Yeay!!! I’m done with fencing! Over the weekend, finished the fences. On one side, the neighbor wanted to just spend money, so we both tossed 1/2 at a contractor. that was $3200 (my share $1600 ). On the other side only 1/2 the fence needed replacing (trees had lifted then broken it, then got removed… after the neighbor gave up on his attempt with the Redwood Commission and hired a guy to do it. He had utility surveys done to show the trees were planted on top of the gas lines and painted a scare picture of a gas fire under large trees… POOF! Approval!)
So for that second bit, we bought a few $Hundred of supplies and used DIY labor (Do It Yourself). Now from my perspective, it’s about $1400 that did NOT enter the formal economy. ($1600 minus materials costs) That $1400 would have required $2800 worth of wages to pay the $1400 of Tax (combined State, Local, Federal, SSI, etc. etc. here in Kalifornia) to have that $1400 net. So between us, we avoided about $700 of taxes each along with the $600 or so of Tax implicit in the bill from a contractor (who must pay SSI, income tax, etc. etc.)
So, Gov’t got about $2000 less taxes from both levels of the transaction (buying fence, earning money to pay), we had to work $2800 less in the formal economy, and did about $700 of labor. That means we could make 1/4 as much “hourly rate” to DIY compared to formal wage jobs. Even at the, what is it now?, $10? $12? / hour minimum ‘living wage’ here, that works out to about $40 to $48 / hour.
Factor in the added costs of commuting to work, buying lunch out, nice clothes to wear, etc. etc. It was highly profitable to DIY on the fence. Even compared to “Minimum wage Mexicans” (who were the guys working on the other fence on the other side. Not a pejorative, I talked with them, mostly in Spanish, and helped out with things like power outlets, water supplies, etc. One was from further south, the others, Mexico. One had decent if accented English, he was the foreman / owner of the company.)
Now, as a side benefit, I got some decent exercise. No need for jogging or weights when lugging around 2″ x 6″ x 8′ foot pressure treated wood! (the “kickboard” part at the bottom. Rails of 2″x 4″ x 8′ P.T. Infill boards redwood.) So a bit sore, but more fit, and back at the keyboard ;-)
It’s an interesting calculation to do. Figure out how many hours it takes to earn enough money (net of the SSI, Income TaxeS, etc. etc.) to pay for labor, then how much the relative wage rates really need to be to make it a net profit to pay someone else.
Over the process of the fence building, post daily work, I’d have some home brew hard cider. The Mr. Beer makes 2 1/2 gallons at a shot, and bottling it in Grolsch or similar old style ‘stopper top’ bottles has zero materials costs. At the moment, the Grolsch link shows one of the bottle in question. You will need to drink a supply of Grolsch to get the bottles, though ;-) It’s about $8 for the apple juice and negligible for the sugar to raise the strength a bit. The Mr. Beer cans of hopped malt are much more pricey, but make an OK beer. If you ‘get into it’, it is more profitable to buy bulk malt and / or get a 5 gallon fermenter. I actually have a 5 gallon carboy in the garage, but the Mr. Beer makes more, faster, than I typically drink. I also have a bottle capper and caps, but try to use the stopper top bottles first just to be cheaper.
Labor to dump juice and yeast into the tank is about 10 minutes (mostly spent on a dilute bleach wash and hot rinse). Then you wait about a week and bottle. Bottling is about 2 minutes / bottle, again mostly spent washing / rinsing hot. There is some ‘loss’ along the way. Bits left in the bottom, a glass during the bottling to assess quality and sugar level low enough (8-‘) so figure it’s “only” about 2 Gallons makes it to the bottles. 256 ounces. Now I use larger 16 oz or 24 oz bottles, but the ‘standard’ is 12 ounce in the store. So you get between 22 and 26 bottles at 12 ounces per batch (depending on how high you fill it, neatness in bottling, using a hydrometer instead of a test glass, ‘fill’ on each bottle, etc.). Call it 24 bottles (yes, I know that’s slightly over the 2 gallon number, but like I said, it holds 2.5 gallons)
The ‘typical’ drinkable not great beer in the local grocery stores runs over $1 / bottle. Some of it is $9 / 6-pack, so $1.50 each. I’m going to use the $1 value as I’m sure my brew is not in the class with the fancy beers (yet I find it quite nice and in some ways a lighter more refreshing drink, even if I do “juice” the alcohol up a bit to about 5% ). Now at $1 / each 12 ouncer, I get about $24 of market price value out of one Mr. Beer run. Minus the 8$ is $16 net. Time required is about an hour, all told (really less than that as it’s about 1/2 minute / bottle for the actual fill and if you are fast it’s a minute to wash/rinse, but figure 48 minutes if you were using small bottles + 10 for the set up to ferment). So that’s $16 / hour net-net. Except to BUY those 24 bottles of commercial beer, I’d need to work to earn $48 pre-all-the-Taxes (SSI, Income TaxeS, Sales at 9.5%, etc.). So really I need to subtract the $8 of costs from $48 in wages, and then it’s $40 net to me compared to actual wage-slave hours. Hmmm…. $40 / hour ain’t bad… AND there’s no paperwork to fill out ;-)
The interesting thing for me is just how rapidly you can reach a decent comparative effective labor wage rate in DIY. Sometimes you need to learn a new trick or craft. Occasionally there’s a new tool. (I bought an air stapler / nailer from Harbor Freight for $24 for the fences – but now can use it for all sorts of other projects.) Overall, I find most things ending up in the $36 to $48 / hour band. As my billing rate on computer geek jobs ran from $50/hour to $100 / hour, in theory I’m not making as much. In reality, most of the jobs recently have been between $50 and $80 and that doesn’t allow for all the time spent “selling” to get the contract, travel if far away, housing in Florida on remote contracts, commuting costs, etc. etc. So for most of the jobs I’d book, the “DIY” wage rate is “close enough” to make the comfort of not being in the “money chase” worth it.
So, essentially, the combined Fed, State, Local tax burden makes it attractive for me to just do things myself whenever I can figure out how. Turns out I can figure out how for a lot of things… Next up is roofing. About 25 years ago I built a little shed and shingled it. Roof on it is still just fine. I already own the shingle hammer (fixed some spots on the house too) and there’s not a lot more gear to roofing. I do need to learn what kind of air-nailer is best for roofing, as it does speed things up a great deal, and Harbor Freight has very low prices ;-) So in the next month or so before the rains get here in force, I’m going “Up on the rooftop!”… and doing the ‘assess, patch, replace’ as needed. This will also be when I “do something” about the TV antenna. I’ll likely take it down for installation on a stand alone pole with much shorter wires. Net signal will be about the same (loss from lower height = gain from shorter wires).
So roofing and TV Repair / Installation comparative DIY Wage Rates up next ;-)
Now, were I a person who actually was PAID Minimum Wage, my value proposition for DIY would be even higher. There would be a big incentive to “swap labor” with friends. You see this broadly in the Hispanic population on the East San Jose side (housing is pricier the closer to the ocean and up the hills… so cheapest East side flats). Lots of “friends helping friends”. A ‘few neighbors back’ a Hispanic guy moved in next door. His ‘family and friends’ showed up to put in new windows, remodel the living room, etc. All non-taxed labor. He helped them with their gigs too. Now that’s spreading to the rest of us “Professionals”. My most recent fence building labor was shared with a guy who manages others for a living…
That’s the kind of thing that starts to become dominant when total taxation is 50% or higher. It becomes ever harder for companies to find the productivity leverage to make your paid product costs lower than the DIY costs when balanced for comparative effective wage rates including tax effects. That is the fallacy of “income redistribution” and “income flattening” efforts. IF everyone is paid nearly the same, you must have near zero tax burden to make the value proposition work. Only folks making a LOT of money, can pay a LOT of taxes and still have a value proposition that makes it worth while to hire someone else. At a 50% taxation total rate, the ratio is about 4:1 minimum. So boost your “living wage” to $15 / hour and we’re talking a $60 / hour cutoff. There’s not a lot of people making $60 / hour in the general economy, so ALL the folks below that level are being “priced out” of the marketplace for goods and services and “priced in” to the DIY world.
Yes, there will always be folks who just are not able to DIY on some thing or other. My spouse is NOT going “up on the rooftop” even when I’m gone. Nor will my neighbor be doing his own landscaping (despite having the tools and truck for it) as he has a significant day job and just want’s it done faster than one guy can do it part time. BUT, you don’t need 100% “participation” in this economic process for it to have impact. Folks will push it a little longer on things like repairs and upgrades. They will “settle” for a lower cost yard landscaping. The local Summer Winds garden shop has gone out of business… A combination of watering restrictions and folks just saying “screw it, I’ll put in rocks and cement” that don’t take water costs nor gardener costs. Cost Avoidance can do as much as DIY Displacement.
So “my car”, for example. The first 1/2 of the year I filled the tank two times. Why? Not commuting anywhere. So 400 miles / tank is a lot of 2 mile runs to the grocery store… More taxes not paid on repair costs, tires, brakes, gas taxes, etc. It needs paint, and I’ve pretty much decided since I already have the air compressor, I’m going to try some DIY car painting. It’s an old car that’s not collectable, so if I mess it up, worst case is I apply some stripper and then pay a shop to paint it. I’ve done paint before ( couple of houses, some car touch-ups) and anything would look better than it does now. Besides, this will let me try out “Camo” and other looks ;-) I’ve always thought painting the Mercedes in W.W.II Camo Pattern might be interesting ;-) Yet more $Thousands not in the formal economy. I’ve done tire rotations and brakes myself before, and I will again now. But rarely… it takes a long time to wear out brakes at 5000 miles / year (long trips included).
The spouse and I have decided going out to movies isn’t worth it. Aside from the overly loud sound settings, and the crowd issues, it’s just too expensive for value. Hotdog (a lousy one at that) and a Soda runs out about $10 and the ticket is at least $10, sometimes more. So we’re up to $40 for ONE movie out for 2. I’ve hit $60 some times. Instead I bought a Big Screen High Def TV and it will amortize easily over a few years. $40 buys 4 months of NETFLIX. So now we’re watching far more movies together. We can pause them at any time for a run to the bathroom or “snack bar”. MY meals are much much better than those in the theatre, and costs are way way lower. I can make a heck of a good hotdog, chips, and drinks for $10, and several of them! (REAL Polish dogs ;-)
As a side effect, we no longer need DirecTV either. That’s about $100 / month gone from the budget as soon as the contract expires. That will pay for the TVs in about 5 months. Figure next September we are in high net profit land for “movies in” and DIY Theatre System.
So this is how an economy slows, shudders, and eventually halts. Once taxes are too high, profit leaves for the vendor and manufacturing companies, and the value proposition compared to DIY leaves for the buyer. Sales slow, tax take falls despite rate hikes, and the more you hike taxes, the faster it falls as ever more value propositions fall from positive to negative.
Want to juice up formal economic activity? Cut taxes to about 15% TOTAL combined tax take. Suddenly all sorts of folks are saying “My God, I can just pay someone to do that!” and getting out of the DIY process. Extra money in hand and less taxes creates more demand for buying those value propositions and getting more time for yourself. This generally raises economic activity AND wage rates (as they are now unburdened of the tax bite) leading to ever more money in more hands buying more Value Propositions. Income Disparity means MORE money spent on positive value propositions and MORE net total tax from smaller bites out of many many more pies. Had my fence cost $1000 to build and I only had to work 15 hours to make that $1000 net, no way I’d spend my weekend building a fence!
So there’s some real life examples of how “fighting income disparity” and pushing for a “living wage” and higher taxes to pay for the income redistributors fundamentally shifts the marketplace value proposition and leads to economic stagnation and decline.
These are NOT hypotheticals. They are my life experience. I’m a “highly skilled professional” and really ought to be sitting in an office working on computers. Instead, it is “worth it to me” to avoid the rat race and money chase, and build DIY fences, roofing, and car repairs; while drinking home brew suds. Now just think what the value proposition is for a 30-something making $20 / hour faced with trying to buy services or products made by $15 / hour “living wage” folks. He’s looking at a $60 / hour cost and a $20 / hour wage. So NOT buying “fast food”, going to movies, paying a gardener, etc. etc. and not being very happy about it either. This puts many more of those minimum wage folks out of the job market, and nothing in the way of training or general economic “stimulus” can fix that.
IMHO, this is the root of much of the mire in the EU and USA economies today. Despite very loose (free… ZIRP) money and lots of “stimulus”, the economy doesn’t get moving. Why? Well think maybe, just maybe, part of it could be that it’s not a very good economic value proposition to buy things with a 2x or 4x cost mountain in front of you compared to wages paid to you (and taxes taken)? Or maybe, just maybe, making a “Fast Food Meal” cost $10 due to the “living wage” and tax policies in California means it’s $20 of my earnings to pay for it, so NOT a decent value proposition compared to DIY meals? I can make a great Deli Style Sandwich with chips for about $3, and a good enough ham sandwich for about 50 ¢ so just why oh why will I pay $10 and need to earn $20 to get it?
So things don’t “pick up”.
And they will not pick up as long as taxes are too high and the ‘wage disparity’ is too low. You must have a value proposition that makes sense for folks to engage and buy it.
FWIW, I first started watching “lunch costs” about 1975. It was about $3 to $4 for a “decent fast food lunch”. I’ve been using the same places and the same meals the whole time. In the late ’80s to ’90s, the Burger King and Taco Bell lunches started bumping up against the $5 lid. That held for a while (as it was a price folks were sensitive about). Jack In The Box had a sub-$1 “breakfast jack”. They held it at 99 ¢ for several years longer than all their other prices, using it as a loss leader. Recently they had to let that rise. It’s now about $2 last time I looked (but that was a while ago as now I just make my own sandwiches instead…). On those few occasions when the spouse and I were out and about and not prepared, we’ve stopped in for a meal on the road. Post the “living wage” moves here in California, it’s about $10 / meal / person. So we’ve both agreed it’s not worth it and basically stopped. Similarly, where we used to go out for the occasional evening dinner out, that’s run up to well over $25/head even at places like Red Lobster and Chili’s. So those are no longer. I make ceramic “lunch tubs” for the spouse to take to work. Just the things I cook for dinner, made into a frozen meal. That’s nearly $50 / week of avoided costs, at the price of some leftovers creatively packaged.
Essentially, I’ve watched the “Dinner Out” middle scale dining become unaffordable (and not that interesting) while even the fast food places have become “not worth it” (or perhaps more accurately: Worth a DIY alternative). On contracts, 30 years ago, meals were all taken at restaurants when “on the road”. In about 1995 I started packing a ‘travel kitchen’ and making some meals in the hotel. Last run was all DIY meals.
Fast Food and Middle Class Dining are great places to check the pulse of the economy generally. It is a stereotype, but a valid one, that when money is tight, the first things that happen are cancelling “Dinner and a Movie” out and packing a sack lunch for work.
IMHO, lack of attention to the effect of high tax rates and high minimum wages on “comparative value proposition” is a significant part of what has caused so many “advanced” economies to get stuck in the muck. The folks pushing for both just don’t “Do the Math” on what it costs in terms of wages earned to pay for that “no longer valuable proposition”… The rest of us, either formally for folks like me, or just by looking at the price and saying “I can’t afford that” are forced into seeing the relative value proposition of wages-payment vs DIY.
You just can’t escape reality. No matter how much you dress it up in high sounding arguments.