Even If You're All-Powerful, It's Hard To Fix The Economy
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The law of supply and demand states that if you raise the cost of something, you will get less of it. Raise the minimum wage 20%, and you will get less jobs. Elementary.
By your logic, Canada should be seeing massive unemployment as our minimum wage is 20%-30% higher in most provinces than most states.
The reality is that Canada's unemployment rate sits at about 7.3% in August compared to the 8.1% rate in the United States.
Every new bit of cost/uncertainty around hiring makes it relatively more attractive for those who could be hiring to instead (1) automate or otherwise replace workers with capital investments; (2) outsource or offshore; (3) take the afternoon off instead of struggling with hiring-led growth.
If you're competing against China, it's a different story. But if your company is that sensitive to the price of labour and competing against China it probably went offshore years ago. You compete against China with robots and high-skilled labour, not minimum wage labour.
The nice thing about giving money to people making minimum wage is that they spend it immediately, putting it back into the economy right away.
Not so fast.
McDonald's isn't competing just with Wendy's. It's also competing with me making a sandwich.
My cleaning service isn't just competing with other cleaning services. It's also competing with me saying "hmm, I can live with that", etc.
The local retail store isn't just competing with other retail stores, it's competing with Amazon....
> The business may be forced to raise its prices, but since its competitors are forced to do the same no competitive positioning is lost.
If I spend twice as much at McDonalds, I'm spending less money somewhere else. Or, I'm not investing it, or I'm not putting it in a bank where it gets loaned to someone else to invest/spend. (Cue the fractional reserve arguments about the multiplier on deposits.)
In other words, even if the minimum wage increase "works", it's a transfer from someone else. A tax, as it were, but an opaque one. (Yes, there are lots of evils in the world. It's unclear how that justifies creating more.)
> The nice thing about giving money to people making minimum wage is that they spend it immediately, putting it back into the economy right away.
If you really believe that the minimum wage has almost no negative effects, why not raise it to $100. Either they'll spend it right away or they'll save some and buy houses and cars. The economy will boom.
Either you believe your theory or you don't.
But if that doubling in money spent is solely due to wage increases on the service side, then those people are going to spend it somewhere else, probably somewhere locally.
even if the minimum wage increase "works", it's a transfer from someone else. A tax, as it were, but an opaque one.
Minimum wage is not a tax, it is a regulated minimum on cost of labour, primarily to protect against people being taken advantage of when they are desperate.
If you really believe that the minimum wage has almost no negative effects, why not raise it to $100.
There's fairly obvious reasons for not trying to raise the minimum wage above the average wage. Claiming there should be a minimum is not the same as saying that it can be set to ridiculous values with no negative effects, as you very well know.
Either you believe your theory or you don't.
Personally I doubt that you really believe the tripe you are coming out with.
> But if that doubling in money spent is solely due to wage increases on the service side, then those people are going to spend it somewhere else, probably somewhere locally.
Just like the other folks who were going to get the money that you want to divert to McDonalds.
> Minimum wage is not a tax, it is a regulated minimum on cost of labour, primarily to protect against people being taken advantage of when they are desperate.
If I want to buy a gallon of vodka, I'm required to pay money that I wouldn't pay otherwise - we call that a tax. How is requiring someone to pay more for an hour of labor any different? (In both cases, the argument is made that the money goes for a good cause....)
>> If you really believe that the minimum wage has almost no negative effects, why not raise it to $100.
> There's fairly obvious reasons for not trying to raise the minimum wage above the average wage.
The minimum wage can't be higher than the average wage....
The stated "minimum wage increases have no effect" argument doesn't have any dependency on the level/amount of the minimum wage.
Feel free to provide an argument that does.
> Personally I doubt that you really believe the tripe you are coming out with.
Hmm. I thought that the relevant question was whether I was correct or not.
Is this really a "Tinkerbelle" issue?
After this I may want to buy a gallon of vodka, but if I do so I do not consider the wages of the person I am buying it off to be a form of tax, whether they have a regulatory minimum or not.
This is because the concept of tax has an actual definition that isn't really changed by your attempts to redefine it on the fly.
The definition of tax is not dependent on it being for a good cause, or even for any particular cause for that matter. Tax is a levy paid to a state, not a regulation of the minimum cost of a transaction between individuals. The portion of the money paid in wages cannot be a tax by definition as it is not being paid to a state.[1]
And no, the hourly minimum wage cannot be higher than the average, but you can create one that is higher than the current average, which is the example you yourself gave when you suggested a figure of $100.
And no-one is arguing that minimum wages have no effect. If they had no effect, no-one would be bothered either way. They can have positive and negative effects, like any other regulatory mechanism.
But the net benefit of a reasonably costed minimum wage is that people can always live off the money a job provides and not be taken advantage of by complete scoundrels, such as yourself.
[1] Or statelike actor, if we want to get picky. And no, the guy behind the counter at the 7-11 is probably not a statelike actor.
...Although, I just thought, if someone running a little shop was also an earl, or some tribal chieftain, and they considered their little shop to be their final outpost of conquered land, then there might be argument to be made that monies paid to them while in their fiefdom could be construed as some form of taxation. But I don't think that is all that common outside of Cornwall.
That's absurd.
There's no difference between the state taking my money and giving it to you and the state telling me that I have to give you money.
Folks up this chain are clearly claiming that increasing the minimum wage has no effect on consumer behavior and no negative effect on the economy.
> But the net benefit of a reasonably costed minimum wage is that people can always live off the money a job provides
Repeating something doesn't make it true.
> and not be taken advantage of
Huh? Who is forcing them to settle for minimum wage? They're free to make more from anyone who will pay.
> by complete scoundrels, such as yourself.
Hey - a two-fer - you can't read AND you're resorting to name-calling.
You're just jealous because scoundrels get the babes.
I do like the assumption that I'm a bad person because I'm pointing out that your theory doesn't work. Newsflash - the good consequences of a theory have no bearing on whether it is actually true.
There's a reason why "he meant well" is a fairly significant insult.
Even if the total amount of money in the economy is fixed, the distribution of that money among people matters a great deal to the health of economy which is something your simplistic argument doesn't address.
In the most extreme example if one uber-rich person has almost all of the money and the rest of the country has just enough to buy food, it doesn't matter how much money that uber-rich person has - the economy will be in the shitters because uber-rich person only needs one house, one car, can eat out only in one restaurant per night etc. but if no-one else can afford a car, the cars will not be made (it's too expensive to make just one car).
If there are millions of people that are only one millionth as wealthy as our uber-rich person but wealthy enough to afford a car, a house, a tv set etc., the economy can develop - if there's market for million cars, someone has to be employed to make those cars, tv sets, serve food to those millions of people and a virtuous cycle develops where people employed to create things and services for wealthy people become wealthy themselves.
So the question is: is raising minimum wage creates more over-all wealth (by transferring more money from rich people who have excess of it) or less over-all wealth (by making services of poor people too expensive for rich people).
I don't know what the answer is but you certainly haven't proven that 20% rise of McDonald's prices would cause McDonald's collapse because of massive "I make my own sandwich" movement. Even if that was purely a matter of price (and not, say, convenience of getting a hamburger and fries in few minutes in the middle of San Francisco), McDonald would probably beat you regardless of what minimum wage is due to massive economies of scale, not to mention that making your own sandwich is like using Linux: it's only free if your time is worth nothing.
Not so fast. I can afford to spend much more at McDonalds, but if I do so, I'm not spending that money somewhere else, regardless of how much money I have. You have to assume that I get no value from spending that money elsewhere to conclude that spending it instead at McDonalds doesn't affect me.
However, even with that assumption, it's absurd to claim that my spending more money at McDonalds and less somewhere else doesn't affect the economy.
You're going to have to argue that the economy benefits from spending money at McDonalds vs somewhere else. The folks who'd otherwise get that spending will be very interested to see that argument.
Moreover, you're making incorrect assumptions about McDonalds customers. They're (typically) not all that well off. More to the point, they're extremely price sensitive, hence the success of the "dollar menu".
We can test your claim in a situation more favorable to it than the real world, namely airports. It's inconvenient to "bag it" and the clientele is reasonably well off. Yet, many folks do, and not just because they don't like airport food. (The Denver airport, for example, has some decent places.)
You're claiming that airport food places could double their prices without affecting what people buy. Do you really believe that? (You can't argue "but airport food is already too expensive" without providing a quantitative argument showing that McDonalds in South San Jose isn't in pretty much the same situation.)
If folks are actually price-insensitive, what limits prices at airport places? (No - competition between restaurants doesn't explain it because the airport could charge them all more money.)
FWIW, I picked "cleaning service" for a reason. The low-end cleaning services in San Jose raised their prices 7-10% about a couple of years ago. (I looked around when mine did.) Mine claimed that she and her competitors lost accounts when they did so and that some went out of biz. She says that there's less money being spent on cleaning services even today.
How do you know that she's wrong?
And no, customers' response to a price increase does not depend on why the price is increasing. (They may be happy with a price increase accomplanied by some other change, but that's not what you're proposing.)
> I don't know what the answer is
You claim to know enough to know that there's no effect from raising the minimum wage.
> but you certainly haven't proven that 20% rise of McDonald's prices would cause McDonald's collapse
I didn't say that it would cause a collapse. I'm pointing out that the "no change" claim is almost certainly wrong.
If you think that McDonalds is cheaper than a sandwich that you make yourself I understand why you want to avoid quantitative arguments.
I'm reminded of this political cartoon... (http://www.dollarsandsense.org/archives/2008/0508toon.html)
It all depends. For instance, corporations may be able to punish populaces who successfully campaign for a better minimum wage, with attacks like capital flight. If successful, the unemployment rate may indeed increase. In other situations, it may decrease.
Labor markets are notoriously not ones that can be explained by simple application of the "law" of supply and demand. There are massive uncertainties in knowledge on both sides, power dynamics, high transaction costs, and substantial difficulties in knowing how much and of what type of value the employee will offer to the organization and the organization to the employee.
And even theoretically there are plenty of models where you're totally out there. Google monopsony and labor markets for just one situation where raising a minimum wage should increase employment.
Empirically, "it depends" seems to be the right answer, but even the most negative studies on minimum wages don't claim that minimum wages are in effect within an order of magnitude or two of what the financial crisis did to employment rates.
Say you can produce a certain amount of widgets out of a given resource, but with research you can produce more widgets, and that you can reduce the time needed to do that research by hiring more people and equipment. Now you are in a situation where raising the cost to your customers can result in a larger availability of widgets.
And that's just with widgets. If you look at wages, raising the minimum wage has lots of possible effects, many of which can actually serve to reduce the unemployment rate over time. One of them is that if the minimum wage is a reasonable margin above subsistence, then people in employment find it easier to start small businesses, leaving a job vacant when they venture out on their own and then even employ people themselves.
Damning people who are willing to work, to subsistence level incomes, is not how you grow an economy.
And when you get past elementary, let us know.
The problem, in the US, is that the median income in real dollars has actually declined in the last decade/s. This means the mass market has lower purchasing power. For a while, debt was masking that effect, but that band-aid was ripped off. The fix is to increase median real income. This is mechanically simple, and politically next to impossible.
In any case we didn't use it then. We aren't going to magically use it now.
The fact that we're drilling for fossil energy in increasingly hard to reach places is strong evidence that using more solar energy is non-trivial. You can't just hand wave away the energy issue.
I suggest beginning with the work of Professor Charles Hall of SUNY-ESF.
Also known as 41.66 terawatts.
Econometrics is the science of modeling the economy. But like you said it's pretty much impossible to get calculations correct.
The graphs there give you an idea. Just imagine them with 1700 inputs and many 1000s of interactions.
Ray Dalio
Self made macro hedge fund manager with a rags to riches story. He's pretty strange and employs an army of financial engineers in some forest in Connecticut to model this stuff (and make billions of dollars in the process).
Oh, and forgot to mention, it's now the largest hedgefund in the world.
Skip the tax increases and do the spending cuts.
We do need some serious tax simplification, but Congress is way too fond of using what should be a simple revenue raiser for social engineering.
I would love them to eliminate the home mortgage deduction, because it is another factor encouraging people to buy homes when they shouldn't. I would also say taxes on capital gains should be zero. Too many normal Americans don't have traditional pensions and will need the tax break in later years.
It explains through many articles how the law of physics put terminal limits on what we can achieve, and kills a lot of misconceptions, like "a service economy needs less energy", "we could replace nuclear/coal/oil with wind/solar/hydro", etc.
All those college kids without job? Boom! School class sizes across the country down to 5. Too much crime? Ten times more cops! Potholes in your city? Gone! Want your city covered in solar panels? Done! Street litter? Gone! Dirty public facilities and public transportation? Spik and span! Decrepit bridges, roads, water infrastructure, electrical lines? They're new now!
Keep bringing me people and I'll keep coming up with stuff for them to do.