Healthcare and Pizza

As you’ll recall I wrote to you several weeks ago about my going into an independent pizza shop in Auburn California where they were advertising a “minimum wage pizza” I talked to the owner at length about his unusual marketing scheme and he told me that he employed 8 people who were receiving a minimum wage for their labor. For many this was their 1st job and all were under 20 years of age. 6 of the 8 lived in homes in the suburbs. For two weeks he advertised a “minimum wage pizza” explaining to his customers that the normal $12 dollar pizza could be bought—if the customer so chose, for $32. If enough customers bought the $32 dollar pizza he could keep all the minimum wage workers under his employ at the new community minimum wage of $15/hr. In two weeks he had sold 2 minimum wage pizzas—one was bought by one of his minimum wage workers hoping to help secure his job. In the end it seems his customers were more interested in a fair competitive price for their pizza, and less interested on the implications of minimum wage laws on the pizzeria owners cost and bottom line. Costs to producers only become important to buyers when the costs of production approach the equilibrium point on the supply and demand curve. Demand is blind to the cost of production. Only price matters. This is true in health care and pizza markets—and all others.

Below is an article that I found today about an “Obama Care Pizza” offering in Brooklyn New York. It seems that this gentleman’s businesses needed to significantly raise the price of their pizzas in order to provide insurance for their workers—otherwise they would have to let some of their workers go. It seems that customers looked at the 3% surcharge as a form of protest and the owner simply canceled the surcharge and added the 3% onto the price of menu items. The owner figured his increased cost for insurance coverage would come to $200,000/year more to cover his employees and stay in compliance with Obama Care regulations.

So this is $200,000 unavailable to the owner to reinvest in his business or add new workers or increase workers’ pay. Multiply this by thousands of businesses with similar added costs and the amount of capital available to the private sector becomes significantly reduced, impacting investment, employment, and business expansion.

When the Medicaid Expansion working group hired Zeynepk Ansen Phd., Don Holley Phd. And Geoffrey Black Phd., from Boise State to perform an economic impact study of Medicaid Expansion I was concerned that not one member of the group raised the question of the impact of the opportunity costs passed on to the private sector as a result of lost earrings from individuals and businesses. At best this was an oversite by the committee, at worst the report by not including this cost to the private sector as at least a footnote was disingenuous. This type of economic analysis can be used for small government bond offerings to assess economic redistribution in small locals with specific demographics and is an important tool to be used when discussing issues of public policy. To extrapolate findings using this type of methodology is a clear over reach of economic modeling and was never intended to be used in such a way by the designers of the program and algorithm. The premise of the argument is fallacious, the methodology when applied to a large market—actually multiple markets when used in a way that it was not intended to be used, leads to conclusions that have no bases in fact.

Shame on the working group for not recognizing—and I am sure many on the group did but chose not to speak out, for not pointing this out to the public whose interests they were supposed to represent. Or maybe they were representing the interest of some other party or “stakeholder”.

So as long as I can get my “Cowboy Pizza” from Idaho Pizza Company without an “Obama Care” surcharge and without a minimum wage markup I will be happy and count my many blessings including the fact that I live in the wonderful State of Idaho.

People like Suzanne Judd who was mentioned in the Daily Clips YHI articles are typical of the Idahoan ethic of taking care of oneself. They don’t want to be in a position where they are dependent on the largesse of the government. Western values and common sense tells them that there is no such thing as a free lunch. Having the government pay for health care insurance that has not been capitalized by the labor of the recipient leads to the misallocation of scarce resources. Keep the money in the private sector please. I find it very interesting that our exchange has been so successful because in our marketing we appealed to individual responsibility and “skin in the game”. Very different than in most States where they appealed to “the common good” and entitlement. Most of those exchanges are either upside down or non-existent.

The success of our Exchange has been the result of good business practices, good fortune, but most of all the ethic of Idahoans who only feel entitled to an opportunity and are not looking for a handout.