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| Yup, you can just expect it to backfire badly on your face. |
This is one funny meme I found on Facebook. The picture above might be very familiar to some people who were born in the 1980s or even older. Tom and Jerry is a very old cartoon already and that's the one I used to watch on either rented Betamax or on Cable TV for some time. I would like to render a translation on the following terms for the sake of readers especially those who don't understand the Tagalog dialect:
- Meowists is an informal term for Maoists.
- The term "Sahod itaas, presyo ibaba, ayuda para sa lahat." means "Increase salaries, reduce prices, handouts for everyone." Ayuda means help in Spanish. It's also referred to government handouts.
Why it's just stupid to request higher wages and lower cost of goods
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| Image by Sabrina Jiang © Investopedia 2020 |
Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.Cost of goods sold is also referred to as "cost of sales."
Examples of general and administrative (G&A) expenses include building rent, consultant fees, depreciation on office furniture and equipment, insurance, supplies, subscriptions, and utilities. Salary and benefits attributable to certain employees, such as corporate management as well as the legal, accounting, and information technology (IT) departments are also classified as G&A expenses.To view the full costs associated with running certain business units, a company may allocate its G&A expenses out to each business unit based on a percentage of revenue, expense, square footage, or other measure. As a managerial accounting technique, reviewing this information with internal management allows for more informed decisions about expanding or reducing individual business units.For example, if the total electricity bill at XYZ Company is $4,000 per month, and the business records the electricity bill under general and administrative expense, it can allocate out the electricity costs to individual departments based on square footage. Assume the production facility is 2,000 square feet, manufacturing is 1,500 square feet, accounting is 500 square feet, and sales is 500 square feet. The total square footage is 4,500, so the electric bill could be allocated out to each department as follows: production $1,777.78 (2,000 / 4,500 * $4,000), manufacturing $1,333.33 (1,500 / 4,500 * $4,000), and accounting and sales both receive $444.44 (500 / 4,500 * $4,000).
In short, other salaries are also part of general and administrative expenses. Salaries are also given to workers who aren't directly involved in the production of goods. Payment goes to the office workers such as those that belong to the human resources team, the marketing team, and the financial management team. The financial management team would be in charge of finding the right price to make sure it's neither too low nor too high but just right to generate the desired amount of revenues to make up for the expenses. It would also make sense to purchase more affordable materials and equipment (when possible) to reduce the costs of production, which in turn, will reduce the cost of the final product. The profits are necessary not just to get wealthy but also to make sure there's wealth to share. Capital is also needed to be able to issue decent salaries to employees regardless of rank.
What we see is that when you increase the salaries--it requires that a product or service have an increase in its cost. A good example is the coffee shop or milk tea shop. Why do you think meals in Bo's Coffee Club and Jolly Bubble are more expensive than food served in a canteen? The use of premium ingredients, a huge workforce, long-operating hours, expensive rent, cost of utilities, and all that will cause the prices of goods and services to increase. Some people even stay in the coffee shop or tea shop to meet with their classmates or workers for a meeting. What happens is that when salaries are increased--the prices of goods and services must increase too because the salary of all employees is taken from the capital of the company. The workforce relies on capital as much as the capital relies on the workforce. When one aspect of operating costs increases then the cost of goods and services must increase too.
To lower the price of goods and services while increasing salaries is to sell at a loss. No business is ever operating without profits. The late Lee Kuan Yew said that profit shouldn't even be a dirty word at all. If we do make it a dirty word--we perish! If coffee shops and tea shops started to sell at the same price as canteens then they start to sell at a loss. Premium coffee beans and tea beans aren't easy to secure so the costs are high. Operating for long operating hours means a higher cost of utilities. Plus, renting at a mall (which rent is justifiably high due to higher expenses) isn't easy. If the coffee shop and milk tea shop sold so low then they're selling at a loss. If they keep doing that then they'll start to be unable to pay back suppliers, pay their utility bills, pay their rent, pay their loans, and they can't pay higher salaries. In short, they will have no choice but to close up shop because they'll have bad standing with their suppliers, utility providers, lessors, creditors, and employees. If a business has no profits then it must be abandoned. Nobody can live or survive by operating at a loss
Yet, the stupidity of the leftists is always demanding that--to sell at a loss. I doubt those leftists rallying in the streets even know anything about doing basic business. If they were so good in business then what are they doing protesting in the streets, relying on getting paid to rally, and the like? They even want to make it look like it's so easy to do business. Some of those leftists during the community pantry even demanded the groceries give their goods for free. Please, the pantries buy from the groceries. If the groceries gave all their wares for free then how will they pay back their suppliers and be able to pay their employees? If they can't generate a sustainable source of income then how can they continue to operate with good quality in mind? If the government should one day demand businesses do well then all businesses will have no choice but to shut down. It's because no profits mean a business can't operate at all.
Why giving handouts to everyone is a recipe for disaster
By printing money they devalue the currency in three ways.
- Firstly, printing money tends to be inflationary. Higher inflation makes a country less competitive leading to relatively lower demand for their exports and hence currency.
- Secondly, increasing the money supply enables the Central Bank to buy more foreign currency, which drives down the value of the domestic currency.
- Statement of intent. By promising to print money and keep currency low, it discourages speculators from buying that currency as it is less likely to be a good bet.
The demand for more handouts would mean a country can end up like Venezuela. Everyone has money in Venezuela but the money is near worthless. Just think about how the printing of more money made the money worthless. In fact, Venezuela even hit a hyper-inflation of 686.4% last 2021. That's a lot worse than any inflation that hit the Philippines right now. It's because the value of the money has become even lower. Why would I want to even invest in the Venezuelan bolivar if the money is really close to worthless? The Japanese yen (JPY) and the South Korean (KRW) won may be weaker than the Philippine peso (PHP). However, both Japan and South Korea have strong economic policies that allow them to survive through the recessions they encounter. Both countries have a good inflow of FDIs because of reasonable restrictions. Yet, the same people who demand their handouts also go against FDI.
Think about how giving PHP 10,000.00 worth of government handouts will end. The Bangko Sentral ng Pilipinas (BSP) will have to print more money eventually to fulfill that need. However, that PHP 10,000.00 may become near worthless because it would no longer sustain a family because the PHP got devalued in the process. Now, it will end up as PHP 10 Million per family. The next insane step is for the BSP to print more money and the PHP 10 Million per family becomes near worthless. What's even so irritating is that I can talk about it all I want yet the leftists will give statistics which are "Pie in the Sky" such as from IBON Foundation. In fact, the late Neil Doloricon even made a caricature that said that foreign investors leave the Philippine economy with nothing. It's a very misleading picture that can be disproven if one researches the history of first-world countries. Do these people want people to believe that handouts, not capitalism, are the solution for a better economy? If so, the thinking is absolutely fatally flawed.
The big economic program should be focused on economic reforms instead of self-defeating demands
Another secret of Deng's successful Communist China is the revival of the capitalist spirit. Mao's so-called equality accompanied by the "Great Leap Forward" only created disaster. The industrial program of Mao only produced inferior products. Mao stupidly had sparrows shot which only resulted in more pests. The illustration of the sparrows is that they ate a little rice but ate more of the pests. The foreign investors do take some of their profits to their home country but they leave the economy with income taxes, more employment for the people, more new customers, more new service providers, and more suppliers for the local business environment. The sparrows are like the local investors and the pests can represent unemployment, overpriced bad services, and scarcity. Deng's invitation of American MNCs and other MNCs began a real Great Leap Forward. Deng even said, "Poverty isn't socialism. To be rich is glorious." Lee praised Deng to be a great man in that regard. Deng made a no-work, no-pay policy as well, which drove China to a real Great Leap Forward. Deng proved Mao's ideology wrong in so many levels. People had to work if they wanted their money. No work meant no money in Deng's China where he allowed MNCs to do business there.
Vietnam also had the late Do Muoi. Vietnam used to be another lower-ranked country but guess what--it's not another strong country. Vietnam may be a Communist country but it's doing better. The big reason is that Do himself introduced the capitalist spirit into Vietnam. Vietnam wasn't a country that was still isolated from foreigners. Instead, Vietnam became more and more open resulting to its development. Like China, Vietnam also opened its doorway to FDIs. Lee also mentioned about his meetings with Do Muoi whom he also praised as a great man.
It would be a no-brainer that people would go to China and Vietnam instead of North Korea and Venezuela. I feel China's rather illogical ban on Google and Facebook later on could badly backfire sooner or later. I feel it's an illogical policy that needs to be removed if they want better business support. However, I was glad I had my one-week vacation in China instead of North Korea last 2007. If I could go to another Communist country then the logical choice is Vietnam over Venezuela. Why would I want to go to Venezuela to line up for bread when Vietnam can provide me bread almost immediately? Besides, a lot of FDI in Vietnam made it a high ranking country.
What people need are jobs and salaries--not more handouts. Kishore Mahbubani of the Lee Kuan Yew School of Public Policy emphasized how legitimate foreign investors create jobs, bring new ideas, and that they're not there to rape the country but help it. Lee emphasized how the faulty knowledge of "development economists" of this day also contributed to Singapore's third-world state back then. Lee proved them wrong when he brought in the late Albert Winsemius, a Dutch economist, to help out the country. Winsemius proved the economists wrong as he was an economist from a first-world country. Third-world development economists tend to be only book smart but not street smart. It's really what I also feel is wrong with some Filipino economists too--even among those who graduated from difficult-to-enter schools. If people had more salaries then there would be less need for handouts. Yet, some people would prefer to be lazy and have their handouts. Handouts will usually just end up wasted in contrast to if healthy people worked for their money and learned to budget it themselves.
FDIs would soon close the supply and demand gap. Sure, the prices of goods won't easily go lower but inflation won't be a problem either. However, we can end up having economies of scale eventually when supply is high and demand is low. FDIs will provide more products and services. Importation of agricultural products will allow the supply-demand gap to be close. It would be logical to buy imported agricultural products if there's a scarcity in the Philippines. The Philippines, in turn, can export its agricultural products to a country having a shortage for that season. It's like Taiwan can buy Philippine rice during winter and the Philippines can buy Vietnamese rice during the summer. Isolation only made things worse. Instead, it's the quest for interdependent economics one way or another. Countries that continue to operate in isolation can just expect to suffer all the more. Meanwhile, countries that engage in world trade with other countries are bound to do better.