As a consumer, you’ve probably visited a franchise at least once in the last month. But have you ever thought about owning one? If you’re the entrepreneurial type and looking for a career change or another income stream, it might be worth considering. This kind of business venture allows you to be your own boss and offers more structure than a startup. There are pros and cons to owning a franchise, of course, and some questions to ask yourself before taking the plunge.

Which brand is right for me?
While all franchises follow a similar high-level model, no two businesses are alike. It’s critical to select one that seems truly invested in their franchisees’ success. Ranked lists of the best and worst franchises can shed light on what to look for (e.g., creative marketing) and what to avoid (e.g., high fees).

How can I acquire information?
Once you’ve identified a potential franchise, you’ll want to deepen your understanding of the day-to-day operations and learn all of the ins and outs. Attend a Discovery Day, a soft sales event where you can interact face-to-face with franchisors, ask questions and get a better sense of the brand. And they’ll want to get to know you, as well, before moving forward.

Who can assist me?
Of course, investing in a franchise is a big commitment and life event. When it comes to financial decisions of this scale, it’s wise to consult a business law attorney to review your franchise agreement before you sign. And you’ll want to look at the money side of things with an expert to help you frame your expectations and evaluate how this new business will impact other areas of your financial plan. Think a franchise might be for you? Get in touch.

The information provided in Eddleman’s Economic Insight is not intended to be used as investment advice; rather it is provided as general economic news and information for your awareness or for discussions with your investment professional. Please consult your investment professional or CPA for advice specific to your situation! Past performance is not indicative of future results.

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Today, we never think twice about using an ATM, but sooner than you might have expected, you may see the use of similar “automatic” kiosks in various industries such as fast food. And while technological replacement of labor is not a new thing or a bad thing, government manipulation of the economy is a bad thing. In this case, government’s economic manipulation will have the most dramatic negative effects on those whose plight some argue a minimum wage will help, including minorities and the poor. Not unlike the plight of the “buggy whip makers ” addressed in Theodore Levit’s 1960 Marketing Myopia, technology may soon replace vast numbers of entry level positions. However, today it will not be in one industry where persons can simply be “retrained”. Today, government is essentially seeking to remove the first rung of employment entirely. How?

The Fair Labor Standards Act was established in 1938 and set the minimum wage at 25 cents an hour. Initially, minimum wage law was established to “push out”  immigrant workers, women, and minorities. The idea was that businesses would be unwilling to pay these persons the higher wages, and this would push these workers out of the labor force and mainstream society completely. While the objective of the initial labor reformers is morally wrong, the outcome they sought to achieve is accurate. Thomas C. Lenard, professor of economics and history at Princeton says, “If they were right, and a $15 per hour minimum by 2022 proves to be too high too fast, the workers who will lose their jobs will disproportionately be people of color, immigrants, the disabled and women — the very people labor reformers vilified as low wage threats a century ago.”

Today, who will be effected by such a big jump in the minimum wage? Unfortunately, workers without alternatives are the individuals who are most often injured by an increase in the minimum wage. Typically, a person who is committed and hardworking at their minimum wage rate will receive small raises over the years. When the minimum wage is raised, it effectively wipes out the raises and recognition these workers have earned. Now, their effective income will go down as the cost are distributed from the employers and passed on to the consumers. This means that the cost of living will rise at a faster rate than the minimum wage, making those people earning minimum wage go deeper into poverty.

Another thing to considers is how small businesses will handle an increase in the minimum wage. Some small businesses will be unable to compete by raising their prices. This will cause these small businesses to go out of business. Now, instead of their employees making “more” money, they will be making nothing.

There is an interesting phenomenon occurring in 2016. For the first time in history, the top 1 percent of the population will have more wealth than the bottom 99 percent. This video posted to the Economist Facebook page shows a graph highlighting the change in position of the top 1 percent versus the bottom 99 percent over time. The narrator claims that 2016 will be a more unequal world than ever before. While this may sound alarming, it does not necessarily indicate that times are tough for the bottom 99 percent.

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The above graph shows the number of people living in absolute poverty and the number of people not living in absolute poverty. As you can see, the number of people not in absolute poverty is rising, while the number of people living in poverty is shrinking.

So how can both of these things happen? As long as the total wealth of the world increases, it is possible for the amount of people living in poverty to decrease and for the inequality gap to increase.

One way to look at this is to consider the fixed pie fallacy. With a fixed pie, for one person to get more of the pie, someone else has to get less. Traditionally, people view wealth in this same way. They assume that wealth is a fixed amount, and for one person to make more money, someone else has to make less.

However, this is not the case. Instead of taking more slices of the same pie, the pie gets bigger as the total wealth increases. So now, even though the top 1 percent is making more, the bottom 99 percent is also making more. Think of it as having the choice of a small slice of pie from a gigantic pie, or a larger slice from a microscopic pie. In the case of the gigantic pie, everyone receives more.

Capitalism

 

Today, a great portion of our society puts a large value on equal outcomes and the morality of considering our fellow man, but are equal outcomes really the best way to develop a moral society? Karl Marx, Immanuel Kant, and others argue that individuals cannot be trusted with their own self-interest, but how are we, as a society, to find individuals with no self-interest whatsoever? In a discussion between Milton Friedman and Phil Donahue, Friedman outlines that there is not a moral means on which to construct a system of societal structure better than capitalism. He argues that even in socialist societies, people are not rewarded for their virtues. He also argues that societies are not progressing because of mandates from the government, but by individuals pursuing their own self-interest. This leads to man serving their fellow man, instead of the government supporting their fellow man. To hear Milton Friedman’s full argument on the differences between socialism and capitalism, watch this short three minute video.

Walter Williams argues that it is more moral for people to serve their fellow man and earn a claim on what he produces rather than to do nothing and still receive a claim on what is produced. He also says “The free market calls for voluntary action between individuals. There’s no coercion. In a free market, if I want something from you, then I have to do something for you.” In a capitalist society, if people are happy with a business and continue to support it, the business will grow and thrive. If the people are no longer pleased with a business, they can stop giving their money to the business, and it will naturally fail. Walter Williams outlines this well in this educational five minute video.

For a more in depth look on the moral defense of capitalism from Ayn Rand, who developed the philosophy of Objectivism, watch this 38 minute video.

 

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Recently, the Washington Post published an article wherein a connection was drawn between recent improvements in living standards for Cape Verde and recent efforts to build more roads. While there is a correlation between the development of new roads in the country and a decrease in the poverty level, it is hard to believe that infrastructure has brought Cape Verde out of poverty and into prosperity.

One must be careful in any discipline about looking at correlations and assuming cause and effect; finance and economics are no different. In fact, there are some spurious correlations, which one can only muse at even considering causation.

But if infrastructure is not the cure to poverty, then why has Cape Verde seen living standard improvements in recent years compared to other African countries, such as Liberia? One theory would be to look at how their governments operate. While both countries are considered democracies, the government in Liberia has significantly more corruption than the government of Cape Verde. This corruption adds a great deal of unnecessary cost to many products, which causes many citizens of Liberia to be unable to afford basic needs. In Cape Verde, there is not only less corruption, there is also more economic freedom. This allows for free trade to occur, which in turn produces more affordable products. In fact, Cape Verde’s economic free trade levels are rising rapidly, exceeding other African nations and even meeting the economic freedom of the United States, which is falling. And what about the infrastructure correlation? What we find as more plausible is that those infrastructure improvements were made as a result of the economic prosperity of the individuals. This is because all wealth is built in the private sector; government merely reallocates and redeploys that wealth.