I am quite amazed when I walk into a dollar store where everything is priced at one dollar or less.  You would think that some of the containers that the items are packaged in would actually cost at least a dollar.

Dollar stores are a testament to our high living standards.  They show the wonders of the division of labor, and also of economies of scale.  I don’t know how dollar stores are able to pay employees, pay for rent and utilities, sell everything for a dollar or less, and still manage to make a profit. But I appreciate that they are there and that they can do it.

I am also amazed at dollar stores when put in context with the rest of our world.  While everything is so inexpensive at a dollar store, I don’t know how other things can cost so much money.

I have said that we will know that price inflation has gotten really bad when dollar stores no longer exist.  The same stores may still exist, but they will no longer be able to sell everything for a dollar. Maybe we’ll see two-dollar stores with the same products.

We are able to buy these inexpensive products because of a relatively free market and relatively free trade worldwide.  American consumers benefit from cheap labor in China and other countries. American consumers benefit from the U.S. dollar being the world’s reserve currency.

The thing American consumers don’t benefit from is their own government.  The U.S. government, through its taxation, spending, regulation, and central bank monetary inflation, greatly harms consumers. And to be sure, we are all consumers.

The federal government is currently spending about $4.5 trillion per year.  It is important to focus on the total spending instead of focusing on taxation and deficits.  The government is consuming these resources, even if some of it is distributed back to people in the form of welfare.

There are about 128 million households in the United States.  That means that the federal government (not including state and local) is spending about $35,000 per American household.  Are you getting your $35,000 worth?

This has real costs. Whether those resources are consumed through taxation, inflation, or debt, it is real resources being consumed.  The problem is that most Americans don’t understand how they are paying for this, let alone that they are paying for it at all.

This proliferates in the form of higher prices as compared to wages.  Our living standards are lower because the government is misallocating all of these resources.

A New Roof

My neighbors recently had a new roof put on their house.  It took about two days to complete the job.  There was a dumpster delivered to their driveway the night before work began.  The next day was spent tearing off the old shingles and starting to prepare it for the new ones to be put on.  The next morning, it looked like little progress had taken place.  Then, within just a couple of hours, there were shingles on almost half the roof of the house.  Getting rid of the old shingles and the prep work apparently take more than half the time.  By the end of the second full day, it was done.

I don’t know how much this cost my neighbors.  My guess is that it was at least $15,000.  The people I have talked to in my area who have gotten a new roof seem to range from $15,000 to $20,000.  This seems high compared to a search for the national average, but it is anecdotal.  I find that my personal experiences are often more accurate than statistics.  The statistics can tell me that the economy is booming, but when I talk to people, I get a different feeling.

I don’t know exactly how many people were working next door to my house.  I think the maximum at any one time was eight people, but it may not have even been that much.

If the roof cost to my neighbors was $15,000, where does all of the money go?  Does most of this go to labor, or the materials, or profit to the company?

I looked up the salary for a roofer in my area.  There is a broad range from the mid $20,000s to the upper $40,000s. Let’s just be generous and say that these workers make $50,000.  That is $200 per day.  If there were eight people, that is $1,600 per day, which is $3,200 for the whole job.  Maybe there is a foreman who makes an extra $100 per day.  We’ll say that the labor costs (for salary only) was $3,400, but I still think that may be on the high side.

So what accounts for the other $11,600 for the roof?  I have no idea of the material costs.  I would think it would be around $5,000, but maybe it’s more. The house next to me is probably about 1,800 square feet.  There is more than just shingles, but the costs are still high.  And then it is hard to account for how much of this is due to tariffs and other taxes, as well as just inflated prices for raw materials.

The company, of course, has certain startup costs.  They probably have the costs of a receptionist to answer the phone and take appointments.  They have the machines and tools needed to put on a new roof.  These have to be paid for eventually.

There are also labor costs other than salaries.  There are benefits to the workers if they are not contractors.  There are insurance costs that are probably high, especially with this line of work.  There are also significant taxes.  Just the employer’s portion of the payroll tax is 7.65%.

As far as profit goes, I am sure the owner of a roofing company generally does well.  Of course, there is major risk involved when owning a company that does major work like this.  It isn’t like owning a photography business (just as an example) where you can limit your startup and operating costs to a few thousand dollars or less.

Maybe a roofing company profits a couple of thousand dollars for each major job.  I really don’t know.  They have to account for warranties where customers might come back later and tell them to fix something.

The one thing I do know is that the profits can’t be that crazy.  Or if they are crazy, then there is a reason for it.  The reason usually involves either high risk or government interference.  High startup costs do factor in as well, but there are a lot of roofing companies in my area.  If a company were profiting many thousands of dollars per job, then some other company that isn’t fully booked would likely step in and undercut the price.  This is what competition is all about.

My point of this story is that life is expensive.  It is made far more expensive than it should be by government.  It is all of the labor regulations and taxes and other little things that all add up.  It is expensive to employ someone, even if the wages being paid aren’t that high.

It is amazing that someone could spend $15,000 on a new roof while the workers doing it are barely getting 20% of the entire cut.

This is why we need a recession.  While a recession is extremely painful, it is a correction.  Prices need to come down in a significant way.

The problem is that the Federal Reserve and the government don’t typically allow a full correction to take place.  The government continues to spend money.  The Fed continues to tamper with interest rates and print more money (digitally speaking).

We need a major correction, and we also need a major correction in government.  I don’t know how this will come about.  The problem is that most people do not understand just how much better their lives would be if the government drastically shrank.  They don’t understand that when they clamor for welfare, they are only making their lives worse.

Unfortunately, the only way I see it scaling back is because interest rates will eventually rise and out-of-control spending (including so-called entitlement spending) will be forced down.

Also unfortunately, the dollar stores do not sell shingles for a new roof.  Aside from dollar stores and some electronics, most everything else seems to just get more expensive.  Wages aren’t keeping up.  The roofers aren’t highly paid.

If a roofer has to get a new roof for his own house, he probably wonders why it is so expensive and why his wages aren’t keeping up with the price of a new roof.  He should look towards the government.