Minimum wage as economic stimulus

[Acala]

I'm confused then.

I thought that consumption drove production, in the sense that, if you find that you cannot keep up with what people want, other investors will provide. Isn't that what drives a person to start up a new business, need/want/void?

Now, I do agree that "meme" in advertising and fads create a desire for consumption, because people want to "belong".

edit: Man I miss Steven.

Think of it this way:
Say I am a fisherman for a living. I catch more fish than I can use and take the excess to market. My neighbor gathers seaweed. He gathers more than he needs and takes the excess to market. In the market, I trade fish for seaweed. I am a consumer of seaweed. But I am ONLY a consumer of seaweed BECAUSE I first produced fish. My desire for seaweed is meaningless unless I have first produced something of value to trade for it.

This is why real capitalism leads to wealth. The accumulation of capital increases productivity. Because people are producing more, they can buy more. Capital accumulation leads to greater production. Greater production leads to greater consumption.

The minimum wage and other bassackwards economic stupidity uses smoke and mirrors to make it look like you can have consumption without first having production. It's a scam.

Investigate Say's Law.

 

[SilentBull]

From a blog post I wrote a little while ago:

Imagine being told that you aren’t allowed to sell your car for less than $3,000, and say you have an old car that isn’t worth more than $2,000. Would you say you would have a hard time selling it? Your $2,000 car would have to compete with nicer cars that are worth $3,000. Why would anyone buy your car for $3,000 when they can buy a car that is actually worth that much?

This would be a problem not just for you, the seller, but also for all the people that really can’t afford a $3,000 car and would love to buy yours for $2,000. They would be forced to pay more for a car, than they can afford, which would result in them not buying a car at all, or going deeper into debt in order to get one.

Now imagine that instead of a car, what you are trying to sell is your labor and you are being told that you aren’t allowed to sell that labor for less than $10 per hour. Imagine being a student or just someone that doesn’t have many skills, is poor, and just needs a job to at least start obtaining some of the basic skills necessary to move up in the world. Can you see the problem?

You may be willing to sell your labor for $8 per hour, and for the job that you’d be doing, that’s what employers would be willing to pay. But by preventing you from doing so, the government is making you compete with other workers who are more skilled than you are, and are actually worth $10 per hour, making it harder for you to get the job over the more qualified candidates.

Just like when car buyers in my example, decide not to buy a car at all, some employers may decide not to hire anyone at the higher price. He/she may decide to look into automating some of the operations instead.

Some employers will still hire at the higher price, but they won’t hire as many workers as they would at the lower, voluntarily-agreed price. This is easy to see if you picture a poor married couple that can afford two cars at $2,000 each, but can only afford one at the $3,000 price.

If we substitute employers for car buyers, workers for car sellers, and labor for cars, it becomes easier to see why minimum wage laws make no sense, and cause more harm than good.

- See more at: http://www.garciareport.com/best-argument-against-raising-minimum-wage/#sthash.imYvQKbs.dpuf

 

[Madison320]

Think of it this way:
Say I am a fisherman for a living. I catch more fish than I can use and take the excess to market. My neighbor gathers seaweed. He gathers more than he needs and takes the excess to market. In the market, I trade fish for seaweed. I am a consumer of seaweed. But I am ONLY a consumer of seaweed BECAUSE I first produced fish. My desire for seaweed is meaningless unless I have first produced something of value to trade for it.

This is why real capitalism leads to wealth. The accumulation of capital increases productivity. Because people are producing more, they can buy more. Capital accumulation leads to greater production. Greater production leads to greater consumption.

The minimum wage and other bassackwards economic stupidity uses smoke and mirrors to make it look like you can have consumption without first having production. It's a scam.

Investigate Say's Law.

You're 100% right. The whole idea that by artificially creating demand we can somehow magically produce things is complete BS. The only way to produce things is to leave the producers alone and let them produce!

 

[Zeeder]

If you pass a law that makes everyone pay at least a $1.00/hour, when noone actually makes it, of course it will have no effect on anything.
Just like if you pass a law that says "Noone can jump into the sun". Well noone is doing that, but some idiot voters will get behing that law because it feels real good. "Hey nobody should be jumping into the sun"

I mean how can you be against a law against Sunjumping? You want people to jump into the sun?! What kind of crazy libertarian governmentphobe are you!

So politicians try and keep the minimum wage below what the market pays so they can score points. But some idiots actually think you can legislate a "living wage". What is that? Well it's whatever number they come up with in their collective heads. Raise it to 20 or 100 dollars an hour! That will increase consumption!

 

[Boshembechle]

You're 100% right. The whole idea that by artificially creating demand we can somehow magically produce things is complete BS. The only way to produce things is to leave the producers alone and let them produce!

producers produce because they expect consumption. This is thee reason why a minimum wage increase is an economic stimulus. It increases the spending power of workers, thus incentivizing firms to produce more to increase demand.

 

[Seraphim]

Nominal wage increases do not create spending power.

If labor costs go up, employers must raise prices to keep their positive margins. Prices go up....POOF the nominal wage increase now means ZILCH.

In the real world though the more consistent behavior of employers is not to simply raise prices.

It is to cut jobs and find ways to be more efficient with what remains.

producers produce because they expect consumption. This is thee reason why a minimum wage increase is an economic stimulus. It increases the spending power of workers, thus incentivizing firms to produce more to increase demand.

 

[Acala]

producers produce because they expect consumption. This is thee reason why a minimum wage increase is an economic stimulus. It increases the spending power of workers, thus incentivizing firms to produce more to increase demand.

ALL trade consists of two parties each with something they have produced and want to exchange. If either one has failed to produce something, no trade happens. Production on BOTH sides of every trade is a prerequisite for a trade happening. People produce surplus goods so they have something to trade with. Until they produce something, they can't consume and all the Keynesian hand-waiving in the world will not change this.

 

[erowe1]

producers produce because they expect consumption. This is thee reason why a minimum wage increase is an economic stimulus. It increases the spending power of workers, thus incentivizing firms to produce more to increase demand.

Why do you keep repeating this after we've debunked it?

 

[CaptUSA]

The minimum wage is a political tool - not an economic one.

Arguing the economic use of this tool is like arguing whether a chainsaw will or won't help you measure the height of a tree.

 

[Boshembechle]

Why do you keep repeating this after we've debunked it?

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)

 

[CaptUSA]

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)

Geez... where does that money come from? You put it into the hand of people who spend it, it must come from somewhere, right?

 

[angelatc]

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)

But the increase in shoes won't make up for the increase in labor costs, as was clearly pointed out above.

If I sell hamburgers, and have to start paying my employees $300 more a week, my profit will drop because no matter how good my burgers are, people only eat 3 meals a day.

If I have 10 employees, that's $3000 more a week. If my restaurant is a local Mom & Pop operation, you just put me out of business.

And the 10 employees.

Same with the shoemaker. No matter how nice his shoes are, people only buy a few pairs a year.

 

[CaptUSA]

Geez... where does that money come from? You put it into the hand of people who spend it, it must come from somewhere, right?

Answer: It comes from the capital that is currently being invested elsewhere. It's taking money out of one side of the pool to put it into the other and expecting more water to be there.

 

[angelatc]

producers produce because they expect consumption. This is thee reason why a minimum wage increase is an economic stimulus. It increases the spending power of workers, thus incentivizing firms to produce more to increase demand.

Try this on for size: If that were even remotely true we wouldn't even need the government to pass a minimum wage. Employers would be falling all over themselves to hand out money to the workers.

 

[Acala]

Answer: It comes from the capital that is currently being invested elsewhere. It's taking money out of one side of the pool to put it into the other and expecting more water to be there.

Exactly. The underlying assumption of the whole argument that an increase in the MW stimulates consumption is that the people who would otherwise have had the extra money now in the hands of the MW earner would have somehow rendered that money inert, perhaps by putting it in their mattress? Silly.

 

[erowe1]

Why do you keep repeating that it has been debunked?

Because, it has. And you just pass over those posts like they aren't there, and then come back and repeat the same thing. Why do you do that?

 

[Acala]

producers produce because they expect consumption.

Producers produce in anticipation of being able to trade their product for someone else's product.

If I am a widget maker, I am not going to make a widget for you because you wrote "new widget" on your Christmas list. I will make a widget in anticipation of you or some other person having actually produced something of value to trade for my widget. You no produce? No widget for you. Production leads consumption. Indeed, the word "consumption" does not even seem to have real meaning. There is only trade. And there is no trade without production on both sides.

 

[Madison320]

producers produce because they expect consumption. This is thee reason why a minimum wage increase is an economic stimulus. It increases the spending power of workers, thus incentivizing firms to produce more to increase demand.

Wrong. Producers produce because they expect a PROFIT. Artificially high wages DECREASES profit.

 

[Madison320]

Producers produce in anticipation of being able to trade their product for someone else's product.

Yes! Well said.

If I am a widget maker, I am not going to make a widget for you because you wrote "new widget" on your Christmas list. I will make a widget in anticipation of you or some other person having actually produced something of value to trade for my widget. You no produce? No widget for you. Production leads consumption. Indeed, the word "consumption" does not even seem to have real meaning. There is only trade. And there is no trade without production on both sides.

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?

 

[Acala]

This is thee reason why a minimum wage increase is an economic stimulus. It increases the spending power of workers, thus incentivizing firms to produce more to increase demand.

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.