The minimum wage

Does this guy ever do anything other than make dumb assertions? Scarcity exists, like it or not. Profit is realized when revenues exceed costs. What an idiot.

Xevec:

There is no scarcity. Business is about deriving profit from excess resources.

No scarcity?  Yee-ha!  Then there's no reason to have an economy.  We can all sit at home awash in our excess resources... 

This guy clearly has no idea how 'scarcity' is defined economically, and is simply going by a common usage of the term.

 

 

 

Xevec:

As long as the median wage is below average earnings, the constriction of the economy is on the consumer dollar coming from the lower class. When the median is equal to the mean, you have optimal distribution. If you raise the minimum as high as the mean, then you will be constricting the economy again, because if the minimum is equal to the average, then it mathematically demands that all people must be paid the same, and THIS scenario WOULD be constrictive on the employer.

If I understand you correctly, you're saying that the economy only functions well ("optimal distribution") under a perfectly symmetric (mean=median with no outliers) distribution of wages. That is an impossible situation in the modern economy, however, as wages are an "extremistan" character (cf. Nassim Taleb) and thus by definition skewed in distribution. Also, it's a bit unclear how much marginal productivity is being factored into your calculations here, if at all, despite its being the only real determinant of wages. This model also seems to be a bit ceteris paribus in changing one variable and holding the others constant, regardless of the compensatory adjustments that would be made in a real economy if such changes were to occur.

 Here is what he said in response:

">If I understand you correctly, you're saying that the economy only functions well ("optimal distribution") under a perfectly symmetric (mean=median with no outliers) distribution of wages.<
The economy functions quite well as is. It is far far far below optimum performance
>Also, it's a bit unclear how much marginal productivity is being factored into your calculations here<
It's too bad you refuse to read more of what I've been telling Nathan. Prices are determined partly on cost and partly on marketability. The notion of marginal productivity demands that the cost (wage) is determined by product price. This is a cause/effect reversal that is quite the norm in conventional economics."

Why not invite your friend here? I'm sure many would be more than willing to dispel the nonsense he believes in.

Xevec, this response is not specific and is not intended for your debating friend.

I dont see the need for special economics knowledge to answer this minimum wage question. It's very difficult to succeed in business. The cost of doing business is increased for many, many employers when the minimum wage is raised. Of those many employers, some will likely choose to reduce this new cost by laying off some marginally productive employees. Whys that a complicated idea? Just because someone wishes to convolute it with economic terminology, charts, graphs and tortured thinking, this simple FACT OF LIFE is not changed!

It's difficult to successfully run a business (based on the failure rate)
Add to this difficulty, an increase in the cost of doing business (a coercive increase)
Businesses consider many options when getting closer to failure
One of the biggest costs for most employers is personnel cost
Costs will be examined to avoid a loss, especially large category costs, e.g., wages
Out of the extremely large number number of businesses affected by min. wage laws, it's basically guaranteed some will reduce personnel costs via a layoff

Economics involves trying to get things from this world at the lowest cost possible. Man can do this by sifting thru a vast array of tools that'll allow him to ascertain these things, things worth more than the cost of the tools themselves. One of these tools would include his fellow-man. How can raising the cost of that tool, in a way that has no real relation to it's true cost, help man to ascertain these things from the world? Why would adding to the burden of extracting goodness from this Earth be beneficial? It'd be like arguing for funeral homes because people are living longer. Should man have the burden of dying sooner to benefit the mortician? Leave us alone!!! 

Xevec:

Prices are determined partly on cost and partly on marketability

Could your friend explain this cost-marketability thesis in a bit more detail? The Austrian theory of price determination is based on double inequality of valuations, i.e., the seller values what he is receiving (money) over what he is giving up (good in question or labor services), while the buyer values what he is receiving (good in question or labor services) over what he is giving up (money). In a way, cost and marketability are another way of seeing some aspects of this: cost of production affects the seller's valuation of the good in question, while marketability is a way to measure sellers' valuations in aggregate. It seems to me, however, that by viewing prices through a cost-marketability paradigm ignores a large part of the process.

 Well, he said scarcity is not a factor.  Simply distribution is for products.  But doesn't speaking of distribution assume scarcity?

Xevec:

 Well, he said scarcity is not a factor.  Simply distribution is for products.  But doesn't speaking of distribution assume scarcity?

It does. To take air as an example: it is absurd to speak of distributing air except in the cases of undersea divers and astronauts, as air is not scarce except in those situations.

 Well, couldn't he use the examples of air pumped into tires...as well as canned air(the stuff used to clean keyboards?)  I gave him the benefit of the doubt with those products, but it still demonstrates scarcity, because of the material used to create such products.

Xevec:

 Well, couldn't he use the examples of air pumped into tires...as well as canned air(the stuff used to clean keyboards?)  I gave him the benefit of the doubt with those products, but it still demonstrates scarcity, because of the material used to create such products.

Well, yes, those are more exceptions. The point is, air for breathing, for healthy people on land, is not scarce in the economic sense: for all practical purposes, the amount of immediately breathable air is infinite, and thus it is absurd to distribute it.

Oxygen tanks for use by divers, astronauts and people with respiratory problems are scarce, because they require production to be converted into a usable form; the same with compressed air for tires, keyboards, etc. When production is required to transform a good into usable form, the resulting usable good is scarce by definition.

To use another example: For a normal person at a beach or in a (sandy) desert, sand is not scarce. One wouldn't distribute sand to people in those situations. Sand, however, is scarce in other places, because of transportation; likewise, even at our beach or our desert, glass is scarce, as production is needed to transform it into glass.

Whats the purpose of prices? Why is a piece of bubble gum 5 cents and the stuff Russia sales to Iraq to fuel their nukes virtually priceless? (forgot what its called. some version of uranium, right?)

 

Also, my time is scarce. If I'm lucky, I might live 80 yrs. Compare 80 yrs of existence to that of the universe's yrs in existence. Since my time on earth is limited, I would say my particular human capital is scrace. Every second of my life is priceless, in my mind. But objectively, others will value it a little less than I do. To say scarcity does not exist or is not a problem, is to say we are gods, omnipotent ones in case you're wondering.

 To him, prices serve two purposes.

 

"Prices are determined partly on cost and partly on marketability. The notion of marginal productivity demands that the cost (wage) is determined by product price. This is a cause/effect reversal that is quite the norm in conventional economics.""

 This is what he believes how prices are determined.

Prices are determined on the one hand by consumer valuation and on the other by sellers judging the case to be one in which it is worth their while to provide a good (keep in mind: costs are opportunity costs, i.e. they're expressed in terms of alternative possible ventures foregone.) Prices are formed where the two meet. Neoclassical theory does not differ on this, much anyway. Dr Reisman has argued that cost plays a part in price formation, but not in a way incompatible with the marginal-utility and subjective theories of value. 

A factor receives its marginal product as a reward in competitive factor markets, because any employer under-paying will simply chase away prospective job-seekers; likewise, any factor overpricing itself (or being overpriced) will dissuade potential employers from utilizing it.

Nobody except the small business owner seems to have any problem with raising the minimum wage.  The minimum wage recently increased from $5.15 per hour to $6.50 per hour in the state of Missouri by a 72% majority vote!  It seems that very few understand the negative repercussions of artificially inflating wages.  It is truly no surprise that it is easy to get minimum wage increase passed because the benefits are very easy to understand and the damages are very complex and difficult to see.  It goes right back to our national tendency to look at the near-term effects and blissfully ignore the long-term effects of what we do.

            People vote to increase the minimum wage because the political realm tells of all the poor men and women that are unable to provide for their families because they are working at a fast food restaurant that doesn't pay them enough.  They say it takes more money from the rich and gives it to the poor, like that is a good thing.  And I'm poor, so I have no private motivation for making such a statement.

            Before we get too deep into this issue of minimum wage standards, it is important to establish an understanding of wages to begin with.  Very simply, wages are the current price of labor.  And price is decided by the simple but profound economic principles of supply and demand.  In a free market, the higher the supply, the lower the price of the product or service, and vice versa; the higher the demand, the higher the price, and vice versa.  Ultimately, these two principles combined make up the economic law of Scarcity, which states that the less there is of a good relative to the demand for that good, the more it will cost; in other words, the more scarce something is, the more it costs, and the less scarce it is, the cheaper it is.  That means that if the market were allowed to set wages freely, wages would be very high or very low depending solely on the supply and demand of labor at any given time.

            But the government is renowned for its practice of artificially making changes to the market, telling it what it ought to do, and therein lies the destructive flaw of minimum wage standards.  The consequences of strong-arming the market are always bad in the long run and difficult, if not impossible, to avoid.  The short-term consequences of minimum wage standards validate everyone's decision to vote in favor of it.  Entry-level employees are now better able to feed and shelter themselves and their families and, theoretically at least, require less government welfare assistance.

            The long-term effects of artificially setting a minimum wage standard are numerous and self-defeating.  For one, businesses will have less profit, and therefore will be less able to expand their business; expansion of business increases labor demand, which would, in turn, increase the price of labor (aka wages).  That is the market's natural way of increasing wages, but it doesn't happen all at once; it is a slow process, and the politicians need votes now, so they artificially amend the market in order to present the appearance of care, but with the ultimate selfish goal of garnering more votes (or they are just economically ignorant).

            A corollary to this first negative long-term effect is that some businesses are unable to maintain a profit with the higher wages; this is particularly true during slow economic periods.  Those businesses will fail, and everyone in the company will lose their jobs, increasing unemployment, which increases the supply of labor, which decrease the price of labor (aka wages).  While I would characterize this as the least of all negative effects, it is still a problem.

            The second long-term effect of establishing a minimum wage standard is that the price of goods will simply react by increasing.  Every step of the production process of a good has a cost associated with it.  If one of those steps has an increased cost, the final good will also have an increased cost in the market.  The result is that minimum wage standards are purely inflationary; they increase the cost of a good or service without a corresponding increase in value, which is a core cause of inflation.  Another way to say it is that they decrease the quantity able to be purchased with a unit of money without a corresponding increase in the value of that lesser quantity.  In the end, minimum wage standards accomplish nothing positive because the absorptions of the increased cost of goods that is caused by minimum wage standards, whether it be through direct increases in the price of goods or through decreased profit by the producer, are proportionate to the increase in wages received by laborers; hence, the value of the money they receive is decreased exactly enough to balance the increase in money supply.  Mark these words very clearly:  The market will always balance itself back out; therefore, any attempt to artificially change her will come to naught or worse.

            So, minimum wage standards slow the growth of businesses, increase unemployment rates, and create inflation, which ultimately renders it completely useless.  Could it possibly do any more harm?  You betcha.

            Possibly the greatest harm that minimum wage standards do to an economy is that they nullify all of the benefits of allowing the market to freely set the price of labor.  So, with that understanding, I will continue to list the consequences of allowing the market to freely set the price of labor, many of which are simply the contraries to the harms of artificially setting the minimum price of labor.  Remember, all of the following benefits are nullified by minimum wage standards.

            The first benefit of a free labor market is that the price of all labor would be directly proportionate to the productivity of that labor.  So, if you are adding a great deal of value to the goods of a company, you will be compensated well, and if you do not add a great deal of value to the goods of a company, you will not be compensated well.  There are a number of corollary benefits to this fact.

            First, unskilled labor would no longer be protected.  While that is construed as a bad thing by politicians because a large portion of constituents are unskilled, it is, in fact, a very positive thing.  This would heavily motivate unskilled, less productive laborers to become more skilled and more productive because they would only get higher compensation by being more productive, and the only way they could become more productive is by becoming more educated and/or more skilled.  So, a free labor market would heavily improve the quality of labor, thereby increasing the productivity of the market, thereby increasing the value of the economy's money supply.

            Second, a free labor market would allow individuals to join the labor market earlier.  While I am not in favor of forced child labor, I am in favor of giving youth the choice to join the labor market and start becoming educated and skilled on the job, which is, in most cases, the best way to become educated and skilled.  In other words, I think we should protect children against the requirement to work at a young age, but I do not think we should make it impossible for the market to invite young aspiring laborers by setting a minimum wage standard above their value.  If laborers started working at a younger age, they would learn to be more productive earlier, and so would not struggle with the ability to feed and shelter themselves and their families.  I started working in my father's auto mechanic shop when I was six, and I didn't always like it, but I learned the discipline of work while there, and therein lies the benefit of allowing citizens to enter the labor market earlier.  They won't get paid very much because they will start out being very unproductive, but they will learn and grow, and as they do so, they will be rewarded by increased income.  Naturally, some employers will choose not to reward increased productivity, but according to the balancing law of the market, employees of those employers will transfer to other employers that reward justly.  Once again, the market maintains balance as it always does.

            A corollary of a younger workforce is that there will be greater productivity in this economy due to an increased number of laborers.  Also, because laborers will begin to learn how to be more productive earlier, the total labor market will increase in quality, which will further increase productivity, which will further increase the value of our money supply, as productivity is the only true increasing agent of money supply value.

             And yet another corollary to this younger insertion of laborers is that the transition into the labor market would be incredibly simple because laborers would not be required to instantaneously contribute productively enough to justify income sufficent for subsistence.  As it is right now, it is very difficult and sometimes impossible for unskilled laborers to enter the labor market because they cannot instantaneously perform to the level that is required by the minimum wage standard.

            The government has actually begun to medicate many of the undesirable byproduct symptoms of the original medication of minimum wage standards, which medicated the symptom of poverty.  The first and foremost effort, of course, is welfare and socialistic entitlement programs of every sort.  I have even run into a grant program is actually paying young "disadvantaged" individuals to work for businesses at no cost to the business!  The system is terrible for taxpayers and the labor market and the government and the economy in general.

            The greatest difficulty with this problem, and problems like it, is that it is so well-developed at this point in time that removing it in one fell stroke would have strong and painful repercussions.  It must be done in phases.  Drop the minimum wage a dollar at a time or so.  It will still be painful, but it will feel like a long, dull pain rather than an aneurism.  People will not have the money to buy a nice juicy steak every week, but they won't be dying in the streets from hunger either.  Unfortunately, it takes a long time to unwind all of the tension that has been built up in our economy from political administration after political administration deferring the pain of curing the issues caused by previous administrations, thus exacerbating the problems by ignoring them or even playing to them, and, many times, exacerbating the problem by adding new issues to the already heavy load in order to deliver instant gratification to the willfully ignorant constituency, securing voting support for the next election.  It's all a game to politicians, and in their game of politics, money, and power, the constituency always loses.

 Can someone make sense of this...because I can't:

 >Less cash buying the same goods = deflation.<
Yes, but YOU aren't using less cash. With higher velocity you are using the same cash more often which equals more cash. The cash supply equals the quantity times the velocity. The higher the velocity the larger the supply. The system NEEDS less cash, but MORE cash is being USED!
>Needing less money does not deteriorate its value. <
Are you not able to differentiate the words 'need', 'have', and 'use'. Your mental block on this is really starting to aggravate me. I mean, being stupid is a common human trait, but are you glorying in it? Or are you feigning it just to annoy? Think boy, think! Jeez!
>Instead of having to use 10 $1 bills to buy a product, and now needing 5 $1 bills to buy the product.<
Its more like you had 10 in the past, and spent it on the product. Now you have 20, which is more than you need, and having more money than you need tends to push the product price up. Needing less money in the system does not mean that the prices have gone down.
>It is nearly impossible to determine the origins and all of the factors...<
So. We are not trying to trace every profit and every wage along the way to consumption. You haven't answered my question. What's your point? You pointed out that thousands and millions of wages are incorporated into the price of the product. I agree. But for every wage component there is probably also a profit component. You want to dispute this??? Fine! But why can't you disclose your point??? When you're losing, change the subject again???
>Nope, water is scarce. That is why there are prices. Marketing of water did not create the prices of water.<
And you accuse me of denying reality!
>If people truly believed water was not scarce..they could easily ignore the "marketing of water."<
How can they help but know water is plentiful. They literally flush it down the toilette every day! Un-bottled watter is available anytime and anywhere to anyone in America. Prices on bottled water is not affected by a lack of scarcity.
>Personally, I believe you would claim that future consumption is worse than current consumption.<
Why don't you ask questions rather than guessing at what I might think? Or rather, why don't you read what I've already told you?? Savings means nothing to the macro. And if you mean savings, why don't you call it savings, rather than adopt a term that some idiot economist has coined.
>I do, but cost can mean so many things. You can be talking about anything here.<
There is a difference between cost and price. Your original question states that either you are ignorant, or that you are certain that I am ignorant. So either you are stupid or mean spirited. Which is it?
>It raises all companies wages unilaterally.<
Oh, yeah, ok. Forget I asked.
When I say that a company cannot raise wages unilaterally, I mean that it cannot ignore the actions of its competitors. It cannot raise wages by itself, but only in harmony with the other employers. The context should have made such explanation redundant, but I expect more intelligence from you than you are willing to reveal.
>The Austrian theory of price determination is based on double inequality of valuations,
I don't have any problem with the concept as explained. The problem I have with your concept, Nathan, is that you see a too firm a connection between cost and price.
>The problem is, you don't know what economists mean when they speak of "scarcity."<
The problem is that you repeatedly accuse me of not knowing what I am talking about, and it takes months of banter before you concede on any point. This would go much faster if you could approach me with an attitude that assumed that I do know what I am talking about, and you just need to understand me.
>There is this sort of notion you create with this statement that buying more with the same dollar causes inflation.<
You cannot buy more with the same dollar, but the same dollar circles through the economy and back to your pocket faster. You have this intransigent concept that higher velocity means lower prices. NO! Higher velocity means higher prices. Higher velocity means you spend more, but then you earn more.
>I don't think you understand what you are saying here.<
Again, insulting, unwarranted, non-contributing. Would you please make an effort to remove this statement from your posts.
>And higher prices OBVIOUSLY means you need more money to buy goods.<
You keep thinking micro. That individuals 'need' more money is a symptom of them HAVING more money. The system needing less money is a symptom of it having too much.
>Since my time on earth is limited, I would say my particular human capital is scarce.<
Your time is limited. Your time is not scarce.
>Oh yes Allan, the guys from the mises forums ask why don't you come over there?<
You've only linked it once, and I can't remember where. At the time I wasn't interested. Have you linked here there?
>And believe me, some of these guys are brighter than some of the writers they have on the mises staff.<
Oh, isn't that an endorsement
;)

 

The lines in <> come from me.  Everything else comes from him. 

 Xevec,

 Whoever it is that you are speaking to here is feeling personally attacked and insulted, which does not lead to a positive environment of mutual pursuit of truth.  The author seems to be striving to find points upon which to disagree with you, which is typical of defense.  The truth is, I think there is a lot more agreement between you two than Allan (?) would like to admit.  Much of the opposition is due to misunderstanding, I think, not theory variance.  But I could be wrong about that; it's hard to tell with the obfuscation of the theory within the mess of self-preservational defense.

 

With that said, his concept of the velocity of money being equally important to the quantity of money in the market is a good point and should be considered when discussing inflation.  However, I do not know if I understand his statement of theory well enough to criticize or endorse the different elements in it.  As I said, it is so obfuscated that it is difficult to clearly make out the basic theory Allan is advocating

 Based on my interpretation of what he is saying, I think there is at least one practical addition that is relevant:  While the theory of increased velocity of exchange being inflationary to all commodities, including labor, is accurate, the practicality of the matter is that when the economy begins to contract and the supply of money wanes, the aggregate velocity/supply product (hereafter "V/S product") of money drops as consumers and businesses become much more wary of making purchases and the market gets into "survival mode."  While there are fewer money units in circulation, which naturally increase the velocity of circulation, the decrease in supply necessarily outweighs the increase in velocity, considering that is mandatory for an economic contraction to occur. 

So, while in theory, $100 circulated 10 times (V/S product = 1,000) in a year has the same inflation/deflation ratio as a $1,000 circulated one time (V/S product = 1,000) in a year, one cannot assume that if the supply of money drops from $1,000 to $100 due to economic contraction that there will be a corresponding proportionate increase in the velocity.  For an economy to contract, the V/S product must decrease.  Likewise, in an economic expansion, the V/S product must increase.

I don't know if this opposes what Allan was saying, but it is an important practical addition to the theory regardless of whether it is oppositional.

While I do not appreciate his mode of communication, I would like to thank Allan for bringing the velocity of exchange aspect of inflation theory to my attention; before this, I was aware of it, though not presently conscious of its implications, which forced me to think it through and truly understand it.  I'm curious where that theory originated so I might do further research on it.

> I don't know if this opposes what Allan was saying<

Nathan is under the impression that economic growth can occur without any inflation. Why I started on velocity was to point out that increased economic activity will feed inflation regardless the grip on the quantity supply; this on top of the fact that increased economic activity tends to automatically encourage the local bank to expand the quantity supply.

On the flip side, any price deterioration clearly illuminates an impending meltdown, for as economic activity shrinks, so too will the local bank shrink its own liability, and as the money market tightens, the velocity too will tend to fall off, exasperating the problems.

> I'm curious where that theory originated so I might do further research on it.<

My understanding is of my own making. I took economics in business college 33 years ago, and over the next few years was extremely bothered by some correlations that I could not make sense of with the causal theories I had been given. After a decade or so I suddenly realized that much of what I had been taught was completely backwards, and over the next two decades with self study and arguments like this, I have come to the understanding that I have today. Pretty much all that I understand today I have given to Nathan over the last year or so, but it is so hard to get him to concede a single point. http://www.facebook.com/group.php?gid=2207846194

The book that I wrote is getting rather dated as my understanding continues to expand and reinforce itself. http://www.lulu.com/arman

> And price is decided by the simple but profound economic principles of supply and demand.<

No it is not so simple.  The wage is the foundation of the consumer dollar, and the consumer dollar is the basis for all business activity.  In effect, the wage creates its own demand.  On the other hand, normal market forces are always putting downward pressure on the product of labor, and therefore the price of labor.  All things being equal, without a crutch to the wage of some kind, it will shrink, and with its shrinkage, so too will the consumer dollar and the demand for labor services.  The various state minimum wages were outlawed in the courts in 1924.  The following years, prices were almost completely stable while I believe that wages were deteriorating.  Then it became apparent that expectations of consumer dollars were wholly unfounded and the economy melted away.  The NRA provided some wage support in 1933 and the economic slide immediately turned into a strong growth.  These measures were again tossed out through the courts in 1935 and 2 years later the economy was in another tailspin.  Then the NLSA was enacted in 1938 and the economy has never really looked back.

Your faith in the free market might well seem rational, but is without historical merit.  

> The Austrian theory of price determination is based on double inequality of valuations<

That is fine for single instances of a transaction, but the normal business model calls for repedity of transaction.  The same product will be sold again and again, and so the price determination is a bit of a dance.  Obviously the price is normally in excess of obtainment cost, but by how much can vary week to week within the same business, let alone between businesses.  Whether the nominal markup will cover the fixed costs of the business is wholly dependent on volume.  Often the normal markup will be abandoned for a time in order to increase the volume of sales.

Almost always, the price is negotiable within limits, because the sellers posted price is not the limit of his valuation.  The valuation has not met in a single point but is open in a range that is agreeable to buyer and seller, while each may attempt to reach a more favorable deal by finding a price closer to the limit than what is originally stated.

 I would have to argue that for millenia, there were no minimum wage restrictions placed on the price of labor and yet, the price of labor fluctuated according to supply and demand freely.  This is evident through the numerous examples provided by Adam Smith in his "Wealth of Nations," among countless others.  I think to state that there is no "historical merit" for positive free market movement of wages is to avoid a great deal of historical economic record.

However, you are right that if the minimum wage restrictions were removed, the price of labor would drop significantly as they have been artificially crutched for so long which would, in turn, slow economic expansion.  When you have artificially inflated prices, the fall that ensues is always harder than it would have been if the artificial inflation hadn't occurred to begin with.  I wish we could find a way to make the economy expand without interruption, but I know that doesn't work.  The greed, pride, seflishness, and ignorance of humankind must be paid for by the masses through contraction phases of the economic cycle.  We make mistakes, and the contraction phase naturally erases the aggregate of those mistakes equally socially.  Believe it or not, the market does Marx's job better than he can.  While some might be individually injured beyond the contraction cycle, in an ideal setting, the ensuing expansion would provide society the ability to forgive the individual's debts.  This is why Jewish society required forgiveness of all debts every seven years.  That would definitely make creditors be a lot more careful to whom and for what they lent.

Regarding the Depression period specifically cited as an example of historical precedence, I think it is important to remember the federal administration's vested interest in getting the economy rolling again, which caused them to fight anything that slowed things down.  After a decade of over-inflated growth, there was great need for a major slowdown, and removing minimum wages would have brought prices down for all commodities, including labor...  instead of letting the market slowly and surely work out the kinks from a decade of stupidity and irresponsibility, the administration needed a solution virtually immediately, which led to the social programs, minimum wage standards, and ultimately, to war.  The wages fell and the economy slowed down when the minimum wage standards were removed because that is where the economy needed to be to repair itself from the damage caused.

 It actually sounds like the Wall Street, the Fed, and the government right now.  They are fighting what is essential for the economy:  A serious slowdown of the economy.  When banks are making the greed-blinded foolish decisions they have and consumers are borrowing well beyond their means and being lazy and the Fed is perpetuating the problem in their best interest, we are in grave need of a huge kick in the pants to get our feet back on the ground.  We've gone to long without feeling the pain of foolishness, and the longer we numb it, the more it'll hurt when we have no more novocaine to pump.

 The foundational problem of free market movement is that people are selfish and greedy, what you are probably referring to when you say "normal market forces"... Darwinistic free market is very bad for everyone involved.  But selflessly motivated free market, even in isolated groups, works very well.  

Also, if you read specifically regarding the price of goods produced, minimum wage standards wage the price of goods sold proportionately to the increase in money supplied.  All that it really manages to accomplish is to enforce a shift of wealth from the middle class, and to a lesser extent from the upper class, to the lower class.  More buying power to the poor has obvious negative ramifications while minimizing buying power in the most productive classes seems counterintuitive.  Minimum wage standards are social redistribution tools, not economic tools, in the same way that all taxes (only in a fiat monetary system), food stamps, and welfare are social redistribution tools, but that's a whole 'nother can of worms.

 Well Allan, welcome to the Mises forum.  There are people here that are willing to discuss these things with you.  You went with your word and decided to come here.  I will stay here and discuss these things further.

> there were no minimum wage restrictions placed on the price of labor and yet, the price of labor fluctuated according to supply and demand freely.<

Wages tended to rise with war and colonization.  Otherwise it remained at subsistance.  And please notice that war and colonization is government activity and cannot be considered free market at work.

>to state that there is no "historical merit" for positive free market movement of wages is to avoid a great deal of historical economic record.<

No.  I only avoid a great deal of economic nonsence on the subject.

>However, you are right that if the minimum wage restrictions were removed, the price of labor would drop significantly as they have been artificially crutched for so long which would, in turn, slow economic expansion.<

 Many of the regulations removed in 1924 had been in place for less than a decade.  The regulations removed in 35 had been in place for only 2 years.  In both cases the repercussions on the economy was extreme.

>But selflessly motivated free market, even in isolated groups, works very well.<

That is your heartfelt belief.  It is not mine. 

>While some might be individually injured beyond the contraction cycle, in an ideal setting, the ensuing expansion would provide society the ability to forgive the individual's debts.<

There is no ensuing expansion.  The economy is not short of businesses.  The economy is short of consumer dollars.  Allowing wages to drop as they did in the late 20s does not lead to the roaring 30s.

>I think it is important to remember the federal administration's vested interest in getting the economy rolling again, which caused them to fight anything that slowed things down.<

Cash supply is a product of the economy; not a controller of the economy.  Keynes sugestion that the economy could be enhanced or tempered by the central bank's provision is wholly without merrit.  Your ascribing the 20s and 30s to the power of the reserve is an ascention to the megalomaniac propaganda that Keynes and the Fed have subjected you to.

>They are fighting what is essential for the economy:< 

 And they don't have a clue.  The big problem right now is that all economists ascribe to Keynes' notion that lowering interest rates can increase the cash supply.  The cash supply is not from the largess of the government.  The cash supply is an extension of bank credit.  When interest rates are slashed, the banks earnings are slashed and so its cash production tends to shrink.  They have the gas peddle and the brake peddle confused.  This is the cause of all hyperinflation that has mysteriously appeared here and there since Keynes first spewed his nonsense.

 >All that it really manages to accomplish is to enforce a shift of wealth from the middle class, and to a lesser extent from the upper class, to the lower class. <

No.  The wealthy are not the main consumers of labor.  Labor employs itself, because the laborer is the consumer.  The minmum wage does not constrict the economy at all, but disallows excessive exploitation which is extremely constricting on the econmy 

>the most productive classes<

The economy rests on the production and consumption of the guy on the floor.  People in their ivory towers are not the producers, but the controllers of the producers, the guy on the line.

 Controllers are also producers, we're all producers and consumers.  Class warfare is not neaded for exchanges. Competition is to be strived for to increase the welfare of the aggregate. You can plan for competition, but fail when you try to plan against it. The failure results in means, and from the premise of perfect knowlage, which is not possible by man.

The wage employed when coerced by force becomes involuntary, and not a proper exchange. So for law to interupt the natural market competition, leads to subjugation, and not freedom to employ the best means.

Protectionism sucks! It serves the few by force. It not only fails to protect those it aims too it hurts everyone as a whole.

Yes, goods and services just magically distribute and sell themselves...

"Wages tended to rise with war and colonization.  Otherwise it remained at subsistance.  And please notice that war and colonization is government activity and cannot be considered free market at work."

 My question is then this Allan: can wages ever rise under free market standards?  Without government intervention into the economy, can wages rise naturally?

 "No.  I only avoid a great deal of economic nonsence on the subject"

Someone on this forum here posted a website that showed 50 years of economic research on the effects of minimum wage on the economy.  9/10 times, it was against minimum wage.  Can you explain why these particular studies are false?  What did they do wrong in the research excatly?

 "Many of the regulations removed in 1924 had been in place for less than a decade.  The regulations removed in 35 had been in place for only 2 years.  In both cases the repercussions on the economy was extreme."

What regulations excatly(besides minimum wage of course)?  Also, what negative effects(I am assuming negative) happened when they removed regulations in 1924?  Please show evidence of the negative effects you speak of.  From what I have seen, between 1924-1929, GDP growth was constantly increasing.  So what basis do you say between 1924-1929, that the economy was doing bad?

"And they don't have a clue.  The big problem right now is that all economists ascribe to Keynes' notion that lowering interest rates can increase the cash supply.  The cash supply is not from the largess of the government.  The cash supply is an extension of bank credit.  When interest rates are slashed, the banks earnings are slashed and so its cash production tends to shrink.  They have the gas peddle and the brake peddle confused.  This is the cause of all hyperinflation that has mysteriously appeared here and there since Keynes first spewed his nonsense."

From my understanding of what Keynes meant, was strictly looking from the consumer side.  The consumer seeing lower interest rates...will have more of an incentive to take out a loan.  I mean, I would take out a loan at 5% interest...than at 10%.  Yes, banks will make less money...but you can easily make as much money by giving out many loans at a low price....than if they make few loans at a high price.  The amount of revenue can be the same.  I believe someone here pointed out that the cash supply is the same if 100 people taking out $10 loans vs 1 person taking out a $1000 loan.  According to Austrian Theory(someone correct me if I am wrong on this), was that the boom of the 1920's was precisely caused by the low interest rates of the feds.

But my question for you on this particular issue is this:  Since cash production tends to decrease, I am going to assume that the cash supply shortens...causing deflation.  Can you show points in time where lowering interest rates caused deflation?  As of now, the only one I can think of is Japan.  Is there any others?  And I could be mistaken about Japan as well.

Xevec:

But my question for you on this particular issue is this:  Since cash production tends to decrease, I am going to assume that the cash supply shortens...causing deflation.  Can you show points in time where lowering interest rates caused deflation?  As of now, the only one I can think of is Japan.  Is there any others?  And I could be mistaken about Japan as well.

After the stock market crash of 1929, the Fed attempted to inject huge amounts of credit into the economy, through lower interest rates; however, since many banks were closing, and the remaining ones were unwilling to take the stuff, deflation continued to occur (as it normally would during a contraction). I would say, though, that deflation occurred in spite of, and not because of, lower interest rates.

 >Class warfare is not neaded for exchanges.<

Minimum wage increases are not class warfare.  Class warfare occurs when the poor really have no choices.  Giving the poor a slightly better wage grows a strong economy from the ground up. 

>Protectionism sucks! It serves the few by force. It not only fails to protect those it aims too it hurts everyone as a whole.<

That is your belief.  It used to be my own.  I have gotten over it.  It runs completely counter to my current understanding, which is not something I got from a book or a teacher. 

>Without government intervention into the economy, can wages rise naturally?<

 Wages rise naturally after the floor is above subsistence.  Disposable income is the key that allows labor to get specialized.  As long as the vast majority of consumers have zero disposable income, there can be no healthy market.  Wages cannot rise above subsistence without government intervention.

>Can you explain why these particular studies are false?<

It is about verification bias.  Think about our own interaction, and how much work I've put into informing you of my understanding.  You have very often exhibited a flat refusal to allow that what you've learned might be in error.  When I point to facts that conflict with your understanding, you have repeatedly indicated that the clear correlations are invalid for some reason that cannot be fully understood in the real world.  You have severe emotional attachment to what you have studied.  Your emotional attachment to your world view will be exponentially expanded as you tutor and/or advise and/or publish according to what you've been taught.   When I cannot convince you now to take an objective look at what you've been taught, how do you think established and tenured professors are going to be objective when they conduct a certain study. If the study result does not conform to acceptable views within the discipline, the study is soundly vilified by the majority of colleagues.

>From what I have seen, between 1924-1929, GDP growth was constantly increasing.<

And 1929 showed that the perceived growth was ethereal.  As I have told you, growth is a product of expectation and not of realized expectation.  It was when it became clear that the economic growth was devoid of expected consumer dollar growth that the entire system of expectations fell apart.

>Yes, banks will make less money...but you can easily make as much money by giving out many loans at a low price....than if they make few loans at a high price.<

The bank's lending limit is dependent on its profit.  It cannot lend out more money on a constricted profit.

>And I could be mistaken about Japan as well.<

No you aren't.   You can take a look at the papers today as well.  The fed has lowered rates again, and what happens?  Immediately, cash shrinkage shows in the stock market, and people are refused when they attempt to renew their mortgages.  Money gets tighter as the interest rates drop.  This should be obvious, but economists are quite proficient at ignoring the obvious.

" Wages rise naturally after the floor is above subsistence.  Disposable income is the key that allows labor to get specialized.  As long as the vast majority of consumers have zero disposable income, there can be no healthy market.  Wages cannot rise above subsistence without government intervention."

Ok, so from my understanding, you would agree that without government intervention...wages can not rise.  That we as an entire nation would be making "subsistence wages."  Does this include all individuals?  From the lowly cashier...to the accountant and the doctor?

 

"And 1929 showed that the perceived growth was ethereal.  As I have told you, growth is a product of expectation and not of realized expectation.  It was when it became clear that the economic growth was devoid of expected consumer dollar growth that the entire system of expectations fell apart."

My question is...why all of a sudden in 1929...did people stop having these expectations of good growth?  What made them change their mind?  Why did the ENTIRE MARKET start believing that there is no more room to grow?  I mean, I highly doubt everyone had that same thought.  What, there wasn't a significant portion of people who believe that the market couldn't go anywhere but up?

"No you aren't.   You can take a look at the papers today as well.  The fed has lowered rates again, and what happens?  Immediately, cash shrinkage shows in the stock market, and people are refused when they attempt to renew their mortgages.  Money gets tighter as the interest rates drop.  This should be obvious, but economists are quite proficient at ignoring the obvious.

 

Actually, not really.  From looking at the stock market...the Dow Jones is doing quite well..as well as wall street itself.  Yes, the dollar has lowered purchasing power...but that means foriegners wanting to buy our goods will increase...since they can now buy more of our products with less money.  People are refusing to renew their mortgages not primarily because of the money supply.  But I can't comment on the housing bubble that much.  I will leave that to the other posters on the mises forum.

 

">Yes, banks will make less money...but you can easily make as much money by giving out many loans at a low price....than if they make few loans at a high price.<

The bank's lending limit is dependent on its profit.  It cannot lend out more money on a constricted profit.  "

 

Actually, a bank's lending limit is dependent on how much debt can exist in the nation.  It can easily lend out more money on a constricted profit.  It simply creates it out of thin air.  They have done it for years.  They can easily create more money by inputting numbers in the computer.  Simple as that.

 

"It is about verification bias.  Think about our own interaction, and how much work I've put into informing you of my understanding.  You have very often exhibited a flat refusal to allow that what you've learned might be in error.  When I point to facts that conflict with your understanding, you have repeatedly indicated that the clear correlations are invalid for some reason that cannot be fully understood in the real world.  You have severe emotional attachment to what you have studied.  Your emotional attachment to your world view will be exponentially expanded as you tutor and/or advise and/or publish according to what you've been taught.   When I cannot convince you now to take an objective look at what you've been taught, how do you think established and tenured professors are going to be objective when they conduct a certain study. If the study result does not conform to acceptable views within the discipline, the study is soundly vilified by the majority of colleagues."

 

Allan, I am not talking about me.  Also, what "facts" have you pointed out?  For the sake of the other people in this forum...please show the evidence that runs contrary to the evidence presented from the 50 years of minimum wage research.  You say my verification of these things are from an emotional standpoint.  just because you have an emotional attachment to something, doesn't make it wrong...does it?  I mean, I don't think there is anything wrong with an emotional attachment to an ideal.  I mean, some people have an emotional attachment to the idea of helping others as much as possible.  Or stopping people from committing "excessive exploitation."  But does it make it wrong?

 

Hmm, aren't all studies like that?  Yes, the particular study from card and kreuger(which was opposite of most of the studies) did recieve critiques.  The problem is, that study hasn't been able to be replicated.   Secondly, are you comparing me looking at a study to someone who has been doing economics for years?  I can certainly say my knowledge of economics certainly can't compare to someone like Robert Murphy...or George Reisman.  I believe both of these men have retired from teaching...but so what if they are "tenured?"  That because of this, they won't have an "objective look?"  What would you consider to be an objective look?  That minimum wage isn't harmful?  Is that objective?  That is just as biased of a statement as saying "minimum wage is harmful."  You don't think that people who have critiquied the study of card and kreuger gave legitimate reasons?  What particular reasons of the card and kreuger study did you find to be "unfair?"

 

According to Ludwig Von Mises(and most of austrian economics), economic laws can not be tested in the real world.  This is because of the complexity of human beings.  We can not read their thoughts...or judge their values accurately.  We can not place the world in a laboratory setting.  So we can't easily see cause/effect relationships relating to economic laws.

 

Secondly, I can sum up your objections by saying I have an emotional attachment...and that they were reviewed by economists(even though the website doesn't specifically say the studies were done by economists).  I mean, it is very possible these studies were done by socialogists.  Or anthropologists.  Or any other field of study besides economics.  Secondly, as I believe most of the mises readers would agree...minimum wage among economists isn't set in stone.  Not all economists believe minimum wage should be abolished.  At most, it would be 50%.  source of this information. Yes Allan, I do believe that all things should be questioned.  But it isn't always true that things that are held by a majority of people believed to be true is automatically wrong.  But I ask you again....what from the results of the research was done wrong?  Secondly, what criteria is necessary to have an "objective look" when conducting a study?  And is it possible to come to the conclusion that minimum wage is harmful even when having this objective look?

http://gregmankiw.blogspot.com/2006/11/consensus-of-economists.html

 FTA: One issue that fails to generate consensus is the minimum wage: 37.7 percent want it increased, while 46.8 percent want it eliminated.

I would assume the rest don't want it to change at all. 

If you wish to see the research paper, go here: http://www.bepress.com/ev/vol3/iss9/art1/ 

 

Please readers, correct me in any statements that seem to be inconsistent.   

Oh boy... let's leave methodological arguments out of this. Suffice it to say that economic laws do derive from the real world, except not in the Kantian way that Mises believed in. They are grounded in action, and are conceptual truths. The reason they are aprioristic is because facts by themselves say nothing, and if taken as they are reveal nothing of interest. They need interpretation. The reasons you offered Xevec are auxiliary, not primary.

 Arman, either provide counter-evidence or admit that you're wrong. Your response to Xevec was a classical example of an evasion, and could just as easily be applied to you.

Arman:

 Wages rise naturally after the floor is above subsistence.  Disposable income is the key that allows labor to get specialized.  As long as the vast majority of consumers have zero disposable income, there can be no healthy market.  Wages cannot rise above subsistence without government intervention.

You are wrong on all these accounts.  Specialization (or "division of labor") is the result of trade.  Somtimes, it's abject poverty and starvation (i.e. complete lack disposable income) that force governments to abandon statist controls and allow the re-emergence of trade and specialization; that happened both shortly after the Mayflower landed and in more recent times in the former communist bloc countries.  Previously, both societies experimented with government mandated equality in distribution of wealth;  both failed miserably.  The sum total of disposable income does not change whether that money is paid to the workers or kept in the pockets of the factory owners, so your "disposable income" theory holds no water.  Besides, what the heck is disposable income anyway . . . if you remove minimum wage, and a new group of baby sitters enter the market place charging $5/hr instead of the previous minimum wage of $7/hr, suddenly you have the middle class parents gaining disposable income of $2/hr (hiring hours) and $5/hr (working hours) for the new baby sittters . . . both the $2 and $5 are disposable income because they were previously making do without them.

Now onto the more important point that you made, that wages cannot rise above subsistence without governent intervention.  That's just plain wrong.  The overwhelming majority of workers in this country make far more than minimum wage.  I'm paying people working for me at double to 8x minimum wage requirement.  I can't ever recall being forced by the government to pay that much.    

Arman:

And 1929 showed that the perceived growth was ethereal.  As I have told you, growth is a product of expectation and not of realized expectation.  It was when it became clear that the economic growth was devoid of expected consumer dollar growth that the entire system of expectations fell apart.

What 1929 showed was the fruitlessness of monetary expansion in the 1920's.    What followed in the 30's did not have to be a depression, but became one when the double-barrelled margin compression from trade restrictions (hece less export revenue and less economic efficiency) and wage demands by the unions (backed by a government that refused to enforce property rights) reduced companies to bankruptcy.

Arman:

The fed has lowered rates again, and what happens?  Immediately, cash shrinkage shows in the stock market, and people are refused when they attempt to renew their mortgages.  Money gets tighter as the interest rates drop. 

You are messing up some really basic financial terms.  The FED does not directly control the interest rate at which banks lend to their clients.  What the FED does control is the rate at which banks can borrow from the FED.  Since the most basic operation of banks is borrowing short and lending long, the   FED's action in lowering short-term interest rate immediately increase the potential profitabilty of banks.  That's actually how Citibank was saved by Greenspan in the early 1990's.

>From the lowly cashier...to the accountant and the doctor?<

When the government of Rome fell apart, so too did the economy.  For the next 800 years, almost all skilled professions requiring some education were controlled and staffed by the clergy, requiring vows of poverty.   Only the stonemason maintained some autonomy, but found work only in the church's cathedrals.

> I mean, I highly doubt everyone had that same thought.<

The evidence of a shrinking consumer dollar was there from 24 to 29, but sound expectation turned to desperate hope over those years. When reality set in, the entire system was primed to crumble.

> People are refusing to renew their mortgages not primarily because of the money supply.  But I can't comment on the housing bubble that much.<

Why do you start to comment, just to say 'no' to me, and then confirm that you really don't feel comfortable enough in the subject to comment?  If you don't understand what you are talking about, why do you talk?

>People are refusing to renew their mortgages..

??  People are not refusing to renew; the banks are refusing to renew.  I saw one documentary last night where one family was forced to take their mortgage to a demand interest of 14%, and could not afford to maintain the interest payments.  With the help of the media (the documentary I was watching) and the publicity, they managed to get the home refinanced at fixed 7%, but knew that their reprieve was rather a unique blessing.

>Actually, a bank's lending limit is dependent on how much debt can exist in the nation<

Oh?  And how is that determined?  And if there is any limit anywhere, how do the banks increase their lending?  The limit is in the bank's ability to withstand eventualities, the perception of which is determined by the institution's profit.  Any bank that creates money without concern for the institution's stability will quickly fail.

 >Allan, I am not talking about me.<

Why not?  You asked why these people are like this.  How better to understand others than to examine ourselves?

>Also, what "facts" have you pointed out?<

I've pointed to the mw history of the 20s and 30s .  I've pointed to the correlation of mw and prosperity of all the countries around the world.  I point to the correlation of GDP to mw hikes. How many ways must I show you?  How many times have you said "all other things being equal" (CP) to me?  And that phrase only means 'we don't understand the complexities of why, but we deem it invalid'.  THIS is your rational argument??

>You say my verification of these things are from an emotional standpoint.  just because you have an emotional attachment to something, doesn't make it wrong...does it? <

No, but it makes it impossible to discern or accept your error.

>The problem is, that study hasn't been able to be replicated.<

Card's original study of 92 was coincidental to the study by Krugar and Katz in the same year. Krugar and Card came together for the 94 study.  How many ways must you be shown?  And with the vilification going on, why bother.  Why keep showing you the truth when you won't seem to open your eyes?

> I can certainly say my knowledge of economics certainly can't compare to someone like Robert Murphy...or George Reisman.<

After the months of wrangling with me, you certainly should be better.  What about Rothbard?  Do you still hold him in the esteem you did a few months ago?  I tell you that understanding of the cash supply is very scarce.  Do you not understand money now better than you did a few months ago?  And how do you really start to understand economics when you have no conception of what money is?

>One issue that fails to generate consensus is the minimum wage: 37.7 percent want it increased, while 46.8 percent want it eliminated.<

You know some economists, and have read the work of others.  Ever encounter one of those 37%.  These are sober students of the economy, who have come to a conclusion that refutes their education.  Where is their voice?  They can't be heard, because the emotional attachment is against them.  Should they speak out, they too will be castigated as Card and Krugar.  Notice that Katz is hardly ever mentioned?  At least he didn't have the gall to repeat what he said the first time, like Card and Krugar did.  As long as you learn to shut up about what you've notice, you can enjoy the support of the establishment.

>The overwhelming majority of workers in this country make far more than minimum wage.<

 Yes.  But there is still the minimum wage floor.  The fact that workers move off entry level strongly indicate that it is of absolutely no detriment to the economy.  It does not at all indicate that the floor is not needed.

> What 1929 showed was the fruitlessness of monetary expansion in the 1920's. <

Monetary expansion causes inflation, and nothing but.  This cannot show GDP growth.  Monetary contraction is symptomatic of economic contraction.  Pinning the 20s and 30s on the money supply shows a great lack of comprehension for what money is and does, and for what constitutes a strong economy.

>What followed in the 30's did not have to be a depression, but became one when the double-barreled margin compression from trade restrictions<

The enactment of these regulations gave zero change to the economic trend.  Trade barriers are a red herring.  They certainly do not aid an economy, but they are not nearly as detrimental as what you've been taught.

>and wage demands by the unions (backed by a government that refused to enforce property rights) reduced companies to bankruptcy.<

The enactment of the NRA brought an immediate turn around to the GDP and unemployment.  Your suggestion that the regulation caused a deepening of the depression is a denial of reality.

>The FED does not directly control the interest rate at which banks lend to their clients.<

Its public statement destroys the competition in interest rates. If they want to save some banks money, they shouldn't publicize their actions.  Wholesalers do not allow the public to know what their retailers are paying.   Dictating the rate that individual banks charge each other limits the rates at what the banks will charge their customers.

>Since the most basic operation of banks is borrowing short and lending long, the   FED's action in lowering short-term interest rate immediately increase the potential profitability of banks.<

The local bank's basic operation is using its credit to create money in its loaning operations.  What it pays to the fed for the exchange notes is moot.  What it has to pay other banks when their loans get deposited elsewhere dictate what they must earn in interest.

Arman:

Yes.  But there is still the minimum wage floor.  The fact that workers move off entry level strongly indicate that it is of absolutely no detriment to the economy.  It does not at all indicate that the floor is not needed.

It's not a "floor."  What minimum wage establishes is a wage level below which there can be no legal employment.  The high real unemployment rate, under-employment rate, rate of people working off the books is an indication that minimum wage law is highly detrimental.  Minimum wage does not affect high income and medium income workers (aside from indirectly through attendent inflation) because their wage levels are already way beyond minimum wage.  What minimum wage does hurt directly are the would-be low income workers who are forced by law to be unemployed.

Arman:

Monetary expansion causes inflation, and nothing but.  This cannot show GDP growth.  Monetary contraction is symptomatic of economic contraction.  Pinning the 20s and 30s on the money supply shows a great lack of comprehension for what money is and does, and for what constitutes a strong economy.

Depending on how you define inflation.  In Austrian terms, monetary expansion is the very definition of inflation, so there is no "cause" to speak of.  I have a suspicion that you are using the term "inflation" in the mainstrean economics definition, which means price inflation of goods and services.  In that case, monetary expansion can cause not just goods and service price inflation.  It can also cause asset bubble (asset price inflation) while keeping goods and service price low.  That's what happened in the 1990's.  The same thing happened in the 1920's.  Such asset bubbles are destined to pop eventually, like what we have been seeing in the last few years and what was seen from late 1929 to 1932.

Arman:

The enactment of these regulations gave zero change to the economic trend.  Trade barriers are a red herring.  They certainly do not aid an economy, but they are not nearly as detrimental as what you've been taught.

 

Economic trend lines are drawn over decades of length on the time line post-facto after filtering out the effect of short term regulations and policy decisions.  Of course such regulations would have relatively little impact on decades-long economic trend lines, simply because the detrimental effect of trade barriers that brought the economy to sub-trendline growth over the years that followed the bad policies were counter blanced by the above-trendline growth due to free trade after WWII. 

Arman:

The enactment of the NRA brought an immediate turn around to the GDP and unemployment.  Your suggestion that the regulation caused a deepening of the depression is a denial of reality.

That's complete nonsense.  The GDP number in 1932 was counted using a dollar that was worth roughly 1/20 Oz of fine gold, whereas the GDP number for 1933 and onward was counted in a unit that was worth 1/35 Oz of fine gold.  That's a 40% devaluation of the unit of count!  The real value of GDP and real Dow Jones Industrial Index did not recover to 1929 level until the 1960's.  It was no co-incidence that both Hitler and FDR were busy looking for wars to fight by the late 1930's . . . because their Keynsian economics were failing badly and both countries were slipping back to economic abyss by 1937; something drastic to distract the public attention was needed.

Arman:

Its public statement destroys the competition in interest rates. If they want to save some banks money, they shouldn't publicize their actions.  Wholesalers do not allow the public to know what their retailers are paying.   Dictating the rate that individual banks charge each other limits the rates at what the banks will charge their customers.

If there is genuine free market compeition, such secret knowledge is quickly dissipated through the actions of the market participants.  So your theory about secrecy is quite meaningless.  Banks can charge premium on loans because the loan duration are different: how many home buyers are signing up for ARM's that can adjust every night?  By holding overnigt rate down, the FED benefit the banks because the banks borrow short and lend long. 

Arman:

The local bank's basic operation is using its credit to create money in its loaning operations.  What it pays to the fed for the exchange notes is moot.  What it has to pay other banks when their loans get deposited elsewhere dictate what they must earn in interest.

You are really confused about how banking works.  When banks make a loan to a client, it gets to take promised installments of loan interest regardless what the client does later with the money.  Banks pay other banks only when they borrow directly from other banks.  FED controls two rates:

(1) One is the rate at which banks can charge each other for overnight loans. This interbank borrowing obviously does not bring any new profit or loss to the banking industry directly as a whole, as double-entry accounting would dictate debit and credit interest entries ledgered to two parties that are both banks; this rate however does have an indirect but significant effect on the rate at which banks would pay demand deposits and short-term deposits.  When the rate is low, the savers get paid less for their money because banks in theory can borrow from another bank at low rate.

(2) The other rate is the discount rate, which is the rate at which banks can borrow from the FED directly.  This rate comes into play when banks are so suspicious of each other that they would not lend to each other at the rate mentioned above.  It's this discount rate window that enable the FED to rescue banks big times.  Without this discount window, the bank that is unable to borrow from another bank at the overnight rate mentioned above would have to turn to savings of individuals or corporations by offering higher interest rate, hence reducing the profit margin between the bank's borrowing and lending (sometimes even negative margin just to keep a bank afloat on a cash flow basis).  The FED discount window however gives the bank a source of low-cost funding, thereby literally giving the bank money, essetially at the expense of the savers by diluting their money.    

Arman:

I've pointed to the mw history of the 20s and 30s .  I've pointed to the correlation of mw and prosperity of all the countries around the world.  I point to the correlation of GDP to mw hikes.

Correlation does not imply causation.

> Correlation does not imply causation.<

Of course not.  Correlation demands causation.

> It's not a "floor." What minimum wage establishes is a wage level below which there can be no legal employment.<

"floor...12.the bottom, base, or minimum charged, demanded, or paid: The government avoided establishing a price or wage floor."

http://dictionary.reference.com/browse/floor

I don't know why you want to argue semantics at all; but if you want to argue my use of the word floor, then your argument is not with me. And like I've told Nathan, if you want to advise people on the meaning of words, get yourself a dictionary.

>The high real unemployment rate, under-employment rate, rate of people working off the books is an indication that minimum wage law is highly detrimental<

Oh yeah. You yearn for the good old days before the NLSA, when the unemployment was hitting 20%.

>It can also cause asset bubble (asset price inflation) while keeping goods and service price low.<

Only in your dreams. The real value of money is demonstrated in its exchange throughout the market. The real value of money is strictly determined by its scarcity. You constrict the meaning of the word so that you can declare that there was inflation without inflation.

>Economic trend lines are drawn over decades of length on the time line post-facto after filtering out the effect of short term regulations and policy decisions.<

Baloney. Economic conditions of today are a reflection of today's reality. There is no stickiness to the economy. This notion is held to only as an apology for why the economy never moves in the direction that the models predict. We're told, 'wait for it'. Yeah right.

>By holding overnight rate down, the FED benefit the banks because the banks borrow short and lend long.<

Do you not understand that the local bank creates money in its loan operation?? What it borrows from the fed is a fraction of what it creates. What is wrong here is that the fed thinks that IT is the prime creator of money. It is not. Money is created in the loan operations of the local bank.

>You are really confused about how banking works.<

I find that statement quite amusing. I have never seen anyone who understands money and banking half as well as I, and after months of wrangling with Nathan, he was forced to concede that my understanding on that point did seem rather sound. I hope you'll read through that argument rather than force me to argue on it for a few more months with you.

http://www.facebook.com/

Of course not.  Correlation demands causation.

Not really. Two things can occur simultaneously (or one after the other) with no obvious connection. You have to provide an argument for causation. Correlation does not necessarily demand it, at all.

BTW, don't expect others here to be as willing to back down as Nathan, who is still learning.