Friday, September 24, 2021

The Fight for $15 ... um $26 is a Fight for Poverty

The so-called Fight for $15 (new federal minimum wage) has been going on for many years; I've been posting about it since at least this time in 2013 - eight years ago.  The talk about $26/hr for minimum wage is quite a bit newer, I first heard about it from Divemedic at Area Ocho at the end of last month, but perhaps that was just from avoiding the political screaming a bit too much.  Don't follow the link from his post; at best it's a waste of time; at worst it might cause a cerebral hemorrhage.  I don't want to be responsible if your head explodes. 

One of the things to bear in mind about these arguments is that even economist Paul Krugman, the guy who is almost the laboratory standard for being wrong about everything, recognizes that minimum wage laws are ultimately self-defeating.  They always hurt most the people they claim to want to be helping.

Imagine my surprise when I found they had a quote from legendary liberal economist Paul Krugman and he was right!  More at the story itself, "5 Reasons Raising the Minimum Wage is Bad Policy".

As Paul Krugman explained, "So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment."
At first, I wasn't sure if I could handle the brutal unfamiliarity of being in a universe where Krugman is occasionally right.  For years I've reflexively known that if he suggested we do something the safest bet is to do the opposite.  

In this case Krugman is simply demonstrating the truth of the saying, "even a blind pig finds a few acorns."  In that article from back in '13, I came up with an analogy for creating money out of thin air, like defining a min wage, that I liked enough to re-use and embellish over the years.

Let's pretend it would be legal to do everything I'm about to propose.  We just have to follow the consequences to logical conclusions.  Since we're talking about almost doubling minimum wage, here's the experiment.  Take every bill out of your wallet, pocket or money clip and double the denomination.  I mean, if you have $1 bills, mark them $2.  Take $5 bills and mark them $10, $10 bills and mark them $20, $20 and mark them $40 (yeah, I know there's no such thing, just work with me here).   I'm going to assume if you're worried about minimum wage, you don't have any $50 or $100 bills, but do the same with them if you have them.  Congratulations, you now have twice the money you had a few minutes ago.

The kicker is that everyone else in America gets to do the same thing.  Are you further ahead in life because we've doubled the numbers on the money you have?  Or is the guy that you worry about all the time, the guy who used to make twice what you make still making twice what you make?  What if the price of everything doubled, too?  Wouldn't you be exactly where you started from? 

The most insidious aspect of that analogy it is that it's still more kind than the actual effects of a min wage law.  In reality, the prices of everything go up and the people who are working for min wage are asked to do more, or work fewer hours (or both) to help the company stay competitive.  

The problem is that the majority of people have what's called the "money illusion;" they confuse the amount of money they have with wealth.  It's an easy mistake to make, but money isn't wealth, it's a measure of wealth.  The easiest visualization to make the point is perhaps the pictures of  people from Wiemar Germany during their hyperinflation in the 1920s, carrying wheelbarrows full of paper money. That money could buy almost nothing then, but the year before that picture a single bill off that cart could have bought lunch.  Money as a measure of wealth was collapsing so having any amount of money couldn't guarantee that the holder could buy anything they needed to stay alive.  

Source: RareHistoricalPhotos

Real hyperinflation is different from the inflation of redefining many of the wages in a country by increasing the minimum wage.  Hyperinflation is a monetary collapse, something the central banks fear almost as much as they fear a deflationary collapse. The Central Banks fear inflationary collapse less because they think they can control that.  As if. 

In the end, all that will be accomplished by arbitrarily increasing everyone's pay in relation to a new minimum wage, whether $15 or $26/hr, is inflation.  Workers make more nominal dollars (that is, they make a bigger number of dollars) but they haven't increased their wealth in any way.  They haven't advanced with respect to any other workers.  They haven't made themselves more valuable in any way, so their relative value compared to other workers still leaves them on the bottom of incomes.  It's still minimum wage, after all.  All they've done is crank another inflation source into the economy and that hurts them more than anyone else.



21 comments:

  1. Whenever some moron states that the minimum wage NEEDS to be $15...or $26 or whatever I simply ask "why stop there". Why not make it $50 or $100.....why not pass a law making it mandatory that EVERYONE be made a MILLIONAIRE. That question usually shuts up all but the most abjectly stupid ones.

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  2. "That money could buy almost nothing then, but the year before that picture a single bill off that cart could have bought lunch. Money as a measure of wealth was collapsing so having any amount of money couldn't guarantee that the holder could buy anything they needed to stay alive."

    I know you know this already, but it obviously bears repeating:
    Paper fiatbux, anyones, are not "money", never have been, and never CAN be.

    Gold is money.
    Silver is money.
    Even seashells in some island cultures are money.

    Paper fiatbux, anywhere, is only ever currency, accepted in lieu of money, sometimes.

    After Weimar, or in late-stage Zimbabwe, Venezuela, etc. (including Coming Soon You Can Guess Where), not so much.

    Currency is not money.
    Only money is money.
    You can mine it, or find it, or coin it, but you can never print it.

    America's Founders, understanding this as well as Adam Smith did, didn't need further explanation, when they gave the government the power to coin money in the Constitution.
    Everyone's experience with paper printed Continental dollars had shown them all they needed to know about the value (or decided lack thereof) of any paper currency.

    This is why your current US $1 bill is worth about 1.5¢ (i.e. less than the cost in ink and paper to print it) compared to its gold-backed paper predecessors from 1788-1932.

    Taking us off the gold standard enabled the dotGov to steal 98.5% of the value of everything, and now they're quibbling about how to get that other 1½ percent.

    Which should also tell you everything you need to know about government, of any type or stripe, and in all times and places, since ever.

    Thus endeth the lesson.

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  3. Hence the term "Not Worth The Paper It's Printed On", although it might make good kindling....

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  4. While I hear and agree with most of your posting you forgot a few thing, if you don't mind. The BIG Losers are the FIXED Income folks, they Don't generally Riot, and are a small Voting Block SO their Social Security Checks ALWAYS Fall Behind the Inflation problem. What brand of Cat Food sounds Good tonight Beloved Wife of 60 years dear? Should we keep the heat paid or Buy our Medicines Dear? We saw a TINY bit of this in the High Inflation of the 70's

    Inflation is a TAX on everybody However the Truly Wealthy know how to get around the worse of it and often PROFIT thusly. Something about converting soon to be worthLESS dollars into something that's value will climb along with Inflation AKA Gold, Or in the case of the Wealthiest Man in Weimar Germany" he saw what was going on LOADED UP on soon to become WorthLESS Debt as the Policy was "The Mark is the Mark" and BOUGHT UP Businesses including trains that COULD Raise Prices as Inflation Soared. For him it was easy to repay the now nearly worthless debts he created buying up stuff.

    THAT Clever trick has been Disproven over and over since then as Gov.Com and Banking.Com DROPPED the foolish Policy that the Dollar is the Dollar and GAME the System to INCREASE your Inflated Dollars as to GET BACK their Pound of Flesh. See Cypress Banking as an example as well as plenty others.

    We are SUFFERING from a ONE Trick PONY "Leadership" they can ONLY Throw "Money" at Problems THEY Create thus Creating MOAR Problems when the LAW Of Unintended (and criminally Intended) Consequences' kicks into High Gear.

    EBT Card Will NOT Pay Enough to buy Burn Loot Murder their babies food? ADD MOAR MONEY... THEN Blame the "Profiteering" Farmers and Stores for RAISING PRICES. SOON to be Followed by Burning Target Stores and so on. BTW the way I used BLM here BUT anybody no matter how Decent they are today WILL become Nasty when their Child says "MOMMY I'M HUNGRY" trust me on this.

    They can Electronically "Create MOAR Money" BUT they Cannot Print up a single extra Loaf of Bread to BUY with that Money.

    Do I HEAR "Mommy I'm HUNGRY" coming like a train whistle in the dark? It's coming..

    The TRICK as I see it is HOW do YOU and I survive this Politically, Criminal (But I repeat myself here) Economic Disaster soon to be known as the Big Blowout or Great Depression 2.0

    I start by evaluating what's IMPORTANT. The "Winners" of Great Depression 2.0 are those that have kept their families safe, in decent shelter, decently fed and healthy. That INCLUDES keeping them Spiritually-Mentally Healthy as I've Personally SEEN in Bosnia's Civil War-Ethnic Cleansing the effects of horrible situations.

    Being a Producer of food is a Two Edged Sword as your working hard to Provide EVER MOAR Valuable FOOD while the Politicians are trying to Steal It OR USE your "WEALTH" as a Shield from the ANGRY MOBS as "YOUR THE PROBLEM" gets Screamed by ALL the Media (To Deflect Blame).

    Disinformation is Important. Folks cannot steal what THEY DO NOT KNOW ABOUT. If you cannot hide it your "wealth of food" decent shelter and so on is a TARGET of angry Media driven Mobs. Too much more for this comment. THINK, it's not Illegal YET.

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  5. If the Feds hadn't been lying for most of our lives, in order to keep up with inflation since 1975, the minimum wage would need to be $19 today. That's what it would cost to buy a similar package of goods today as it did in 1975 to 1985.

    The people have been robbed by government lies, little by little, for 40 years. Young people today cannot survive on minimum wage like we did way back when.

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    1. A direct comparison like that depends on far too many things to be meaningful. That's the argument that the people who say min wage should be $26/hr are using.

      It's far too deep to get into in the space the Blogger platform allows for replies. Key points are things like (1) what role does fed.gov legitimately play in the markets and pricing? Why should they be mandating wages at all? (2) Should min wage be tracking the cost of living? If so, why doesn't every other wage need to? Who sets that up? (3) The role of the Fed.gov in the destruction of the dollar. Make no mistake, destroying the dollar is how they handle the absurd debt from a hundred years of deficit spending. (4) Why should the cost of living be going up at all in the first place? The iron law of producing everything from food to cars to electronics to, well, everything is that the more you make, the cheaper they become. So why is the cost of everything going up? Answer: because the Federal Reserve is deathly afraid of prices going down - deflation. They want constant 2% inflation and create money all the time to create that inflation.

      If you read the Blue Book on used cars, the virtually unbreakable law there is that for every car you can name, as it gets older, it's worth less year by year. They wear out. So why does everyone think their house should go up in value as it ages and wears out? It's the constant inflation from the Fed.

      As I say, I could go on for pages.

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    2. Government - If you think the problems we create are bad, wait till you see our solutions!

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  6. The Ford Model A, when it came out, went for about $600.
    With the current cost of inflation, i.e. everything is 50 times higher, because a dollar is worth <2¢, the price of a modest new car now should be 50 X 600.
    I.e.: about $30,000.
    A nickel cup of coffee, times 50, should be $2.50.

    Which they both are, right this minute.
    QED

    Which also explains how my father bought a $10,000 house on a $4K annual salary, which house is now costing $500K.
    Almost like mathemagic works, or something.

    BTW, an ounce of gold still buys what an ounce of gold is worth; Neither much more, nor much less, and any minor difference is merely local variation.
    And in gold-backed dollars, most prices haven't budged an inch in 100 years.

    It's only that fiatbux are worth less and less, year over year.
    As intended, to steal the value of any savings attempted in them.

    That's why taking the dollar off of gold backing necessarily had to include making private gold ownership illegal, otherwise people would have converted gold to dollars, purchased immediately, and undermined the subterfuge in perpetuity.

    This would be akin to making the three-card monte dealer use cards printed on clear plastic, of forcing the pea-shuffler to use clear glass walnut shells.

    And where's the fun in that game?

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    1. I believe that in the case of the car comparison, that's more of a coincidence than direct comparison.

      If modern cars were built to the complexity of the Model T, they'd be much less than $30,000. The standard estimate is that if you double quantity being built, the price goes down by 25 to 30%. That quantity alone drops the price of the Model T back then to under-$100. A $100 Model T alone makes the 2021 version about that $5000. The difference is all the add-ons the 2021 cars have that the Model T didn't, virtually all by government mandate rather than market forces.

      Most people are surprised to see a modern car smash into a 1960s car and crash test dummy survival is better in the new car than the older, heavier car.
      https://www.youtube.com/watch?v=C_r5UJrxcck
      A '59 Chevy vs a 2009 Chevy

      The classic example is more along the lines of the coffee cup. “It is said that an ounce of gold bought 350 loaves of bread in the time of Nebuchadnezzar, king of Babylon, who died in 562 BC” which is roughly what it buys today, a stretch of 2,500 years. With some judicious selection of the exact brand of bread, you get remarkably close to 350 loaves (and I'm sure there must have been some variation in what a loaf of bread cost even in King N's day). Likewise, you'll hear that an ounce of gold would buy a good toga and sandals in pre-Christian Rome, and buys a well-tailored suit and shoes today, or you'll hear that a $20 gold piece bought an 1851 Colt Single Action Army revolver, and today buys a good grade 1911.

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    2. Product improvement and gain-of-function comes out in the wash, and is baked into the cake. It literally doesn't matter, because without it, no one would pay higher prices year after year. It's literally the come-on. And all that crash survivability just enables people to drive farther, faster, which is what keeps accidents a constant, even if deaths go down. It's also a double-edged sword, because what you used to be able to bang out yourself in 10 minutes is now $2000 worth of repairs for even the smallest fender-bender, requiring a guy with the auto equivalent of a master's degree, with a parts supply chain stretching around the world. When the average commute then was a mile or two, it was perfect. With average commutes now stretching to 30-90 miles one-way, it doesn't work.

      If wages doubled tomorrow, the average car would be price-pointed at $60K.
      If they halved, it would be price-pointed at $15K.
      That's what manufacturers do. And they still cover their costs+plus, no matter where the figure lands.

      That $600 for the Model A represented cutting-edge technology for the time, and vastly more efficient than a horse-and-buggy. Modern cars compared to the "A" are no such improvement.

      What's overlooked is that you could buy the horse itself for $200, and the tack cost was minimal. Hay and vet bills were the upkeep costs. But if you bought two in a matched complimentary pair, in a year more you cold have an extra one to use or sell.
      Try getting that deal out of a Camry.

      All of this amounts to nothing more nor less than The Axemaker's Gift.
      https://i.imgur.com/BvU6tlH.jpg

      If you want to have money, save money.
      Trading cash for technology is always its own reward/punishment, simultaneously.

      We can have international air travel, which also brings us frankenviruses at the speed of American Airlines, round the world, same day.

      I'm no Luddite, but in the words of Ian Malcolm, "John, you were so busy figuring out if you could, you never stopped to ask if you should."

      And governments' main function, at all times, is to metastasize just slightly short of killing off all its hosts, exactly like in Aliens or The Matrix, except with a more incompetent cast, and worse special effects.

      This is why currency (with built-in inflation) was invented to substitute for all that awkward money. It happened before us to the Greeks, the Caesars, the Tudor English, and then in Weimar, Zimbabwe, and Venezuela, and people still haven't learned the lessons of the Gods Of The Copybook Headings.

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  7. Gold doesn't have a lot of intrinsic value, either. Other than its use in electronic devices, gold has value mainly because people believe that it does. Same with any money OR currency. It's merely a way for people to carry value. It's easier to carry an ounce of gold than 4 sheep or 350 loaves of bread.

    Let's say that it should take $2,000 to buy one ounce of gold. The amount of cash (M1 supply) is $19.45 trillion. That means that it would take 9.7 billion ounces (roughly 5 million tons) of gold to make that many gold coins. That is only to replace the currency. That is roughly 20 more times as much gold as has ever been found on Earth.

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    1. Predictably, this turned into looking like I'm saying we should return to a gold standard. What I'm really saying is that demanding something other than market-set wages is wrong. The people demanding a higher min wage are just going to hurt the people they're saying they want to help. I feel the same obligation to tell them that as I do to tell a toddler not to shove the butter knife into the AC outlet.

      We have to abandon Keynesian monetary creation, and the so called "Modern Monetary Theory" that's now being used to justify unlimited money creation. MMT isn't "modern" - the Romans did it - and calling it a "theory" just makes it sound more scientific than it is. It's just a bunch of justifications for the same old fiat money creation.

      OTOH, there's nothing wrong with a gold standard, you're just thinking too small. Why $2000 /oz? If the M1 supply is $19.45 trillion, just divide that by the claimed amount of gold the US has. Wikipedia ( http://en.wikipedia.org/wiki/United_States_Bullion_Depository) says it has 147 million Troy ounces, "over half of the Treasury's stored gold." So let's just say we have twice that or 294 million troy ounces. M1 divided by that is $66,156 per ounce of gold.

      In reality, they'd want to divide by what the US actually has. Everyone's heard those rumors about Ft. Knox being empty and the US having NO gold. I doubt those are true, but the potential for dishonest alternatives is unlimited.

      That would kill the jewelry business and simultaneously make a lot of antique jewelry about 60 or 70 times more valuable. Not to mention create a crime wave of stealing gold teeth as well as jewelry.

      There's nothing really special about gold in particular, and no theoretical reason that there has to be a commodity standard, whether gold, silver, platinum, seashells or the stone rings of Yap island. It's just that having a standard that can't just be declared to exist imposes honesty on thieves.

      Remember, a currency doesn't need to be based on a gold standard. As I've said before, we could have a fiat dollar and just not debase it. Our leaders and central bankers would have to not play politics with the dollar, not use the printing press to buy votes, not try to change the dollar's value to tweak other countries and they would have to live within a constrained budget. They should not be allowed to print money to fund foreign wars or the welfare state. All they would have to be would be grown up, mature leaders.

      In other words, we're screwed.

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    2. Any standard that is one is what keeps governments honest.
      (That, and a convenient noose and scaffold.)
      Government is inherently and intrinsically dishonest.
      That is why we're screwed.

      It's also why anyone in favor of more government is de facto in favor of more dishonesty.

      Eventually, that population becomes so intolerable, that they must be culled with fire and sword.

      We are approaching that point, once again.

      It promises to be rather uglier than the last such go around.
      I'm in.

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    3. I'm all in for pegging the dollar to the egg. Current pricing is 53 cents to the farmer per dozen large eggs. Fix that at whatever price you like in a new currency, and enforce it. (Could be 50 cents per dozen. Could be one dollar per gross. Could be one quatloo per egg. Doesn't really matter in the long run.) The point is to fix the price against something with inherent value that cannot be hoarded.

      You can't fake eggs. If there is a glut, eggs won't sell, production will be lowered, and the price of broilers goes down. If there is a shortage, production will be increased and the price of broilers goes up.

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  8. The US will not undergo hyperinflation unless some other currency looks much better than the USD. This will only happen if the US goes to civil war. Even the Yuan is not a contender after the troubles with Evergrande

    Also the only reasons the minimum wage is being pushed higher are first that that the jobs that the pay better have either been outsourced away or automated in enough numbers that people would would normally work them are now working low wages jobs.

    Throw in housing cost increases and you have a situation where huge numbers of people simply can't get by without a state mandated wage increase.

    Trade and automation and immigration broke the labor market.

    It is fixable, close the borders, cut off trade and deport 50 million people or so and wages will go up naturally.

    Now with apologies to our host, every fiat currency will be debased. Its impossible to keep the political class in any system of government from spending more than they take in . A gold and silver standard (not one both) at least allows everyone to have a hedge of value that is fixed.

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    1. "Trade and automation and immigration broke the labor market."

      As they were intended to, from the outset.
      They thus won't ever be "fixed", because where we are is seen by TPTB as a feature, not a bug, and exactly where they've been trying to get, for 50 years and longer.

      The only way to disabuse them of this notion involves a conga line to the guillotines.

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    2. As a supposed victim of automation I think I need to mention that my career as a draftsman wasn't outsourced to another nation.

      The cold war ending did my job in when all those engineers who were employed by the defense industry experienced their first significant downsizing in decades.

      When you have an experienced engineer who's willing to work drafter wages for the few years until he can draw on his retirement without penalty... suddenly drafters are not in demand.

      Automation of the mechanical drafting job came after it was destroyed as a specialty.

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    3. The history of automation in the terms of robot sales is that sales go up and down with (non-farm) employment. Robot sales track the number of employed people. Robots are more often used to augment people, help them do a job, not replace them.

      There are no robots smart enough to do a draftsman's job. At least not yet.

      Background with graphs and stuff.

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  9. I understand your illustration of the nature of inflation (as quoted from Paul Krugman) and have understood it for a long time.My mother actually lived through that period in Weimar Germany, and of course she would be well over 100 years old today if she were still alive (she was born in 1914).
    Bad as it was for them, they did not have too much of a crime problem even then because of their respect for the law at that time. We will have a different problem though. Since a large part of our populace now is from 3rd world countries and are far to the left of the bell curve on the IQ spectrum, we can look forward to murder rates that will astonish even residents of Johannesburg.

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  10. https://mcthag.blogspot.com/2019/01/do-you-want-inflation.html

    It's cost about 8 hours at minimum wage to buy a day pass at DisneyWorld for over 30 years.

    The price of goods adjusts to the price of labor and minimum wage sets the price.

    Look up the price of a soda in a vending machine in terms of minimum wage and you'll see it's been particularly steady in the amount of time it takes to earn a soda at that wage.

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    1. 30 years ago, it cost 67 hours of minimum wage to rent a one bedroom apartment in an okayish part of town. Now it costs 110 hours to do the same thing.

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