Fri, 13 Jan 2006

Maryland Idiots

The legislators in Maryland are idiots. They are playing with things they don't understand. They enacted a law which requires companies with more than 10,000 Maryland employees to spend 8% of payroll on health care or else pay the difference into the state's health care coffers. That would seem like a victory of "the common man" over evil big business, wouldn't it? Surely that's how the Maryland legislators want their constitutents to remember it next time they're up for election.

But is that what's really happening? The theory here is that companies with more than 10,000 Maryland employees is making excessive profits for its owners. They've paid a smaller amount of money for a larger amount of earnings, and those earnings came unfairly from the state's provision of free health care for badly-paid workers. From the state's point of view, they're just getting their own money back.

The Maryland legislators are misleading the public, though. First, whenever any company earns excessive profits, the price of getting those profits goes up in the form of a higher stock price. So, really, the only way to earn "excessive profits" is to wisely examine the stock market, and wisely buy stocks which the market has underpriced. Your wisdom will be rewarded by either 1) higher earnings if you hold onto the stock, or 2) a higher stock price when you sell. So, any excessive profits are earned through skill and luck.

The fact that companies with more than 10,000 Maryland employees happens to employ poorly paid workers (at least in the legislator's eyes -- otherwise why would they qualify for public health care) is simply a fact of the market. Either companies with more than 10,000 Maryland employees purposely hires workers who cannot earn a higher wage (in which case they should be applauded, not penalized), or else it is simply a characteristic of the market for labor that the people companies with more than 10,000 Maryland employees needs for its jobs qualify for public health care.

So, what about those excessive profits and low-paid workers who cannot afford the health care that companies with more than 10,000 Maryland employees subsidizes for its workers? Why shouldn't the state equalise these two by forcing companies with more than 10,000 Maryland employees to pay more for health care?

First, the profits are not excessive relative to the profits available from other stocks. If there are persistently higher profits, then they are a function of a retail trade which aims its business largely at poor people. If anything acts to reduce those profits, then the stock price will fall, and companies with more than 10,000 Maryland employees will find itself unable to get the capital it needs at a price it can afford.

Second, if the excessive profits are illusory as I claim, then the only other source of money to pay these new health care fees are the customers -- that is, the same poor people that the legislators are hoping to benefit. They will get away with this, because the benefit is immediate, clear, and concentrated, whereas the harm is delayed, diffuse, and unseen.

This is regressive legislation. It's worse than a zero-sum game. It's a negative-sum game, because when all is counted, society is worse-off for this law.

Posted [16:08] [Filed in: ] [permalink] [Google for the title] [digg this]