Say Anything Blog

Tying it to their own pay was a nice move. 

This was written as a policy speech, but not for a Republican:

Ardent free market advocates are correct in arguing that the wage support that is the minimum wage creates artificial unemployment. 

The economics prove that if the minimum wage were abolished, that there would be no unemployed Americans.  The downside of their argument is that Americans would be working for 10 cents per hour somewhere. 

Obviously this is unacceptable, which is why labor laws were created in the late 19th and early 20th centuries; labor laws that included limitations on child labor as well as the Federal Minimum Wage.

While some may argue that this was the beginning of socialistic economic planning, it should be clear to most that letting corporations have free reign on their labor forces was not working. 

Which brings us to the current situation:  The Federal Minimum Wage has been set a $5.15/hr since 1997.  However, most states have exceeded this Federal Minimum.  Minnesota has increased its wages to (insert MN wage).  Which has put pressure on the Fargo economy as workers can cross the river for a better wage.

Opponents of a higher minimum wage argue that the minimum wage is something only teenagers earn.  Fine, let’s limit the increase to those members of the workforce over 18 years of age.  Those under 18 will still be protected by the Federal Minimum. 

The fact is, if we are to have a minimum wage, it should be at a level that a person can sustain a living. 

What should the minimum wage be set at?

Since the current rate of $5.15 was set in 1997 we have had fairly low inflation, roughly 3% inflation on the annual rate from 1997 to 2005.   Since any legislation during the 2007 biennium would not take effect till August 1st, 2007 at the earliest.  That will equate to a 10 year period.  $5.15 at 3% compounded yearly for 10 years equals $6.92.  Thus, setting the North Dakota minimum wage at $7.00/hr as of August 1st, 2007 would be economically supported.

The inflation has already occurred in the economy.  If we are to have a minimum wage, it must keep up with the economic conditions or else those workers who rely on these lower paying job will continue to loose purchasing power, and the economy will stagnate. 

I fail to see any economic relationship between one arbitrary wage, the compensation for politicians, and another arbitrary wage, the "minimum wage" for hourly employees.  This is pure Hillarian lunacy, like her healthcare bill.  She just wants to implement socialism in this country, I guess because it works so well everywhere else.  The minimum wage, btw, is one of the causes of inflation.  Raising the price of something without a commensurate increase in value is the definition of inflation.  Econ 101.

If we paid politicians what they are worth on the open market, the federal budget would be slashed enormously.  If the "minimum wage" was what an unskilled worker produced, inflation would decrease and unemployment would decrease.  The politicians are jackin’ us. 

Raising the price of something without a commensurate increase in value is the definition of inflation.

Yep.

Whats the increase of prices without a commensurate increase in wages called?

In terms of social engineering, I’d like to know the full consequences of the minimum wage.

We can figure a priori that, at sufficiently high levels, it creates unemployment among the unskilled.  It can be argued that the threat of unemployment drives some of our future unskilled laborers to educate themselves, thus increasing worker productivity.  Thus, we have worker productivity with the expected tradeoff of unemployment.  For a state engaged in massive social engineering such as ours, it should be found what level of minimum wage is best for growing our economy.

Welfare programs obviously complicate the analysis, but the problem remains the same. 

But since I am a conservative, I’m really not allowed to support the minimum wage at all.

My two cents on Hillary, however, it’s kind of selfish to tie your own pay, which many people consider high, to the minimum wage, which the bleeding-hearts feel is too low.

1. Life in Hell. 

2. The result of govt interference in the market.

3.  Trade unionism for everybody else.

4. In a free enterprise society with minimal govt, prices would rise with an increase of value to the purchaser, resulting in a natural conservation of resources by the price system.  Having alternative goods and services at varying prices is not the result of a good market, it is a prerequisite.  If you don’t like the price of gasoline, you should be able to buy a cheaper fuel, if it exists, or simply drive less.  You have to be flexible to be a free person.  You are not free to have whatever you want provided for you, you are free to make the choices and make the priorities that fit into the realities of your situation. 

John: A safety net encourages risky and foolish behavior.  One episode of Fear Factor will illustrate that fact quite nicely.

"If we are to have a minimum wage, it must keep up with the economic conditions or else those workers who rely on these lower paying job will continue to loose purchasing power, and the economy will stagnate. "

Free,

Sigh!  First, please take another careful look at your theorietical relationship between a diminished purchasing power of some workers and "economic stagnation."

All manner of workers face diminished purchasing power every single day of the year.  Retirement, plant closings, illness, disability, accidents of one sort or another, death of a spouse, natural disaster such as last season’s hurricanes.  Approximately 2% of the American workforce holds a minimum wage job, and many of those are teenagers.  The majority of those jobholders do not rely on that minimum wage job as their sole source of income, however.

Second, I would disagree with your definition of inflation.  It is not the rise in prices, as is commonly believed.  Rather, inflation is the diminished value of money, usually brought on by an over-supply relative to the growth of the economy… a money supply increasing faster than the goods and services it is meant to finance and purchase.  Tthis is why the Europeans are so desperate for the US to take some of the "slack" out of the international money supply, thus allowing them not to do so.  The EU economic growth is averaging roughly 2% (generous estimate) while the growth in the EU money supply is hovering between 8% and 9%.  A sure sign that the Europeans are trying to inflate their way out of the massive fiscal imbalance brought on by the foolish social programs they can’t afford, and the stagnant economies that they refuse to allow to grow.  

Rob,

You are correct that this is pure pandering by the Hildabeast.  Pandering of the most brazen, and necessary sort.

For Hillary, the problem isn’t getting elected in November 2008.  The problem is to get the nomination.  She has chosen to run as a "centrist" or "conservative Democrat" (whatever the hell that is), and is already being villified more by the Democrat Party’s vile MoveOn/DU left wing than by the Republicans.  By making the minimum wage "her" issue, she locks up the unions in support of her nomination bid,as many union contracts are tied to minimum wage in one way or another.  At least that’s the way she hopes it works.  And make no mitake, she is going to need those union supporters, and money in Iowa and the early primaries.  If she falters early, she’s done.  To win the nomination, she has to get the early momentum and keep it.

Having too much money chasing too few goods can only be produced by govt interference in the market, since it can’t generate that on its own.  The real problem with Free’s thinking, IMO, is that he confuses a loss of purchasing power in the lower 2% of the economy with "economic stagnation".  This would seem to be sourced in the mistaken belief that our system is one of "consumerism".  That is false.  The engine that drives our system is reinvestment, which has almost nothing to do with the purchasing power of any segment of the population.  As long as you supply the demand, prosperity continues to be generated.  The discount store was born in the stagnant times of Carter and late Nixon, and resulted in increased prosperity.  The demand didn’t go away;  it shifted to lower priced goods, temporarily.  All of the discount stores now sell much better stuff, if you notice.  It’s the American Way.

I define Inflation:

"When aggregate consumer costs outpace aggregate consumer income."

In other words, on the Macro level, when people’s incomes cant keep up with their costs, the deficit between the two is the true inflationary rate.

So, why would "consumer costs" rise in the first place?  You make it sound as if it’s arbitrary, like in a centrally-planned economy.

Consumer costs naturally rise.  The only exception to that is Deflation, but even in Deflationary times some prices continue to increase.

One reason cost increase is due to increased taxation and regulation.  

The cost of doing business is always increasing, thus the cost of products must as well.  Labor is the easiest cost to hold down because theres a finite number of jobs.  Thus costs go up and wages stay the same or increase at a slower rate.

That gap is where inflation comes from. 

Free: Where are you getting this stuff?  It must be coming from some socialist econ text.  Our system isn’t centrally controlled.  Got it?  In our system, some costs are increasing, usually due to taxation and regulation, and some are decreasing, due to efficiency in supplying demand.  It’s almost infinitely variable.  We are essentially an aggregate microeconomic system.  For us Macroeconomics is an accounting trick.  The flaw is in attributing causality to all the resultant sums.  The true causality is in the individual economic decisions.  When department stores become too costly, we will shift over to discount stores, like, say, WalMart.  Wait, that already happened.  People don’t generally spend more than they make, at least not for very long.  If the govt jacks up prices too high with their interference in one market, the capital shifts to another market.  We are not slaves to some puppeteer pulling the strings.

Everything you wrote on this one is wrong.  I can’t find one true fact in there, not for our system. 

We are essentially an aggregate microeconomic system.  For us Macroeconomics is an accounting trick.

So Macro-Econo Theory is a Socialist tool?  Please expand on that.

Free,

I mean no disrespect here, but all you have done is describe the phenomenon.  You have yet to explain it.

Inflation is an excess of money relative to the level of goods and services in the economy.  Period.

Deflation is just the opposite. (An interesting aside:  Had the Federal Reserve Governors understood this back in 1929 and the early 1930’s, there would have been no "Great Depression."  Instead of pumping more liquidity into the banking system in response to a moderate recession and a "run" on some banks, the obvious correct response, the Fed withdrew money from the banking system, hugely exacerbating the problem to national and then international crisis levels.)

The point is, that while there any number of ways for either inflation or deflation to manifest themselves, both are essentially monetary problems, the result of either too much or too little money in the system.

It’s not the price of the goods that has increased, but the value of the money which has decreased, 

BTW, deflation is when supply exceeds demand, lowering prices.  If you don’t like inflation, you will hate deflation.  FDR’s socialist policies produced crippling deflation in the Thirties, and maintained it by maintaining supply when demand was weak.  The usual incentives to demand were suppressed by his New Deal policies, and the Great Depression lasted a lot longer than it otherwise would have. 

However, most states have exceeded this Federal Minimum.

You can easily tell who here makes minimum wage and it’s not hard to figure out why. Being too lazy to check the basic facts of the things you say qualitifes you for it. 18 of 50 states does not qualify as most. You’re a conservative? Yeah, right. Mostly, huh?

http://www.dol.gov/esa/minwage/america.htm

"So Macro-Econo Theory is a Socialist tool?  Please expand on that."

I already explained it with the sentence right above yours.  In a centrally-planned system(socialism, for instance)  the primary decisons are made by the central govt.  In our system, the primary decisions are made by individuals acting on their own desires and interests, and checked by their level of affluence.  See the difference?  Theirs is a "command" system;  ours is a "demand" system.  I know I have written this to you on a number of occasions.

I don’t fear Inflation or Deflation as they are natural economic trends.

Stagflation is the real killer.

And now I realize that what I have been describing this whole time was Stagflation.  Sorry about that.   My brain is a little swisscheesed lately.

Up until Carter’s failed presidency there was no such word as "stagflation."  It’s not that it had never before happened.  Its just that we didn’t have a specific term to identify it.

Incidentally, inflation and deflation are most definitely NOT "natural economic trends" as you put it.  They are man-made, whether deliberately of through sheer ignorance.  Increasing wealth and affluence is a "natural economic trend"... at least in a free society it is. 

Inflation, Deflation and "Stagflation"(a political term) are all artifacts of govt interference in the market.  In the teething stage of bigtime free enterprise, before the majority of our population acquired enough personal capital(I’m talking the 19th century here), it was thought that govt monetary and fiscal policy was necessary to iron out the natural fluctuations of the market.  IMO, most of those fluctuations were caused by not knowing how to really run monetary and fiscal policy to the best advantage of our new economic system, but no matter.  We have continued to do this to the present day, but I believe we would be a lot better off with far less govt interference in both the monetary and fiscal areas.  I think we are afraid to put the petal to the metal and see how much power our economic engine can really develop.  Oh, well.

Do you dispute that there is a "natural unemployment rate" as well?

At any given time, a certain number of people in our economy are transitioning from one job to another, for a variety of reasons.  Some are retiring, some are entering the workforce;  some businesses are expanding, some are starting up, some are going broke, and some are scaling back their operations.  So, yes.  I don’t know about the word "natural" but it is part of the function of the entire system.  It’s not preordained by some ID, but it happens as a normal part of a healthy economy.  If there were no unemployed, how could any business expand?

Free: You seem to be stuck in static state analysis.

Good to know.

That confirms my suspicion that we are working from two different systems. 

I think it is causing you to view what I say as socialistic.

Your looking at it as if were are on opposite ends of the same line; I think we’re actually on two different lines that work on different theoretical principles. 

What I am talking about is what really happens here in the US.  It’s not theoretical at all. I’m in business;  it’s a day to day thing.  Economic theory, especially Macroeconomic theory, is like the theory of evolution;  it is an ex post facto attempt to describe something that happens all by itself.  Evolution is an ongoing approximation of how species differentiate over time, after it has already been going on for gigantic lengths of time.  In a like manner, people have been making economic decisions since there were human beings, but economic theory has only been around for a few hundred years.  Obviously, we know how to do it before we knew what it was, especially on the individual level.  IMO, theory is only as good as it is verified by reality, which is why Marxism is bunk, along with Keynesianism and socialism.  They may sound great in a textbook, but in real life, they are abject failures.

Economic theory, especially Macroeconomic theory, is like the theory of evolution;  it is an ex post facto attempt to describe something that happens all by itself.

Of course!

All social science is ex post facto! 

Here’s where the disconnect is coming from: 

When I talk about Economics it’s in the abstract. 

When people around here talk about Economics, what they are really talking about is Business.

Business, in my mode of thinking, is a major piece of Economics, but by no means is it all-encompassing.

I think one thing that you all are excluding on a few levels are psychological factors; both real and imagined.

When I advocate the "free market," in no way do I pre-suppose that to mean 100% unrestrained.

While control or interference in the economy more times than not will make things worse, the reality is that an unrestrained economy can burn itself out. 

Now, back on subject, if certain segments are not able to keep up with the economy - it is a matter of WHEN not if that will ripple throughout the economy. 

Here’s where the disconnect is coming from: 

When I talk about Economics it’s in the abstract. 

When people around here talk about Economics, what they are really talking about is Business.

Business, in my mode of thinking, is a major piece of Economics, but by no means is it all-encompassing.

I think one thing that you all are excluding on a few levels are psychological factors; both real and imagined.

When I advocate the “free market,” in no way do I pre-suppose that to mean 100% unrestrained.

While control or interference in the economy more times than not will make things worse, the reality is that an unrestrained economy can burn itself out. 

Now, back on subject, if certain segments are not able to keep up with the economy - it is a matter of WHEN not if that will ripple throughout the economy. 

I can’t remember whether it was Walter Williams or Thomas Sowell who put it together, but a good measure of the impact of minimum wage laws is the unemployment rate of the young (more likely to have skills appropriate to minimum wage) vs. that of the older.  I think that the numbers were something like 3% for the population at large, and up to 20% for teens and people in their early twenties.

So the data do indicate that the minimum wage does tend to prevent the youngest, poorest, most vulnerable members of our society from finding employment.  What a shame.

That said, I think Robert108 (?) has a point where he suggests paying Congress-critters what they’re worth, and with Hillary’s plan, I think it might end up helping the poor by ending the minimum wage altogether.  :^)

Free:  You really need to re-examine your economic theories.

For example you said that inflation was when prices were rising faster than wages.

Who’s wages?  You have millions of people in thousands and thousands different circumstances.  Some of these people are gaining and some are losing.  Sometimes (most IMO) it’s because of choices they made.

Take yourself for example.  Currently you are unemployed.  Hopefully you will soon have your career job.  A smart guy like you SHOULD move up in the company or by changing companies depending on the opportunities.  However at some point you may decide to move back to North Dakota for less money.  

At some time you may become married.  Your wife (or yourself) may decide to take some time off to raise a family.  At some point you’re likely to retire or take a less stressful job.  

What do any of those things have to do with inflation?

As has been said inflation is a general rise in prices.  (some wages will go up at the same time.)  A general rise in prices can only happen when the government increases the money supply.

Some think the price of oil is inflationary.  In my opinion it isn’t.  True oil is a cost component of nearly every good or service.  However the price of oil going up doesn’t give the consumers any more money to spend.  The consumers will spend less money on some things because they’re spending more money on oil.  The books have to balance. 

Free: You wrote:  "All social science is ex post facto!"  You know that, but you don’t come to the logical conclusion that "economic theory" has no bearing on the real world unless it describes what is actually going on.  You are trying to push your theories on the real world, and they simply don’t describe any actual reality, so you always come to the wrong conclusions when you try to evaluate what is going on in our economy.  Wrong premises lead to wrong conclusions, don’t you know?

It is true that applied economics is business.  If you don’t study actual economic activity as practiced by human beings, you have no idea what supply, demand, cost, income or any of that other stuff means, and your speculations wiil continue to be comically erroneous.  It doesn’t matter what a book says;  it matters what people do.  When it comes to economics, you simply don’t know what you are talking about. 

I do think Hillary has an excellent plan though, if it was applied right, congressmen making $5.15 an hour seems about right. $5.15 an hour for someone who thinks 18 out of 50 qualifies as ‘most’ seems a little steep though.

You know that, but you don’t come to the logical conclusion that "economic theory" has no bearing on the real world unless it describes what is actually going on.

You can’t say it has NO BEARING.

The people with the power in the markets know this stuff and use it to their advantage.

Just because the average people doesn’t know/care, doesn’t mean it doesnt matter.

Remember, Richard Nixon is the one that said "We’re all Kaynsian now."

The people in the government controling the economy thru monetary and tax policy know and use this stuff.

Bat, if you don’t mind my asking, where did you get your information that only about 2% of the population earns minimum wage with most being teenagers? I’m in no way saying that you’re wrong, but that number seems awfully low. If so few people earned so little, then we wouldn’t have so many people falling below the poverty line and thus qualifying for programs like medicaid, etc. In fact, if you go into most any fast-food place (at least on the east coast), you will see that most of the employees are adults.

I understand how raising minimum wage can jack the economy, but I don’t see the harm in having it. If we didn’t have minimum wage, wouldn’t more people be living under the poverty line, and put a further strain on state and federal assistance resources? I don’t know too much about business/economics, seeing as my degrees are in healthcare, so if someone could help me understand and explain in laymens terms that’d be so helpful.

Saraia, you need to check into how many national chains, fastfood or retail stores, actually pay min wage. Most are above min, and offer benefit packages.

Saraia said, If so few people earned so little, then we wouldn’t have so many people falling below the poverty line and thus qualifying for programs like medicaid, etc.

Are you forgetting about bad choices people make? There are a lot of people out there in the world who actually make decent money, but live in poverty because they don’t know how to finance.

In fact, if you go into most any fast-food place (at least on the east coast), you will see that most of the employees are adults.

And if you go into most any fast food place and ask what the starting wage is, you’ll find out that it above the federally mandated minimum wage.

Saraia, (sp?), the trick is this; many people are poor because their work is worth only $4/hour, but the minimum wage is $5.15 per hour or higher, depending on where they live.  Hence, they don’t get employed to develop skills that pay better. 

In other words, the minimum wage tends to keep the poor in poverty, not lift them out of it.  Here’s an article by Dr. Walter E. Williams about the subject that I noted above.

http://jewishworldreview.com/cols/williams042606.asp