation / actual buying power as compared to the past. Note that it’s stayed moderately consistent while productivity has soared.

Some of that productivity is automation assisting jobs (which typically means fewer hands needed to do the same amount of work), and the rest is just employers demanding more from employees. Anybody recall being expected to fill multiple roles after the housing bubble burst, if you were lucky enough to keep a job?

The irony about all of this is that even Investopedia is full of double speak here and it’s typically a decent source of info for basic economic concepts:

With regard to inflation, so-called wage push inflation is the result from a general rise in wages. According to this hypothesis, in order to maintain corporate profits after an increase in wages, employers must increase the prices they charge for the goods and services they provide. The overall increased cost of goods and services has a circular effect on the wage increase; eventually, as goods and services in the market overall increase, higher wages will be needed to compensate for the increased prices of consumer goods.

So that’s what Ive been saying. But the next paragraph down in the article, they argue against that idea and that the only alternatives are cutting workers of quality of goods, BY SAYING THAT’S THE ONLY ALTERNATIVE!!!

According to economic analyst Ed Rensi, formerly an executive at McDonald’s, a higher minimum wage would not only kill existing jobs but also result in closing a substantial number of small businesses, from 15% to 20%. In theory, raising the minimum wage forces business owners to raise the prices of their goods or services, thereby spurring inflation. In actual practice, however, it is not so simple since wages are only one part of the cost of a product or service paid for by consumers. A higher minimum wage can be offset (ie inflation avoided) by heightened productivity by workers or trimming down a company’s manpower.

Are you getting the message yet, folks? You’re being scammed in an effort to buy votes when NOTHING will truly change.

Is There a Real Answer?

This one is harder to answer than it should be. The standard conservative answer is education. However, “everybody deserves a college degree” worked out as well as “everybody deserves a house”. There was so much graft, misrepresentation and sometimes lazy students, that we’re sitting on another economic time bomb with student debt. In an ideal world, education would be the answer. The more you know, the more you make. Flipping hamburgers could be left to kids in school or robots and everybody would go on to make a living wage at a “real job” as my mother used to call them.

Aside from the problem with needing to clean up the system, things are evolving so fast that training and education are often obsolete in 5 to 10 years, even some hard science advanced degrees. How does the average person keep up with that??

Then there’s the whole issue of jobs becoming increasingly replaced by automation as well. New York City has some fast food restaurants that are completely automated now (in response to their $15 per hour minimum wage no less). There’s even efforts to replace lawyers with robots. Good riddance there, LOL

People are becoming obsolete in general. The ultimate answer may be some form of universal income. That’s scary in how much power it gives the government over the lives of it’s citizens. I’m not even sure how it works as the idea goes completely against basic economics. Government doesn’t produce anything to create the wealth it wants to distribute in a universal income situation.

No, you can’t just infinitely print money either. It destroys the value of it. Think of it this way; If everybody had FIVE, (yes five) classic Mustangs like mine:

How much would ANYBODY be able to sell one for? ZERO. Even money itself operates under the law of supply and demand. The more there is of anything, the less it’s worth.

Answers? Wish I had some good ones. Right now, all I know is the dog and pony show in Washington is nothing but smoke and mirrors intended to buy votes. It’ll sadly work too.

Talking Down the Economy

Anybody care to guess what the biggest real flaw of capitalism is?

NO, it’s not greed (a legitimate topic for another time), or some of the things you hear from socialists or communists.

It’s quite simply that a capitalist economy is almost totally driven by consumer confidence in that economy.

This is a little bit of an over simplification. Tax levels and bad moves by companies certainly can impact the economy. I won’t deny that. At the same time, the reality is that most times, the economy will recover quickly or continue right on track IF people believe it will AND keep spending.

Crashing chart

Likewise, all it takes to trigger a massive sell off in the stock market (ie causing a crash) is people believing that one is coming and then rushing to sell. With automated trading systems, it’s now built into the network. A few lemmings jump off the cliff and everyone follows.

What’s the point beyond a little trivia?

It’s that I’ve sat back for decades and watch people in the media and in politics try to trash the economy. This is NOT a Right vs Left thing either. Both sides do it when they’re not in power in an effort to undermine the side that is in power. I watched Republicans constantly trash the Obama and Clinton economies, and I’ve watched Democrats talk down the Reagan, Bush and Trump economies. It’s politics at it’s worst as politicians try to ruin lives and businesses to gain votes.

The media? They’re just into hysteria for ratings, as the Covid-19 coverage shows.

If you’re worried about the economy, TRY not to be. Reality is, this is a new situation and nobody knows for sure what will happen. If people remain paranoid, stay home after the all clear is given, and are too afraid to spend, we may be in trouble. If people breathe a big sigh of relief and are eager to get back to living life, things will likely return to a pre COVID situation pretty quickly. Life will be fine if that’s the case.

The point is, we don’t know for sure and we can only control our own little piece of the economy (our personal finances). Anybody that tells you otherwise is lying. Period.

Do NOT worry about what is out of your control. Stay calm, hope for the best and please be aware that when you see politicians trashing the economy, especially if the numbers say different, they’re only trying to make hay at the risk of your financial well being.

That’s your basic economics lesson for a COVID Wildcard Wednesday.