Disspelling Minimum Wage Myth.
 

Also for further consideration, in 2005 Wal-Mart lobbied for a minimum wage hike. Many people suspect it was because Wal-Mart already payed most of its workers above the minimum wage, and that such an increase would make it harder for other retailers to compete with them.

Robert Reich is and always has been a socialist buffoon, so it's not surprising that he would make an argument that contradicts itself.

It follows that government interference in the market will only create incidents like Wal-Mart's love of regulation. Wasn't it clear from the beginning that the nature of lassiez-faire was to protect businesses, much like the seperation of church and state was to protect churches?

For a more technical question, would abolishing minimum wage at this stage lower consumer prices all over the country?

Interesting question Hachfusa, I would say that abolishing the minimum wage would disparage even more people than it has already at the current rate in many states. It would also give Corporate America MUCH more power in terms of labour production and control...

What we really need, is the establishment of a maximun wage. Doesn't the average CEO get paid something like 200 times the wage of the average worker in their own company? Instead of them sitting on it, the economy could be doing much better if a lot of that money was int he hands of the working class,w ho would immediately spend it.

Wage caps sort of eliminate the whole profit motive. Establishing a wage cap is like telling the most productive members of society that they should only produce so much. Why bother making more money just to have it seized and redistributed to jerks you don't know?

They don't really make wages in any case.

I also don't think the purpose of a "laissez-faire" economic policy is to "protect business." Protecting business is usually the realm of corporate welfare, breaking up strikes with police power, and military adventurism.

It is to protect business, just not in the sense that you mention. It protects a person's right to engage in business, free from the constraints of government. That's what 'lassiez-faire' economic policy is. Corporate welfare and military adventurism favors business above all else. That's like saying that the seperation of church and state is the same as installing a theocracy. Uh, no.

Christ, buddy, you love turning tables on everyone and being a dick, eh?

It sustains me.

What I'm going to get at, though, is that Laissez-faire doesn't protect anybody's interests in an exchange. In a free market, deals go both ways when it comes to relationships between sellers and buyers, and employers and labor. "Protecting Business" is the very essence of Keynesian economics, yet in protecting business, it also destroys competition and discourages the growth of new industries.

My argument is semantical, and while you can claim that not interfering in exchanges and observing property rights benefits "business," I would claim that it benefits everybody in the sense that all people are consumers, yet not all people engage in business.

Laissez-Faire is the observance of free exchange, not protection of business.

You're right in that it's semantical. I was arguing that, in advocating free exchage, business is protected. So are consumers, for that matter. I guess I have to watch my ass when I throw around words and phrases so that I'm not misunderstood.

But to expand before on my question, I'll skip the original question and go on to the larger issue: if the minumum wage is clearly not the way to go, why in god's name are there so many Keynesians running around? I'm not talking about the average citizen who just likes a pay increase, but the learned economists who love to shout out that our government should index our wage against the cost of living and whatnot. Is America, or rather, the entirety of western civilization so blind?

Past that, how would Americans go about fixing the problems instilled by a minimum wage?

Well, the simplest way to fix the problem would be to get rid of minimum wage.

Why are there so many Keynesians? A number of reasons. Keynesian economics have been popular since the New Deal, and since Roosevelt used the practice of appointing economist to central planning authorities (not an insignificant irony of history) economists understood that Keynesian policies were how their bread was going to be buttered.

The reason free market economists and monetarists aren't high in positions of government is because free marketers want government to roll back, and monetarists want government to treat the money supply responsibly. States, however, have an inevitable tendency to expand their duties and spend more, because they have a monopoly of force. With that monopoly, the only way the state can expand its business is by making more laws and spending more, which justifies higher revenues through taxes or borrowing. "Rolling back government" doesn't appeal to government. As for the money supply, if the government was responsible with it, then it couldn't finance welfare programs, and military adventurism.

I thought small business owners aren't affected by minimum wage. For example, I make $6 an hour (this is true). Missouri raised the minimum to $6.50 from $5.15. My boss still pays me $6 an hour because his business is too small to be forced into raising his rate of pay.

Maybe there are exceptions for small businesses in the state of Missouri. Either that, or your boss is breaking the law, and lying to you.

The federal rate will go up soon enough as it is.

Well, I guess in the consumer perspective, having more more money to spend on the economy would increase the economy to a certain extent. I think the biggest problem right now is the lack of equilibrium between the average worker , and the large profits many businesses (especially national and international) make. Things have been so developed and interlaced that it is difficult to make changes without upsetting something. Which probably explains why the government tries to avoid touching anything... Its like a china shop where if you aren't careful, something could break.

Yep. Seems that there are special cases.

Hm. How do you think the Federal Minimum would affect the laws in Missouri? Or do you think that Missouri will maintain its current laws and not give in to Federal extortion?

I, honestly, hope he was kidding with that closing comment.

I do, however, think that this country could benefit greatly from a different approach to combatting poverty than regulating business.

Also, I hate it when people throw around the term lassez-faire, especially when referring to the U.S. economic system. It's anything but.

Love the, uh, language chosen.

Only laws that stay in effect are ones above the federal minimum wage. If Missouri's wage was higher than whatever Congress sets it at, they could keep that law about paying under the state minimum in certain instances, as long as they paid at or above Federal rates, as I understand it.

Lukage, does your boss really seem to do less than $500k in sales a year? I mean, that's only $2k a day.

Wait, wait, which of these scenarios are we going for?



a) You get welfare or you work. Minimum wage drops to be barely over welfare payments, just enough to entice some people to work. (e.g. Welfare is $20/day. Min wage is $3/hour, enough that working is a little better than welfare, plus hey, you might get promoted or something)

b) Everyone below a certain income (poverty line) is paid welfare. This gives everyone a bare minimum with which to participate in most of American society, and gives their kids a chance to grow up somewhat healthy and schooled if the parents aren't crack-whores. But then, minimum wage can float, and people can work to keep a bit more money than welfare. Minimum wage drops until it is barely worth people's time to go to work. (e.g. Everyone gets at least $20/day, min wage is $1.5/hour on top of that to get people off the couch)

c) You cancel welfare & etc. and let minimum wage float. Pay becomes just enough to make work hours more productive than other activities you might try to stay alive (e.g. crime, begging). Or just barely enough to get the creame de le poor-masses crop, if your business happens to need that.


Rather than monster pay, couldn't you give business people preferential terms in buying their own shares, instead of exorbitant salaries? The push to do better would still exist. Similar deals could be worked out for sports athletes, doctors in private hospitals.

...wouldn't work for the largest of the private firms though. And the doctors thing might cause free riders. And financial workers would still be able to make money at insane rates.

No, if executives and business owners want to give themselves obscene salaries and make their businesses less competitive, that's their perogative. It's essentially the same problem with discriminating based on race.

Consequently, I don't think people are putting enough faith in the power of labour to affect change independent of the government. If labor feels that capitalists are making obscene amounts of money relative to the wealth that's being created, then they're perfectly capable of negotiating the gap to an acceptable end for all parties.

It's unlikely that anybody would work for a mere dollar-fifty an hour, yet people who subsist on the current minimum wage are already living below the poverty line as it is. The primary demographic of people who would work low-skill jobs should be teenagers and those living on fixed incomes, such as the elderly, in order to supplement lifestyles. Otherwise, if they subsist their lifestyle on a low-skill income, then they're fucked unless they can pool resources in a cohesive family unit (although, if they had cohesive families, then they would probably have a few college graduates at this point).

Also, if minimum wage floats, it essentially means that everybody can be employed, meaning that businesses have to compete for labor instead of drawing from a pool of unemployment. I mean, most low-skill workers already make above the minimum wage as it is, wouldn't wage rates naturally gravitate to be relative to the amount of wealth that a worker produces?

There's no reason any business shouldn't want the most productive workers possible, and if a business doesn't take steps to provide incentives for labour, then it has no real right to remain competitive.

I also believe there's a more important problem concerning minimum wage; it's a feedback loop. As you raise the incentives for unskilled labor (past what their market rate would be), you inherently increase the value in being an unskilled laborer.

Say minimum wage is $5.00, and a (relatively) unskilled person can train and invest in enough education to get a $10.00 an hour job. He's more than willing to do this. But when you raise minimum wage to $8.00, it makes no sense to spend time and money trying to learn a job that will only pay marginally better than what you do now.

This inevitably causes a drop in the average wage (raising the minimum wage alone causes no difference in the average, because enough people will lose their jobs to cancel out any gains). It's a very small effect when you consider it individually, but over several hundred million people, it adds up. Now, we're in an economically worse situation than we were before. And what's the solution? Hike the minimum wage...

The average CEO of a fortune 500 company only makes 300,000. What makes them incredibly rich are stock options, and the equity they get from thier respective companies. And the fact that they DON'T sit on thier money, or leave it in the bank to grow at 2% a year. And no it wouldn't be better in the hands of the working class because they'll buy say a new car, or a new tv. When they buy a new car it'll probrably be made in say Japan, or a new tv that was probrably made in China. An investor will sometimes invest in international stocks; but will probrably stick to domestic stocks and real estate. When you hear so and so is worth X billion of dollars; that's his net worth. The number of stocks he owns, the houses, he owns, land, his assets. Only a small portion of that is sitting in his bank accounts.

I'd believe this if minimum wage was tied to inflation.

It doesn't matter if the minimum wage is tied to a real wage or not. If you raise the minimum to a point where it begins to coincide with more skilled labor, there's no incentive for unskilled workers to get those kind of jobs.

If the minimum wage was 7.50 at the time I was job-hunting in 2005, I probably would've accepted the job as a mall janitor instead of working for a steel detailing firm in Baton Rouge where that was the starting rate. I ended up being their fucking janitor anyways, but at least I had more duties that actually involved work I needed to be trained for. (also avoided incontinent old people stool)

Even worse, if the minimum wage had been 7.50, chances would've been that the job opening wouldn't exist and they'd just pay their current janitor more for expanded duties. The only reason I got the job in detailing was because of old church connections, and if I hadn't been connected in an environment where I had absolutely no marketability, I would've been shit out of luck.

I'm not quite sure if I read it right, but is this guy saying that minimum wage hasn't actually gone up in 10 years? I understand what he's saying about it rising with inflation but it's not like they increase simultaneously. I'm having a really hard time finding the logic in this guy's argument.

Reich is saying that the current wage increase values the minimum wage at the "real value" 10 years ago because it's been accounted for inflation. Legal minimums can't be fluid, because they require a legal process with which to be implemented, as well as a re-negotiation of existing wages for current earners of the minimum.

Robert Murphy, the article writer, is saying that it's besides the point because the market has already adapted to the current minimum, and that increasing it will still create unemployment.

The argument of Free Market theorists is that business owners don't pocket the higher real-value they get from inflated currencies, but instead use the real wealth gained to hire more low-skilled workers and/or raise prices at a slower rate than if they had been accounted directly in accordance to the inflated currency. Hypothetically, it's how the price of a good may only rise by 5% over a year, whereas inflation has devalued the dollar by 15%.

I think there are many problems with free market economists--primary among them being that markets can't really be free. Some can be close and exhibit many of the characteristics that the theory states... but, there are always problems. It is inextricably linked to politics. If you look at how the U.S. uses our political power and foreign service, one of their main goals is to help U.S. business. The assumption of rational thought which is necessary in a market system only applies to a limited extent as well. You have all kinds of social barriers like "buy American" or many of my East Asian friends who find those goods superior. Not to mention that we don't have a free labor market while we have closed borders. But, people like Adam Smith didn't even believe the free movement of capital was a good idea--he thought that should be limited or the state would die, but today we take that as a necessary part of free markets. I think there are all types of problems... and that doesn't mean you should ignore free market economists but they do not preach Truth, they just give insight into how we construct our economic system. But, we can't ignore the social aspects to this system.

However, I thin the minimum wage as a means to deal with poverty is stupid. I would rather have no minimum wage and have the government help in other ways. Freer markets help to increase overall wealth... and to an extent lower taxes have helped a lot (good examples being some of the states in Eastern Europe that kept industrial taxes low). A country needs to decide if they want to help the less fortunate or not (I'd vote yes on that) and then make policies that best do that. I would rather help people out with sub-living standard jobs in a free market than have more unemployed because of a minimum wage which acts as a disincentive to hire. The minimum wage is a quick thing that politicians can do to look good to their constituents... but, it really doesn't solve the problem. I have no problem with curbing capitalism to help people... but, I think we need to do that in efficient ways... because even if capitalism is amoral... it does have its own logic.

Adam Smith was right, the free movement of capital would destroy the state, because it eliminates their ability to control it.

Free market theorists don't preach an "untruth" it's just that Free Market theory assumes that the state is an impediment to exchange, not a facillitator of it.

Because we don't have a Free Market doesn't mean that the theorists aren't right, it simply means that they have no sway in the body politic.

I could've sworn my econ text said that labour demand was pretty insensitive to the minimum wage, so a lot of economists supported keeping one. And then this pops up on CNN.

But economists don't generally forecast a major impact on any sector. "Whatever the effect is, it's not very large," said David Gleicher, a labor economics expert at Adelphi University. "First of all, minimum wage workers are a very small percentage of the whole labor force. ... It's almost impossible for it to have a major effect."

Primarily, repercussions from raising the minimum wage occur among younger workers, according to Gleicher. Many of those teens and college-age workers belong in a class Gleicher called "target earners" who have a certain amount of money they wish to make, such as for college expenses or a car payment. Once they reach their target, the incentive to work decreases, creating the possibility that a higher minimum wage could lead to somewhat lower productivity and employment.

Mostly, Gleicher joins others who view the minimum wage in its current context as far more a political issue than an economic one.

Plus those Crazy Canucks agree (thx, Google news).



So yeah, it costs a few jobs, with the noisy data hard to say how much. But it's an administratively simple way to help the people good enough to still get jobs. Whatever. There's bigger things to worry about. Unfortunately, it's probably not going to be enough swell the ranks of the military. :rolleyes:

But without state regulated mechanisms there is no market. You wouldn't have property rights. You wouldn't have stock markets or any of the large institutions that need state legitimization to exist. Without the state you don't have confidence in money. The state can be an impediment to efficiency in many ways, yes. But there is no such thing as a free market and the state is necessary.

I also don't think the free movement of capital will destroy the state. It has caused problems in some cases but we have relatively free movement in some places and it has been a good thing for growth. Of course, you have problems like what happened with Long-Term Capital Management.

I'm speaking in generalization because I haven't closely read very many free market theorists. I just think the notion that the state is only a hindrance is silly, because the state completely enables the whole system.

1. Any environment which facilitates an exchange is a market. There is such a thing as a market anarchy. I'm not going so far as to say that the state should be completely abolished, but that ensuring property rights and other basic rights of its citizens should be its sole function. Of course, property rights are also enforceable in a free market depending on how well private security firms are capable of enforcing them.

2. A stock market does not need state legitimization, but may instead have private legitimization, with security enforced by private firms. If one's exchanges are guaranteed, and ownership observed, then the stock market is trusted as an institution. If a stock market doesn't guarantee exchange or proof of ownership, then confidence in the market is lost, and it dissolves.

3. Confidence in state money is only backed up by fiat. In the case of a governmental collapse, it's essentially worthless. There are currently a few successful electronic currencies backed by gold which are being exchanged on the internet. Some theorists think we'll be exchanging gold electronically in the future instead of fiat money, or even commodity-backed paper. There's also talk of a gold denar to be used as a pan-Arab currency.

4. Free markets exist where the state has no impact on exchange. Free markets exist all over the internet, where people exchange goods between each other free of taxation, and instead pay a service for the exchange. It's not unrealistic to presume that there can't be real-world free markets. Somalia, for instance, has a free market because it's the only country in the world which lacks a government. There's little good to say about it, because it's still factionalized, but the point is that it exists.

If capital moves freely, then the state has no means to seize it. The only alternative to taxation is a donation-state, a business-state, or a gambling state, which earns revenues by facilitating gambling. While it may not destroy the state, it effectively limits its ability to expand, which runs contrary to the nature of a state. It's inconceivable for any state to accept the absolute freedom of capital, because it erodes the majority of its power.

Have you not been paying attention? We live in a welfare state. If people can't work, then they become a burden of the taxpayer. This doesn't just lower employment for teens and uneducated adults, it further ensures the chronic unemployment that plagues minority communities.

If things get as worse as they could, as Shin said, and we're faced with a further surge of illegal labor, it's not inconceivable to cause severe hatred of Mexicans by blacks, possible enough to where the Irish/black race riots of the 19th century would occur again, only with the roles reversed and the whites replaced with Mexicans.

Either that, or it's more rappers, drug dealers, and B-ball players. Future's lookin good, Black People.

I erased my other answer. :O

1. Yes. But, these are all political entities that interfere with markets for their own interests. Hegemons help to make markets work in their interests and, more subtly, help shape the discourse about what is a free market. That's why I think the institutions necessary for free markets often help to curb market freedom. There is definitely a tension there.

2. Yep.

3. Yep, although I'm not sure that gold is really a hard backing. If its perceived value goes away it has the same problem as paper money.

4. I'm not sure that you can argue that Somalia has a free market. I know little about Somali ethnology but I presume that to some degree areas still work on kinship ties rather than market principles--because they are so underdeveloped. Also, the best argument against them having a free market is that there is really little exchange of information. Without information to make decisions you don't have free markets--or so I was taught.

Capital movement: Possibly. I think states can benefit from states have access to force so they can stop free movement when they deem it necessary. So, I think it could be free as long as states think it's helping them. Once their arms industry flees the country they will cry national security and put holds on capital movement. This goes back to point 1. If free markets aren't perceived to benefit the state they will often act to curtail it.

I think.

Elaborate on this, please.

From 1952 until 2001 gold did lower in value, not in small part because it stopped being used in currencies and lost value as a storage of wealth. If gold becomes worthless, then people will begin to base moneys and currencies on other commodities. However, Gold and Silver are the most likely materials to be used for money because they're rare, easily malleable, don't decay, and have artistic applications. Even when people were using wheat as money, they still stored bushels in terms of their weight in gold.

Gold and silver are too soft to use in weapons or industry, so it was only natural that its artistic applications would encourage people to use it for money.

The likelihood of Gold losing its value for currencies depends on how much gold is being produced, and the rare case where people suddenly consider gold worthless for social reasons, at which point, like I mentioned before, they'd simply use other commodities to back up their currencies.

If a market allows two parties to make exchanges without the oversight of a third party, that's a free market. If not the whole country, then the Somali arms market is certainly a free one.

You're essentially right, which is why the powers of the state itself must be curbed.

As a quick note, gold and silver are very important materials in industry today, mostly because we've realize you can do more with materials than make buildings or weapons out of them.

How's gold important? Unreactive?

Gold does not oxidize (at least, not in any significant amount). Also, it is very conductive, so its proven to be very helpful in electronics.
I'm sure there are a multitude of other practical applications of gold which RR can list off... but lets not get this thread too off track with this little side note. >_>

Well, here's a website that outlines a few spots we use gold nowadays.

http://www.nma.org/about_us/publicat..._gold_uses.asp

Bleh, gold has its use in electronics, but 9 times out of 10 it's just a marketing ploy. Copper is still too good and too cheap.

Except in applications where cost isn't the primary concern. =\/

If gold is used as the base of currencies again, then the cost would have to be a concern.

Even if there is no substitute for technological applications, the economic and social benefits are too great.

They used gold for jewelry when it backed currency, so why couldn't they use it in mission-critical devices nowadays (an even less frivolous use)? Like, there's a reason replacement knees are made out of titanium instead of stainless steel even though it's shitloads more expensive. Hell, didn't they use gold fillings for teeth 100 years ago?

My parents used to have gold fillings, in my lifetime. Well, at least my mom did.

That's true. It depends in large part on how popular the use of gold is in industry. I mean, Jewelry was a store of wealth unto itself, just one which was worn instead of one which could be immediately exchanged for money. Jewelry and gold fillings, though, are also much more easily convertable into money than the gold used in industry. It's much more simple to melt down a bracelet than to extract the tiny bit of gold from complicated circuitry and finding a substitute for it.

I don't think that you can completely say that minimum wage is necessarily good or bad. If we were to completely eliminate the minimum wage, then we would be reverted back to the Gilded Age where corporations ruled and all union strikes (the most known was the Haymarket Affair) were controlled by private police.

What Reich said about the cost of minimum wage being diverted to the customers would actually reverse what he wanted minimum wage to do in the first place. Raises minimum wage and then raising product price would cause inflation which would make the wage increase in essence moot.

(Some of my logic may be flawed, I' only in AP Economics)

No, that would involve the dissolution of unions and the criminality of unionization. It's alternatively possible to marginalise unions but so long as the threat of organized labour exists, then corporations and business owners are willing to work with their employees on grievances. The police who broke up union strikes also weren't private, they were bought off by the corporations, and if you can buy into the state's monopoly of force, you can get away with pretty much anything.

If it were truly possible to organize private police then the unions could have organized their own police forces for the purposes of security. The Black Panthers did a similar thing by having brothers and sisters work security to make sure the police didn't try and break up rallies. It didn't work all the time, and some people still ended up getting shot but the point is that it worked.

Raising prices doesn't cause inflation, it's the prices which have inflated. The problem is that there's nothing to account for inflation, such as the maintenance of existing minimum wages that ease the price rise. Your understanding is correct, though. If prices rise to meet higher wages, then minimum wage workers have essentially gained nothing.

Now, if you admit that such is true, how can we justify the minimum wage when we just expect business owners to pass on the greater costs to consumers, which includes the people receiving a higher minimum wage?