minimum wage debate

I decided to give more of this guy's view on economics and minimum wage in general.  I believe this post explains it:

 

Micro economics is all about profit, costs and revenues. Economists schooled and experienced in micro economics well understand that money comes in, and money goes out, and what gets kept in between is bread and butter.
When economists move from the study of micro economics (the study of individual businesses), they have been conditioned to look for revenue and expenditure, and so examine the whole as a sum of parts. Things like wages, taxes and interest are considered costs to society, while things like sales, production, and government spending are considered revenue.
This was my mind set when I entered a discussion with a gentleman some years back, who was complaining about the banks. He deemed it unfair, that the banks gave to society money, and demanded the money back plus interest. Since the interest is not produced by the bank, how could society be expected to return the extra money to the bank.
His logic was compelling and it took me a long time to realize that the bank does not keep the interest. Interest to the bank is revenue, just as it is expense to the greater society, and it goes out of the bank in expenses, rent, heat, wages, etc. Although interest is a cost to most of society, it is not a cost to the macro economy. This was my first eureka moment.
If interest is not a cost to the macro economy, then what of taxes and wages? All wages paid to labor come back to business in the form of consumer spending. All taxes paid to the government are spent by the government and so there are no costs to the macro economy. What is an expense to one individual is always a revenue to another. Transactions in the macro economy cannot be separated into costs and revenues, because in the macro, they are the same.
What is important to the macro economy then is circulation... how to get more transactions going with the same money. In a stagnated economy, there is lots of wealth to go around, it just isn’t going around. Transactions are minimal. Rich hire labor for their barns and gardens at subsistence rates; people live on what they make, but have no disposable income. Discretionary spending is moot. The only way that transactions can be accelerated is some measure or circumstance that allows the poor some disposable income.
Workers cannot in a stagnant economy demand money in excess of their need. If they do not accept a wage of what they need , they might well find themselves starving on the street. When war breaks out, workers can afford to be blaze about their job, because they have the option of soldiering. They can and do demand money in excess of their needs, and so gain some disposable income for discretionary spending. This is how war improves the macro economy; not from the money government spends, but from the increased option it gives to the commoner, which results in an acceleration of transactions on the menial level.
Colonization proved to provide the same effect; by giving commoners the option of colonization and pioneering, commoners came to expect higher pay from their employers, pay that allowed them some options without leaving the country, and so consumers discretionary spending spawned the industrial revolution.
There is always excess capacity in any sector in any economy. Any business will boast its ability to service its customers, and none will bemoan its inability to supply all its customers with their requests. Extra capacity spawned in the industrial revolution came about as a result of consumer discretionary spending, and though, as the transactions accelerated, consumer spending was fed by the wages of the factories, it was not the factory’s wage that initiated the situation.
In America, as the pioneer trails were ending, something else helped provide the bulk of the population with excess income; racism. Any piece of white trash came to expect that his salary must be in excess of what it took to keep a black family alive. This meant that the bulk of the labor force maintained earnings that provided discretionary spending.
Minimum wage was initiated in 1916 in California. I don’t have the particulars of other states right now, but have seen some indications that there were several minimum wage laws around the country as the US moved into the roaring 20s. In 1923 these laws were trashed in the supreme court. While most economists bemoan various problems of the late 20s precipitating the dirty 30s, the real problem stemmed from the catastrophic erosion of consumer spending by falling wages after 1923. When the NRA was introduced in 1933, the economy immediately started recovery and seemed to be growing right through to 37. But minimum wage was again trashed in the courts in 35, and so the growth declared from 35 to 37 was illusory, as consumer spending capacity slid down again, and transaction velocity shrunk. Minimum wage was reintroduced to the US economy in 1938, and this time it held, and so America has not known stagnation since.
With the amount of evidence that minimum wages provide a strong support to the transaction velocity of the macro economy, I find it so very frustrating that the wage is still considered a cost to the macro economy by the conventional economist.

 

I know most of you say this guy is dense....and this post has been responded by others...even using Mises' theories.  But please, what is your view on this? 

Xevec:

Minimum wage was reintroduced to the US economy in 1938, and this time it held, and so America has not known stagnation since.

 

 

Ha? 

Things like wages, taxes and interest are considered costs to society, while things like sales, production, and government spending are considered revenue.

Wages are costs to a firm, as is any other factor of production. "Society" need not enter the equation. However, they are seen as justified because the revenue they will yield for the firm will exceed whatever is spent on them.

Government spending and taxation are purely wasteful, the former leeching off production, the latter spending the stolen revenue.

He deemed it unfair, that the banks gave to society money, and demanded the money back plus interest. Since the interest is not produced by the bank, how could society be expected to return the extra money to the bank.

Stupid. Interest rates are strongly connected to time preference. Higher interest rates are correlated with higher time preferences, when one prefers more wealth now than later.

If interest is not a cost to the macro economy, then what of taxes and wages? All wages paid to labor come back to business in the form of consumer spending. All taxes paid to the government are spent by the government and so there are no costs to the macro economy.

Nonsense. Taxes and wages are conceptually different. Taxes are extracted by force from the productive classes, forcing them to increase their time preferences and show greater unwillingness to invest. It is true that taxes are spent by the government - usually inefficiently and wastefully. Governments spend over and beyond this anyway.

The only way that transactions can be accelerated is some measure or circumstance that allows the poor some disposable income.

I.e. introducing technology that will boost productivity, ergo boosting real wages, something which profit-maximizing firms enganged in competition will do.

"This is how war improves the macro economy; not from the money government spends, but from the increased option it gives to the commoner, which results in an acceleration of transactions on the menial level."

In other words, competitive markets allow workers to gain higher wages. What a novel insight!

There is always excess capacity in any sector in any economy.

Excess capacity of what? Markets are always in disequilibrium. "Excess capacity" will be used up by enterprising firms.

When the NRA was introduced in 1933, the economy immediately started recovery and seemed to be growing right through to 37.

I'm not sure what he is referring to, but correlation does not prove causation, so more than this need be said.

With the amount of evidence that minimum wages provide a strong support to the transaction velocity of the macro economy, I find it so very frustrating that the wage is still considered a cost to the macro economy by the conventional economist.

So then, what does he think of the unemployment it causes? Does that benefit the economy too?

 

My verdict remains: he is an idiot. For one so dismissive of economists he sure gives little reason to justify that stance. 

Inquisitor:

Government spending and taxation are purely wasteful, the former leeching off production, the latter spending the stolen revenue.

 

Using economic rent (the return on land) as public revenue is not wasteful because it just shifts what naturally attaches to all locations in a scarcity market (economic rent) from those being excluded to the excluders. There is no net effect on the economy and it doesn't hurt production because "land" is not produced. From a pragmatic perspective it subjects the land market to market forces whereas today the land market works more like a collectibles market (higher prices brings hoarding not more supply). 

Some reading material:

http://www.paulbirch.net/CritiqueOfGeorgism.html

http://www.mises.org/journals/jls/17_4/17_4_1.pdf

http://www.mises.org/rothbard/georgism.pdf

http://www.mises.org/journals/jls/20_1/20_1_6.pdf

WmBGreene:

There is no net effect on the economy and it doesn't hurt production because "land" is not produced.

More accurately, land is currently not produced in any significant quantity. But it is still produced. Building on otherwise uninhabitable space, such as in a vacuum (a space station), in the air (skyscraper), or on or in the sea (The Palm artificial island) does produce land. Supply curves often look completely inelastic when a short time frame is considered (e.g., "I need a computer NOW, and I'll pay whatever it takes to get the last one on the shelf").

WmBGreene:

From a pragmatic perspective it subjects the land market to market forces whereas today the land market works more like a collectibles market (higher prices brings hoarding not more supply).

 

Markets with verticle supply curves still function. The challenge to interventionists in real estate markets should be to show that government intervention produces overall "better" results in cases of inelastic supply than the marketplace does.

Xevec:

Micro economics is all about profit, costs and revenues. Economists schooled and experienced in micro economics well understand that money comes in, and money goes out, and what gets kept in between is bread and butter.

Well it is also about building good relationships customer and supplier confidence looking at long term relationships and the like. It doesn't have to show up in the accountants statement. This is also a reason, why wages (or prices) shouldn't be regulated by government. There can be good reasons why these price(including) are either agreed on to be higher or lower. I.e. a supplier can offer customer lower prices to allow them to make profit they could then use for marketing or the like.

Grant:

More accurately, land is currently not produced in any significant quantity. But it is still produced. Building on otherwise uninhabitable space, such as in a vacuum (a space station), in the air (skyscraper), or on or in the sea (The Palm artificial island) does produce land.

 

What is "produced" is called capital (a space station, a skyscrapper, an artificial "island") NOT land. 

 

WmBGreene:

Inquisitor:

Government spending and taxation are purely wasteful, the former leeching off production, the latter spending the stolen revenue.

 

Using economic rent (the return on land) as public revenue is not wasteful because it just shifts what naturally attaches to all locations in a scarcity market (economic rent) from those being excluded to the excluders. There is no net effect on the economy and it doesn't hurt production because "land" is not produced. From a pragmatic perspective it subjects the land market to market forces whereas today the land market works more like a collectibles market (higher prices brings hoarding not more supply). 

 

False.

Your tax would make land more expensive relative to labor and capital. The only effect would be that people would choose to build taller rather than wider. It would create artificial scarcity, forcing the poor into cities and leaving the rural areas to the rich.

In addition it would also drain the economy, as the tax would necessarily be paid in capital. No matter how it is spent it will be directed away from more advantageous uses, either savings or fulfilling wants.

All of these responses are good, except for the last one.  He believes minimum wage DOES NOT cause unemployment at all.  I have shown him the 50 years of minimum wage research, and he simply calls them "lying propaganda."  He says the correlation does not exist.  That there hasn't been a time in history where you see unemployment rise when minimum wage increases.

 

 "I'm not sure what he is referring to, but correlation does not prove causation, so more than this need be said."

 

When he speaks of this, he strictly looks at the GDP only.  Isn't there a problem with looking at only the GDP to determine the health of an economy? 

As well he might not see such a direct result. You can't tell where unemployment will hit, nor can you tell whether or not the hike in wages is being outpaced by demand at any given moment. If a state hikes its minimum wage and this mainly affects people in a certain industry whose product enjoys a relatively inelastic demand, people will economize elsewhere. It's an All Else Being Equal proposition. What counts in the end is that a higher price means a drop in the amount bought than otherwise would have been all else being equal, be it potatoes, labor, cars, or computers. Raising the minimum wage to 8.50 when there are few if any jobs paying that low won't manifest much of an effect until nominal wages adjust downward for some reason, at which point the minimum wage will lead to more people being unemployed as nominal wages for certain jobs drop below the minimum. The same goes for any other price hike. Labor is not a magical exception to the law of demand.

Also new land is being produced, because there is a difference between a resource that is just lying there and one that's usable as a good for some end. The amount of land being used for productive or exhausted ends does change as people bring in more land into use for housing, factories, farming, etc. Technically there is a vertical supply of everything when you take the totality of the universe into account, or even just the Earth for all practical purposes, because resources that can be put to use at any given time are always limited. The momentary supply of anything is fixed. Doesn't stop the market from working to allocate scarce goods while developing ways to produce more usable goods from the existing supply of raw stuff just lying around, including land.

 Wait, so the GDP data isn't lying propaganda, but the unemployment data is?  Or is he stating that's there's no such unemployment data?

 

Also, did anyone bring up the inflationary effects of minimum wage rises? 

 

And yes, there are plenty of problems with only looking at GDP. 

If his only answer to the contention that MW increase unemployment is that it is "lying propaganda", he is not serious and is not worth debating. One can show, via basic economic logic, that an increase in a price (wage) causes a decrease in demand (for labour), ceteris paribus. If he can somehow disprove this (he can't), and he can actually disprove the statistics involved, then I might take him seriously. The only matter of contention is how much unemployment a MW will cause, and how quickly.

 And yes, looking strictly at GDP (an imperfect measure itself) is not sufficient at all. I can look at all sorts of correlations and draw inferences from them that can be plain wrong (e.g. the magician danced and it started raining - must be magic!)

 Excellent reply Xahrx.

Basically, what you have said, he claims that is all "theory."  He even believes the law of demand isn't "fact."(even though I have asked him to explain it, and he gets fuzzy from there).  He says there is no evidence to the fact that minimum wage has caused unemployment.  That for every minimum wage hike, there has been a decrease in unemployment rates.(even though looking at raw data, and the BLS, I saw unemployment rates rising from 81-83.  Minimum wage was increased in 1981.  

To be blunt, there really is no debating with people who deny the very basics of economics.  The law of demand isn't debatable.  That doesn't mean you can't say the effects would be negligible, or off set by this or that, or ethical/moral/desirable and so 'worth it' overall if you want to bring in normative judgements.  But if you deny the basic reality that all else equal as price goes up less will be bought, then you're into fantasy territory.  At that point you may as well be arguing over who would win in a battle, Hobbits or Smurfs.  It's a pointless conversation to have because you're talking to a person who is either willfully or blissfully ignorant of reality.  I've been involved in such 'debates', both online and in real life, and believe me it's not worth pursuing.

This is all mental masturbation. Minimum wage is nothing more than a tool to manipulate and control the poor. If you think 50 cents or a dollar + or - either way effects the bottom line or companies or the government, your kidding yourself. You can put any kind of BS theory on it you want. The Central Banks and their Political B!*ch Servants (PBS) are pulling the strings on the arms of the Societal Apathetic Marionette (SAM).

~ Momento te esse Mortalum ~

That is the practical truth of the matter, Jeckyl.  Minimum wage is a weird issue though.  Given the affects of inflation and other market distortions the effects of the minimum wage hikes we see are really minimal for most people, because most people aren't operating at the margins where it does make a difference.  But, to expand on what I wrote in my last post, denying that minimum wage laws disemploy people is to question the most basic law of economics.  It's like denying relativity in physics.  Yes, for all practical purposes time dilation isn't a concern for most people because they're not going anywhere near the speed of light.  It doesn't figure much into their daily routine, or even their life in total for that matter.  But the people who design GPS systems, and those who depend on them, do need to take it into account.  Just because it has no practical implications for most people doesn't negate the fact that the satelites GPS systems depend on need to account for time dilation to achieve their levels of precision.  It's a truth, even though most people don't notice a few nanoseconds of lag or gain here and there in their daily lives.  Likewise, just because inflation and other factors might be making the minimum wage somewhat negligible in its effects for most people, the underlying reality of a price rise meaning less bought does not change, and the effects on the people who are disemployed are certainly a practical reality for them.

So I understand where you're coming from, and there's way more than a grain of truth to what you're saying in a political sense.  But, just as someone who dismisses relativity because of its lack of practical import (that they know of) needs to be corrected and instructed in the truth of the subject, someone who dismisses the law of demand with regard to labor likewise needs to be shown why they may be right in their practical assessment of things, but wrong on the underlying truth the subject matter.  It's important because you can't rationally start from a falsehood and reliably reach the truth.  Facts are facts.  However practical or relevant their current implications may be, facts are still facts.  Denying them only leads to problems.

If you are doing an experiment on figuring out the structure of a substance, you always need a CONTROL. Without it, it's impossible to gain an assessment of your calculations. With World Economics and Central Banking, figuring out the structure of it is impossible because there is, and never was, a control in it's fiat form. The STRUCTURE is a constantly changing organism of chameleon particles that are not there to define what the structure is, but rather define what everything outside of the structure is, for it's own benefit, by showing self-manipulated data. Since it constantly changes itself to constantly define what everything around it is, it will never be possible to have an algorithm to interpolate it's exact structure. Hence, there will never be a control, and all data to define it are incorrect or incomplete . It is an Alien Life Form (ALF), and should be cancelled and not allowed into syndication.

You can't do calculations on how economies work before you accept and realize who are manipulating the data. You have to start from the singularity of the Central Banks. You can't figure out what is really going on until that Evil Little Turtle is called for what it really is. And that's why I say, it's Mental Masturbation (M&M). Baffling people with BS. Trying to make truth out of lies.

Sticking feathers up your bum does not make you a chicken.

Xevec:

Basically, what you have said, he claims that is all "theory."  He even believes the law of demand isn't "fact."(even though I have asked him to explain it, and he gets fuzzy from there).  He says there is no evidence to the fact that minimum wage has caused unemployment.  That for every minimum wage hike, there has been a decrease in unemployment rates.(even though looking at raw data, and the BLS, I saw unemployment rates rising from 81-83.  Minimum wage was increased in 1981.

All facts are theory-laden ultimately, so his objection is meaningless nonsense. Since he cannot dispute any of your arguments, there is no point in further debate. He is an imbecile.

In a free-market economy, wages should be governed by supply and demand and the right to contract, not by an arbitrary minimum wage law.  Minimum wage laws make it virtually impossible for the homeless to legally find work or the pensioner on a fixed income to hire them. Abolish the minimum wage and homeless destitution would disappear in large part if combined with other free-market reforms. Inflation would be held in check, and this would help the poor and pensioners.  The minimum wage is used by the unions to goose up their wage scales, at the consumers expense, and the expense of the starving homeless. It should be abolished immediately.