Chief Investment Strategist, The Freeport Society
Something our politicians show me daily is that you can have bachelor degrees, master’s degrees, even PhDs… and still be remarkably stupid!
On April 1, California’s new minimum-wage law went into effect, giving fast-food workers in the Golden State a $20 per hour minimum wage. That works out to $40,000 per year assuming a 40-hour workweek with two weeks of vacation.
Compare that to the average starting salary for a college-educated teacher, which is less than $45,000 nationwide. About 28% of first-year teachers actually make less than $40,000.
That means there’s now no appreciable difference between the salary of the people we depend on to educate our children and the salary of an unskilled entry-level burger flipper in California.
Just stop for a minute and consider how truly absurd that is.
The pay bump was an immediate 25% increase for California, which already had one of the highest minimum wages in the country, and it puts the state’s minimum wage at close to three times the federal minimum of $7.25.
Immediately, restaurant owners responded by raising prices – exacerbating food inflation – by hiring fewer people, and by reducing the hours of those they do hire.
Per the Associated Press, July 10:
California fast food workers now earn $20 per hour. Franchisees are responding by cutting hours.
Gee, who would have seen that coming?
Unfortunately (for us all!), California isn’t Las Vegas. What happens there doesn’t stay there.
If a would-be employee living in neighboring Arizona or Nevada knows they can earn vastly more by driving an extra half hour across the state line, then fast-food joints in their area will need to raise their wages as well just to remain competitive.
And if entry-level wages for unskilled workers rise, wages for everyone else up the totem pole must also rise. An assistant manager with years of experience isn’t going to tolerate being paid at the same level as an untrained high school kid.
Of course, it goes beyond fast food. All minimum-wage employers in California… and beyond… immediately have to pay more to prevent their employees from jumping ship to flip burgers for $20 an hour at McDonald’s.
My question is why stop at $20 per hour?
If you can manufacture prosperity by dictating wages and forcing someone else to pay for it, why not raise it to $40 per hour? Or $40,000 per hour? Why not pay every cashier and fry cook the same $47.6 million that LeBron James makes playing for the Lakers?
Since economic value clearly no longer matters, what’s another couple zeros among friends?
It Gets Worse
The minimum-wage bump would be bad enough if that were the only bit of “Californication” spreading its tentacles across America. But in Governor Gavin Newsom’s infinite wisdom, he also believed it necessary to effectively outlaw independent contracting in the state via the now infamous Assembly Bill 5 (AB5), which he signed in 2019. AB5 forced all employers in the state to reclassify virtually all freelancers as W2 employees.
That worked about as well as you might think.
Self-employment fell. So did total employment… and by a not-so-small 4.4%. Rather than hire the former freelancers as more expensive employees, California employers simply chose to hire fewer people.
California’s meddling in the labor market reduces the financial incentive to better yourself, get educated, and learn viable job skills… which should be infuriating to anyone who’s ever busted their butt to pull themselves up by the bootstraps. And it does so at the price of raising the cost of living for the rest of us.
This isn’t conjecture, by the way. It’s already showing up in the inflation data.
Overall consumer price inflation dropped by 0.1% between May and June, meaning the overall price level fell ever so slightly.
Yet restaurant inflation actually rose 0.4% over the course of the month.
So what’s my point here?
Californication Coming in January?
Back in December, I did a presentation with Freeport Society friend Louis Navellier in which he made a claim that sounded so far-fetched as to be absurd at the time: President Joe Biden would be replaced on the Democratic ticket by a Shadow Candidate.
Well, suddenly that doesn’t seem so far-fetched.
As I write this, 18 Democratic congressional representatives, one Democratic senator, and a host of other party bigwigs and donors have publicly called for Biden to end his reelection campaign. We’ll never know how many more have privately urged him behind closed doors.
Will the Shadow Candidate that Louis identified get the nod? Will another?
I think there’s a good chance. This makes the threat of Californication very real with very serious implications for inflation and the security of your investments.
Sure, a Donald Trump victory would stall some of the extreme elements of Californication, but the 45th president has proven that he’s quite comfortable meddling in the economy, too, particularly with trade protectionism.
Among other things, Trump has promised a 10% tariff on all imported goods… which means higher prices and fewer choices for American shoppers… and less competition and fatter profits for well-connected monopolists.
If that wasn’t enough, he’s also pledged to put Federal Reserve monetary policy directly under presidential control.
This is the stuff of third-world banana republics… dystopian insanity… and, unfortunately, our future.
So, expect some degree of Californication regardless of who wins in November. And take steps NOW to prepare your wealth…
Protect it from the sandpaper effects of inflation and dollar devaluation with reliable portfolio hedges such as gold, metals, and cryptocurrencies.
Position your portfolio to work harder for you by investing in companies we call “rich man’s super currency” (which we explain here.)
And invest nimbly so you can maintain your right to pursue wealth in this Age of Chaos.
To live, liberty, financial survival, and prosperity.