Matt Yglesias makes an uncharacteristic error in mocking a restaurateur who claims that Obamacare will increase prices:
This is self-refuting nonsense. The only situation in which it would make sense for Ruffer to raise prices is if price increases will on net lead to higher revenue. And if price increases will lead to higher revenue (which they might) then it makes sense for Ruffer to raise prices no matter what happens with Obamacare. In fact, Ruffer himself articulates the truth later which is that Obamacare is going to reduce his profits by about one-eighth and he (and any investors in his business) will eat the loss.
The restaurant industry has relatively free entry and lots of firms (meaning it’s what economists call “competitive” or “monopolistically competitive.”) Here are some facts about those industries:
1. Higher variable costs raise prices in both the short and long run.
2. Higher fixed costs raise prices in the long run. (Which is just another way of saying that all prices are variable in the long run.)
So he’s wrong in the long run, and probably even a little bit wrong in the short run, as workers are usually considered variable factor. However the short run impact will probably be pretty small–it will mostly come out of profits. In the long run competitive and monopolistically competitive industries earn zero economic profit, and hence all cost increases are passed on to consumers.
It’s possible that costs would not rise at all, as the extra cost of health care might be offset by lower wages. But it’s unlikely that workers value health-care benefits and wages equally, otherwise there would be no uninsured workers.
This doesn’t mean Obamacare is a bad idea, it’s appropriate that costs be passed on to consumers, and there are other arguments in favor. I happen to oppose Obamacare, but not the principle that everyone should be forced to either self-insure, or buy some sort of coverage.
PS. Matt’s argument does apply to monopolies, when the cost increase is a fixed cost. My favorite example is big contracts for athletes. Many sports fans blame high ticket prices on the big contracts, but the causation goes the other way. Owners set prices at a level that maximizes revenue. Then owners and athletes fight over the pie. As TV money made the pie much bigger, athletes were able to grab much bigger salaries. But if they didn’t get the money, it would go to owners. BTW, I’m not saying teams are a pure monopoly, but rather that the entry into the industry is controlled. The issue of free entry affects pricing far more than whether something is a monopoly or has numerous competitors.
PPS. Speaking of restaurant jobs, I highly recommend Bryan Caplan’s post on the minimum wage.