Wednesday, February 27, 2008

Jake's Bread Factory

Jake worked for many years in a large bakery making bread. He managed to save a few thousand dollars to borrow several thousand more to pen a business of his own. He called it, "The Bread Factory" and baked only top quality breads and rolls. The business was very successful and soon it was impossible to meet demand.

Jake wanted to expand and hire more help, but doing so wouold make his business subject to more government regulations and significantly increase his costs. Here are some of the requirements Jake must meet if he expands in order to comply with local, state, and federal regualtions:
  • Mandatory safety equipment and materials
  • employee health and retirement benefits
  • new content and nutritional labeling
  • packaging specifications
  • more detailed record keeping
  • more inspections by the city health dept
  • keeping connected with these regulations
Jake wants to enlarge his plant, buy improved equipment, and hire more help to incrase his production. Unfortunately, the cost of meeting government requirements does not leave Jake enough money to do so.

If Jake proceeds with his expansion he will be forced to raise his prices to cover the expenses of complying with government regulations. These expenses do not improve his productivity. Increasing prices without increasing productivity is inflationary. Jake's business by itself will not contribute greatly to inflation, but Jake is not alone. Thousands of businesses across the country face similar circumstances. The costs of record keeping and meeting government requirements do not increase productivity, but they do increase business costs significantly. Higher prices result.

If Jake decides not to expand, the jobs he would have created and the increased productivity will not happen. When the costs of regulation become too heavy for businesses already suffering in a recession, they may close shop altogether. This deepens the recession.

What do you suggest Jake does?

Monday, February 25, 2008

I am planning on using this blog to communicate with students in my Contemporary Living class. My goal is to post questions that are related to our current topic and have students respond.