Minimum wage as economic stimulus

[Acala]

Yes! Well said.



When you strip out money, especially fiat money from the equation it clarifies the logic.

Here's another way to look at it. Suppose a group of people are stranded on an island. Would it help production if they found a pile of money?

tinder?

 

[Cleaner44]

The MW being raised to $10 would not just increase the wages of the 3.5 million making MW now, but all those workers who make BETWEEN 7.25 and $10. What does any firm do when it experiences and increase in business and sales?

You seem to have this bizarre idea that raising minimum wage would create more money. Even if there were no lay-offs of workers, their increased wages would have to come from somewhere. Now since that money would be taken from pot A to be added to pot B, what do you suppose would be the effect of taking money from pot A?

 

[Acala]

You seem to have this bizarre idea that raising minimum wage would create more money. Even if there were no lay-offs of workers, their increased wages would have to come from somewhere. Now since that money would be taken from pot A to be added to pot B, what do you suppose would be the effect of taking money from pot A?

The people with the money in Pot A apparently use their money for something other than "consumption". Maybe they smoke it. But clearly only by taking their money and giving it to the Pot B people will that money be spent. And stop looking at the whole picture. It just confuses people.

 

[CaptUSA]

I think Keyensians get lost because they are hypnotized by the image of bankers and governments farting out paper money and learn to dissociate money from production. Money is nothing but a tool to make the exchange of produced goods and accumulation of capital more efficient. Without production money is nothing.

Correct. Money is not wealth. It is a measurement of wealth. Anytime they screw with the measurement, (either by declaring the value of someone's labor a different number or by adding more money to measure the same wealth) those in the lower incomes get hurt the worst.

Ironically, those with the most money benefit from the change in the measuring stick the most. If I borrow money today at today's measurement to buy something real, and pay it back tomorrow at tomorrow's measurement, I can get lots of real value for a little relative investment.

 

[Boshembechle]

The people with the money in Pot A apparently use their money for something other than "consumption". Maybe they smoke it. But clearly only by taking their money and giving it to the Pot B people will that money be spent. And stop looking at the whole picture. It just confuses people.

People A (employers) would be the ones who would be giving the money to pot B (employees). However, this isn't exactly a -1+1=0 type deal, because people A tend to hoard their money in banks, while people B spend it.

 

[angelatc]

People A (employers) would be the ones who would be giving the money to pot B (employees). However, this isn't exactly a -1+1=0 type deal, because people A tend to hoard their money in banks, while people B spend it.

The money that is "hoarded" in banks is the same money that is loaned out in the form of things like mortgages and other forms of credit. It is also invested in growing business, which actually creates jobs.

Again, if flushing the workers with cash was a sure-fire way to increase production and profit, why would employers "hoard" the cash instead of handing it out like coffee? Why cant you answer that????

 

[Acala]

People A (employers) would be the ones who would be giving the money to pot B (employees). However, this isn't exactly a -1+1=0 type deal, because people A tend to hoard their money in banks, while people B spend it.

Hahahaha. Wow.

Let me explain how this works. When people earn more than they need, they save the surplus (in a bank if you like). This is called the accumulation of capital. Accumulated capital is then used either by the person who saved it or somebody he loans it to, to invest in improving the means of production by building better tools, new factories, etc. Investing capital in the means of production increases production efficiency. More goods are produced with the same amount of work and resources, making everyone wealthier. That is how the Western world grew rich.

But let's back up, the investment of the accumulated capital in improving production involves spending it! The money is used to pay people to make machines, build factories, etc. So saved money is spent.

Your belief that money that is saved is somehow inert demonstrates a deep misunderstanding of how the economy actually works.

 

[Madison320]

I think Keyensians get lost because they are hypnotized by the image of bankers and governments farting out paper money and learn to dissociate money from production. Money is nothing but a tool to make the exchange of produced goods and accumulation of capital more efficient. Without production money is nothing.

I thought of yet another example. Suppose you grow oranges. You've been farming for many years by yourself and you grow 1,000 oranges every year, but you only consume 800, so you use the extra 200 to trade for stuff. You decide to hire a worker and with that worker you can grow 500 more oranges a year and you only have to pay him 300 oranges, so you make another 200 oranges profit from the extra worker. Now a Keynesian comes along and forces you to pay that worker 800 oranges a year claiming that it's actually good for your business even though he only produces 500 oranges. Now you have to declare bankruptcy, fire your worker and go on welfare. The good new for the Keynesian is that now he has your vote since you can't support yourself.

 

[CaptUSA]

People A (employers) would be the ones who would be giving the money to pot B (employees). However, this isn't exactly a -1+1=0 type deal, because people A tend to hoard their money in banks, while people B spend it.

Do you understand the difference between a bank and a mattress?

 

[Acala]

Do you understand the difference between a bank and a mattress?

Lol. This cracked me up.

 

[Acala]

I thought of yet another example. Suppose you grow oranges. You've been farming for many years by yourself and you grow 1,000 oranges every year, but you only consume 800, so you use the extra 200 to trade for stuff. You decide to hire a worker and with that worker you can grow 500 more oranges a year and you only have to pay him 300 oranges, so you make another 200 oranges profit from the extra worker. Now a Keynesian comes along and forces you to pay that worker 800 oranges a year claiming that it's actually good for your business even though he only produces 500 oranges. Now you have to declare bankruptcy, fire your worker and go on welfare. The good new for the Keynesian is that now he has your vote since you can't support yourself.

It's a perfect plan!

 

[Acala]

People A (employers) would be the ones who would be giving the money to pot B (employees).

You are wrong about this also. Do you think that when the government issues some stupid proclamation that increases the cost of doing business the owners take the money out of their own pockets? "Sorry kids, no college for you. The government raised the minimum wage and I have to use my savings to pay it." You are deluded. Or perhaps you think businesses can pay the extra wages out of their fat profits? Wrong. The reality is that most businesses operate on razor-thin profit margins. To pay higher wages they must raise prices or fire marginal workers, or both.

So the money that goes to pay the increased MW comes out of the salary of terminated marginal workers or out of the paycheck of all consumers through higher prices. Every extra dollar in the hands of the employees now getting a higher wage must be subtracted from the hands of other potential consumers.

The MW will not stand up to the slightest analytical scrutiny.

 

[TheGrinch]

Why do you keep repeating that it has been debunked? MW increases put more money into the hands of people who will spend that money. The shoe maker will experience a sudden increase in demand and sales. What will he do? He'll order more shoes. (AKA more production)

I will concede that it's possible that a minimum wage increase could temporarily aid in stimulus on a macro level (though there are plenty of factors at play, so it may not and regardless, leads to long-term issues we continue to face from it), but it's definitely not as simple of a relationship as you make it out to be on the micro level. People having more money does not necessarily mean that all producers will benefit. Only some will, others may see their profit margins shrink, be forced to sell at higher prices, etc, while not seeing a significant enough up-peak in sales to be any better off.

Who benefits? Well, it is clearly the big conglomerates who are already eliminating costly labor with technology and outsourcing. So what if you make them overpay for a few button-pushers, if it means they gain a bigger share of the market, and can better set prices with less competition to drive prices down.

How does it eliminate competition from smaller companies and hurt them? Well, it's simple. Most smaller companies are operating on thin profit margins already, so they only have a few choices when wages rise:

1) Raise prices - certainly not what they want to do unless the supply/demand/cost curves determines that this is profit maximization, but they may not have a choice, because they must maintain a profit.

2) Do more with less employees - by either replacing them with technology (if they can afford it), or by hiring more productive employees at higher wages. Though employees can only do so much, and in many cases cannot compensate for the production of employees lost. You need to be able to pay labor at a reasoable rate for what they can produce for them. They have to.

Thus, it may not even be possible for most companies to overpay for labor, as it simply kills their profit margin no matter what. Small businesses are most vulnerable, and I assume that you realize that these people not making money is going to hurt, perhaps even moreso than the marginal rise in wages.

How will it hurt? Well, the obvious reason is if their business goes belly up rather than succeeding, you take their money out of the market. But also, as I mentioned earlier, less competition is worse for everyone but the few big companies who are actively eliminating employment in favor of technology.

 

[Cleaner44]

People A (employers) would be the ones who would be giving the money to pot B (employees). However, this isn't exactly a -1+1=0 type deal, because people A tend to hoard their money in banks, while people B spend it.

I think this gets to the heart of your limited thinking. You seem to believe that rich business owners that are hoarding money in the bank will be forced to withdraw that money and give it to the poor workers. This is not reality. In fact it's not even close. What you think you know just isn't so.

You are presuming that all or at least most business owners are sitting on large hoards of cash. Now your common sense should tell you that business owners are all in different places financially. So are doing fantastic, some are getting by and some are struggling. Any businesses that are struggling or just getting by don't have any hoards of cash sitting around in the bank.

Those businesses that are doing well usually have plans to put their capital, aka hoards of cash, into some kind of action that will grow their business and make them more money. This is much smarter than keeping it in the bank and earning 1% interest that doesn't even keep up with inflation. Usually those plans to grow their business has a component of hiring more people.

So at a minimum you are proposing that companies reduce hiring so that those dollars can be reallocated to existing workers. Those new employees would have gotten money from pot A that they could have spent, but not under your plan. You apparently think taking that money and giving to the existing workers will somehow create spending that the new workers would not have.

Now that the hiring has been reduced under your plan, more people will have to look longer and harder for employment. Likely those people will need government assistance because you have made it harder for them to get a job. Will you now demand that the government raise taxes on the businesses that you believe are hoarding cash, so they can pay for government assistance to the poor people that are out of work?

 

[Henry Rogue]

Despite the OP's intent, this thread has provided valuable insight into economic understanding. The OP can ignore the thoughtful arguments place here, but readers can see with clarity what reasoned logic concludes. Overall a good thread.