Sunday, July 27, 2014

Economics II

Businesses are started to make money. Return on Investment (ROI) is a measure of efficiency.

Some common sense economic ideas:
  • If you subsidize something you get more of it.
  • If you tax something you get less of it.

Types of subsidies:
  • Tax rebates are a type of subsidy.
  • Postponing taxes for start-up business is a form of subsidy.

Types of taxes:
  • City, state, federal, environmental taxes.
  • Regulations
  • Boycotts
  • Artificially high wages

The term wages used in this essay includes salary and benefits. Reasonable wages are always determined by competition. Businesses have to compete with each other to get good employees. The fewer qualified people available, the higher the wages. The more qualified people available the lower the wages. With high unemployment, wages drop. The only reasonable way to increase wages to put more people back to work. Artificially high wages always mean fewer jobs.

Greater ROI means a better chance of survival. The increased ROI increases incentive to grow the business. As the business grows employment increases inside and outside the business.

Neighborhoods, cities, states, and countries all compete for businesses to move there, because more businesses mean more tax revenue and more employment.

  • Places that subsidize business generate more businesses.
  • Places with high taxes generate fewer businesses.

Say Place A has higher taxes relative to Place B. This alone gives companies an incentive to relocate. If Place B adds a little additional incentive (a subsidy) it might successfully get a business to relocate.   

If a business relocates to Place B, they will have more ROI and may be able to invest more in Place A. It is better for everyone for a business to be located where they can make the most money. 

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