Part of my minimum wage debate with this guy has led to the idea of how the great depression occured. To him, he says that the minimum wage ban in the 1920's caused the great depression. It wasn't until 1933 when the minimum wage was enacted..that the economy started to recover. Then when the ban happened again in 1937, a recession happened. Then in 1938, when the first federal came out, the economy started prospering. Here is some stuff he has also said about consumption and the great depression:
"I have told you before, that things started to slide as soon as MW was outlawed, even though the stockbrokers didn't notice, and the producers were fudging their reports as prices (and inventory values) slid. By the time the depression was full blown, front line industries had already started to stabilize. There is no way that an economy can falter if consumer spending is stable"
He basis that things started to slide on lower prices. He says as prices decrease, there is signs of a coming recession.
He also commented on prices decreasing in general:
"As prices slide, inventories will naturally get overvalued. When profits are sliding sometimes losses might be fudged out of the books, for a period of time.And tell me, how do you suppose producers could get into real trouble if their customers were still able to buy the same? There is no way that an economy can falter if consumer spending is stable. "
LOL Yes, ending the MW (not 'banning' it) is what causes Depressions. I think my crankdar has just exploded. What next? I can't even say this stupidity is Keynesian. Removing the MW means nominal wages fall, and during a recession so do the prices of all other goods, leaving real wages relatively steady. If, on the other hand, nominal wages are inflexible, unemployment will result as real wages rise. How is this good for the economy? Seriously, get this guy off the drugs.
From this article:
First under the persuasion of the president and then through the power of the trade unions, the money wage rates for many workers were kept artificially high. But this merely created the conditions for more, rather than less, unemployment. In 1930, consumer prices fell by 2.5%, while money wages declined on average by 2%. In 1931, consumer prices fell by 8.8%, while money wages decreased by only 3%. In 1932, consumer prices declined by 10.3%, while money wages decreased by only 7%. In 1933, consumer prices fell by 5.1%, and money wages decreased by 7.9%. While consumer prices fell almost 25% between 1929 and 1933, money wages on average decreased only 15%.
Consumer prices fell at a lower rate than wages so according to his theory the minimum wage should have brought the country out of the depression right away instead of at the end of the 30's.
It appears the opposite happened though:
In 1929, unemployment had been 3.2% of the civilian work force; by 1932 unemployment had gone up to 24.1% and rose even further — to 25.2% in 1933.
Things were good *if* you had a job...
A minimum wage is specific to the United States, while industrial production is sold all over the world. Trying to create demand locally will achieve nothing to stimulate employment. Employment is dependent on global demand.
The fallacies of intellectual communism, a compilation - On the nature of power
Actually, with your post here, he beleives just that. He said the minimum wage, which was enacted for a while in 1933, brought us out of the depression for a bit. We were in a state of recovery(he says) from 1933-1938. He bases this on the GDP growth that happened. He says minimum wage did this.
You must show the time between 1933-1938, things were bad, and not good. He disagrees with this. He says during that time, the economy was growing and prospering..based on the GDP growth.
Inquisitor:Removing the MW means nominal wages fall
True. I should've put 'are allowed to fall'.
You know, I have told them that correlation != causation. He responds with the idea that you can't have causation without correlation. Since he believes there is no real correlation that minimum wage causes unemployment, any statement considering minimum wage is harmful is propaganda. He says correlation is reality, while causation is theory. And theories can not be proven...only validated by correlation.
To be blunt, he is full of nonsense. Correlation is NOT causation. It simply is not. The post hoc, ergo propter hoc fallacy is an example of his type of view. There is no such thing as 'mere' theory. All facts are theory-laden, contra empiricist lies and obfuscation. Theories can most certainly be proven, and revised; in the case of economic theory by logical deduction and inference. He has offered no plausible account of why a MW should increase consumption or employment, and has just used some rather shoddy statistics. So far, he has demonstrated that he is a crank. Good going.
Since correlation is reality though, I am sure rain dances which coincide with actual rain must be the cause of the rain. Correlation is reality.
Well, he knows that correlation is not causation, but he makes the claim that causation can not exist without correlation. Basically, a theory can not be true if it can not be observed. A friend of mine says he uses econometric logic. He says logic itself though, can not prove a theory. He says multiple correlations validates a theory, but a theory can NEVER be proven.
About the minimum wage, he says minimum wage increases consumption by giving more money to the lowest wage earners. In turn, this increases business for everyone, and increases profits. He says minimum wagve increases puts pressure on ALL wages to increase. But he still believes putting it above $20 an hour would be harmful to the economy, because it would rise the median wage above the means, causing higher wages to actually drop. I'm not making this up. I have tried to show him the contradiction in his logic, but he then goes on to say people suggesting that we raise it to $100 an hour(to show the stupidity of saying minimum wage is not harmful) is extreme, and nothing extreme ever works. Things must be in balance.
If anything, demand creates supply he says.
Logic can prove a theory. Gainsaying him is enough in this case. A more detailed argument would be why it can; economic truths are conceptual. What a price, or perfect competition, is cannot be gained by mere observation. Conceptual truths are inevitably logical truths, thus are governed by logic. Piles of data from which correlations are drawn prove little to nothing on their own. The only case in which a theory can fail is if it fails to explain certain things. That isn't true in the case of the law of demand, but may be true of more complex theories in economics. He is using Popper's criterion for what is a scientific theory, which is dubious in and of itself; there are many articles on mises.org why. Refer this guy to Hollis and Nell's Rational Economic Man for a detailed exposition of the nonsense positivism is within economics.
Since he is so big on proofs have him prove that the MW causes no unemployment and does not drive out marginal businesses from the industry. These would definitely hamper consumption. The MW is a price control. Like all price controls it causes waste. End of story.
Well, he says the marginal businesses driven out doesn't matter. See, for every business that loses, another gains. If one business fails from the raise in minimum wage, another business gains from that activity. So marginal businesses failing doesn't harm the economy at all..since other businesses will gain from that fall.
Xevec:Well, he says the marginal businesses driven out doesn't matter. See, for every business that loses, another gains. If one business fails from the raise in minimum wage, another business gains from that activity. So marginal businesses failing doesn't harm the economy at all..since other businesses will gain from that fall.
Kind of like if I lose because I have someone bust out my window someone else gains from the extra business...
He has once again, replied:
>First under the persuasion of the president...<Hoover attempted this without any real effect.>and then through the power of the trade unions...<Trade union powers were greatly reduced in the 20s. Some attempt at reinforcing them was part of the NRA, but there was no real focus.>While consumer prices fell almost 25% between 1929 and 1933, money wages on average decreased only 15%.<Because the damage had been done in the 20s. Lowest wages were already at subsistence and could not be lowered any more.>Prices for goods was dropping FASTER than wages. Your idea would hold true...if it actually happened. It didn't DURING the depression.<Because this is the root CAUSE of the depression, NOT an exacerbating condition of the depression, as the shrinking money supply is.Do you have the same kind of data for 34-35? Do you have the same data for 27-29? This is the problem with conventional economics. Take a little piece of data that seems to support the pet theory, and chuck the rest of reality.>1. Why all businesses managed to make good predictions...to all businesses making bad predictions.<The predictions were never good from the time MW was outlawed. The late 20s were built on hope, not an understanding of economics.>2. Why producer industries had more trouble than consumer industries OVERALL.<We've been through this a dozen times, and you refuse to heed my explanation. What we haven't discussed is, where do you get this firm conviction? What data are you looking at? >Think about it from the beginning..when no products have been produced.<People are always making stuff. It doesn't become a product until it is exchanged. Producers are alway exceeding consumption. Products are always being delisted and destroyed. Production precedes consumption, but does not drive consumption. Your purchase always has firm effect on production and distribution. It actually drives the production even though at first glance it seems to be at the back end of the process.>I guess you would agree with the Keynesian economists then on this issue<Probably not. You like to screw with my meaning to push it into someone else's misunderstanding. I don't know what you mean here, but it's moot. I haven't seen any economist that I would agree with in a complete explanation to what they say. Why do you keep doing this??? Try to label me?? Why?? so you can attach me to some idiot and dismiss me without understanding me?>But it is still true that demand and supply are independent of each other. I have explained that demand can fall, while supply stays the same(airline industry, Amtrak). And demand can increase, while supply stays constant(Roads, Medical care).<And I SAID, there are SOME industries that are LESS responsive to demand than OTHERS, but there are NO industries that are immune from the effect of consumer demand. You can NOT understand macro by understanding micro.>You agree with their analysis but disagree with the solution.<Solution??? You mean, how to dismiss my insight??>So allan, when you go to the grocery store to buy your food, are you purchasing labor as well?<Absolutely. You purchase the cashiers time at the time of purchase. You are paying for the delivery to the store and the people that put the products on display. By taking the product from the shelfs, you are giving them more work to do. At the restaurant, you hire the chef, the busboy, and the server along with the food.Labor and profit is the price of everything, even when some labor is being purchased for decades after the job, such as the brick layer for the storefront.>The point is, the productive consumption that happens comes from the saved fund, not from the purchase of the good.<It comes from expectation of profit, not from saved profit. It comes from the firm belief in the consumer dollar that will be coming, and is paid for in IOUs from the bank, that are covered as the consumer comes through and pays for the production and the productive capacity.
There is one part, which I will highlight here:
">So allan, when you go to the grocery store to buy your food, are you purchasing labor as well?< Absolutely. You purchase the cashiers time at the time of purchase. You are paying for the delivery to the store and the people that put the products on display. By taking the product from the shelfs, you are giving them more work to do. At the restaurant, you hire the chef, the busboy, and the server along with the food."
I was trying to show him the logical fallacy of consumption drives production. I used an example of buying a cup of coffee from starbucks(the tall cup, which I will assume costs $3.50). I told him that is it possible for that $3.50, that I am buying the barista, the manager, the person who farmed the coffee beans, the trucker who transported it, the pilots/crew that shipped it here, the manufacturers of the cups, the transporter of the cup, the manufactuers of that cardboard so you don't burn your hand, the transporter, and the owners of the mall/building(you can't be sure if starbucks actually owns the store they are in)...all for $3.50? Is that where all that money goes to?
I don't know if stretching the logic to absurdity works here. He will believe the absuridties and defend them.
I'm scared that he will actually find some way of justifying that extra businesses gain. I can see it now:
When someone busted out your window, people went to another store because your store was closed for repairing the window. So yes, that busted window did cause the other business to gain money.
Of course, this leads to the conclusion that using a bomb to blow up your competitors can logically lead you to have increased sales.
Inquisitor: True. I should've put 'are allowed to fall'.
So where is his proof of this? The logic is faulty even if this assumption is granted. So far I have seen nothing close to an understanding of economics. Just assertions, none of which are logically grounded.
If he is willing to defend absurdities, the debate is pointless.
Well, that was my idea of what he would say. I gave him the spiel that business losing money is another businesses gain. He did concede to the idea that a business breaking a window would not give a gain to other businesses. He revised his theory:
When one business loses customers, another business will gain customers and sales. If one business goes bust, it is a boom for the competition.
"When one business loses customers, another business will gain customers and sales. If one business goes bust, it is a boom for the competition."
I am having a hard time thinking of a scenario that would make this idea seem absurd. I simply can not think of one. I would believe a building blowing up would lose consumers. The only thing I came up with at the moment is simply the question of...do business losses and gains stay equal? That if one business loses 50% of sales, will sales in other businesses combined go up 50%?
Xevec:When one business loses customers, another business will gain customers and sales. If one business goes bust, it is a boom for the competition.
This may sound like a valid theory...
The problem though, if the existing businesses were more efficient (lower prices and/or better customer service) they would have gained the new customers through natural market forces. Once the costs are increased through a higher minimum wage where the marginal businesses can no longer compete then this will lead to higher prices for everyone.and everyone will lose for the exact same reason it is not good for the *overall* economy if someone were to bust out my window.
Not to mention, as was discussed earlier, that the marginal workers who lose their jobs would have, given half a chance, gotten higher paying jobs if they were qualified. They are now no longer wealth builders but drains on society by living off their family/government which in turns creates the same effect as the broken window fallacy.
So it would seem, contrary to his theory, that a higher minimum leads to less overall consumption and if he is correct that consumption drives an economy it would have the exact opposite effect of what was intended. Little surprise there...
The guy I am arguing with is skeptic about the happenings during the great depression. he doubts that article I was given from the FFF. He wants "raw data." He is basically saying the article is "analysis" and says that I haven't seen the true data. I haven't seen raw data, but I have seen many sources saying the same thing that this article is saying.
Secondly, he said this about price:
Price is made up of labor and profit. It is all collected by the business and distributed to the employees and to other businesses that distribute to their employees and retain their own profit. Profit does not contribute to wages. Sales do. The business does not pay for the employees. The customer does.
I'll post the full response in the next post.
>Nothing changed anything? Please re-write that sentence. That doesn't even make sense. And yes, the trend remained steady from 29-32. Yes, things were getting worse.<When a trend changes, that is the time to ask why. When the trend is not changing, it means that the measures are not having any effect. You cannot look at measures from 30-32 to figure out why everything turned sour in 29. The economy tends to be insidious. Profits encourage growth that encourage profit. Losses encourage shrinkage that encourage losses. A turn of a trend is spectacular, and it is only in carefully examining these monumental events that you can gain any understanding of how the economy works.>Prices were dropping, yes. But prices were dropping FASTER than wages were.<Data please? If that was the case, why was the 'evidence' you gave me carefully carved out of 30-32.>Logic can't prove ***...you already said that. I need the correlation. You bring me the data that validates your theory.<I don't need to prove it to me. I don't know what is going to smarten you up. I know that if you look, you will find the validation you need, but if you don't want to know, you're not going to believe me even if I brought you the data on stone tablets off of Sinai.>That is where the guy found that data.<Saying that consumer industries were less hit is not data; it is analysis. So there is no data that YOU have looked at? You just take this guys word for it.>That assumes banks own the business.<You still think money has value beyond the expectation.>Please re-write this response<Price is made up of labor and profit. It is all collected by the business and distributed to the employees and to other businesses that distribute to their employees and retain their own profit. Profit does not contribute to wages. Sales do. The business does not pay for the employees. The customer does.>You complained about that earlier, which is why I left out the solution. <I bitched because you left out the problem.>Tell me, if Amtrak falls under, who will gain from that business?<Greyhound. Airlines.>It also assumes wealth is fixed. That not everyone can succeed. It also assumes there is only one market to be had. Only one market to target.<Consumer dollars are limited by wages. We are talking macro economics. There is only one market.>But is it on an equal level? Is the loss balanced by the gain?<No. But the realignment will not change the trend. If the trend is growth, the profits and losses by various companies all come out in the wash. If the trend is to shrinkage, the various gains one company gets off another's destruction won't be sufficient to turn the economy as a whole.
Any comments on any of the particular points he gave here?
This guy is clueless. Prices are not 'labour and profit' (that is Marxian tripe.) That is wrong on so many levels. Business-owners are rewarded in two ways: 1) pure entrepreneurial profits and 2) interest on capital for abstaining from present consumption (the latter is what is referred to as 'normal profits' usually, if not fallaciously.) Greater employment of capital most definitely contributes to higher wages. Goods do not simply sell themselves. A huge amount of effort and coordination is needed to produce, market, sell them etc.
Reisman refutes the idiocy this guy bases his 'arguments' on here:
http://www.mises.org/etexts/exploitation.asp
I am not sure why you are debating him; he seems to be pulling these assertions out of nowhere.
Xevec:Price is made up of labor and profit. It is all collected by the business and distributed to the employees and to other businesses that distribute to their employees and retain their own profit. Profit does not contribute to wages. Sales do. The business does not pay for the employees. The customer does.
Of course businesses do pay for employees. They also pay for them even, if they don't do any sales. Whether they sell or not doesn't matter, wages are a liability they are going to have.
One can of course now ask how wealth is created. But then we would first have to explain what constitutes wealth.