The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Analysis: Herman Cain vs. Bill Clinton on HillaryCare

Posted by iusbvision on January 19, 2011

Notice how Clinton says that it will work because it means that everyone in the business will have to raise their prices the same so it all works out; no it doesn’t. Clinton is engaging in a false assumption that destroys smaller competition and benefits the biggest players in a market.

Cain is explaining that “big pizza” has a higher base percentage of profit, based on both volume and on economies of scale, that gives them lower costs and higher aggregate profitability compared to smaller competitors. While Godfathers has a profitability of 1.5%, “big pizza” has a profitability that is likely close to 6%.

So what does this mean? If Clinton gets his way “big pizza” will not raise their prices at all, on the contrary they will have a sale and keep that sale on till smaller outfits like GodFathers who are forced to raise prices and reduce service via layoffs can’t compete and shut down. At first the barely profitable stores close, then the better ones. The result is more and more markets where “big pizza” progresses its virtual monopoly in each market. With that competition taken out of the picture “big pizza” can charge whatever it likes and prices go up, and the pressure to keep quality up starts to evaporate.

This is why companies like Philip Morris lobbied Democrats to have tobacco taxes and regulations increased.

This brings us to Norton’s First Law:

Big business loves big government, which is why big business loves domestic taxes and regulation because it keeps the small and medium-sized competition out of the competition. It also causes inflation, so ultimately it is you who pays and the poor who are hardest hit. (Big business often gets loopholes written in the laws for themselves such as Nancy Pelosi trying to get a part of the tuna industry exempted from the minimum wage law).

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