Re: tax cuts and minimum wage!


"Joshua Heard" <jheard@xxxxxxxxxxxxx> wrote in message
news:QSgUe.51275$Nx.39600@xxxxxxxxxxxxxxxxxxxxxxx
> Where did you learn economics, on the back of a cereal box?


Adam Smith, Ludwig von Mises, Maynard Keynes , Marx and Engles, John Kenneth
Galbrith, Ravi Batra , Plano University, William F. Buckley, H.L. Hunt, Ayn
Rand, and personal experience starting up and running 5 businesses and one
corporation, two of which continue today. I might have even gleaned a
tidbit or two from the back of a cereal box.

Perhaps you are trying to point to the model that says minimum wages force
investment away from human asset and toward machinery and equipment
squeezing out the marginally productive worker. This was a popular premise
in the 1960's when I was a conservative....before I grew up. Any investment
in equipment that is effective will increase production. Increased
production opens up new areas of consumption that further increases the
demand for labor in other sectors and works to the increase of standard of
living. If ten percent of the workforce is needed to pick food in the
fields is reduced to 5 percent. The savings on food production lowers the
price of food and increases the discretionary income of all. Increased
discretionary income produces increased savings which produces more
efficiency in the market via investment and furthers the increase in
discretionary income. This added investment and consumption establishes
demand for new product that was unaffordable before. It is in these new
demand areas that new employment opportunity opens up. The new demands for
employment via new consumption and investment should increase the demand for
labor and subsequently the wages for that labor.

So if farm workers are replaced by machines when the wage level is increased
to a point making machines a more economical investment than cheap
wages..........then the farm worker will not work in the fields........but
soon new employment opportunities will open in the new markets that happen
because the investment in machines lower the cost of food production. This
is why there was no evidence of unemployment after the minimum wage
increases. Those cotton pickers found work in factories and service
industry as the standard of living for all was increased. The same narrow
window of effectiveness of minimum wage increases operates much as the
narrow window of tax cuts. They work within a narrow range. You can only
raise minimum wage when there are artificial political and economic
obstructions to the supply and demand factors of the market. Opening
borders to non-American workers is a type of obstruction to supply and
demand factors. License requirements restricting some people from certain
occupations while allowing others is another type. In Texas we once had
only a few trucking companies that were legally able to operate in the
state. All other trucking companies had to pay a fee to operate under those
licenses. That puts an artificial part of the natural profits in the hands
of the deep pockets and leaves less to be paid to the individual trucker.
It artificially depressed the wage of a trucker, and it made it much harder
for an individual trucker to go into business for himself. There are as many
other of these obstacles as the mind can conceive. We do not operate under
free market conditions...not even close. Since the powerful interests will
never allow a free market, we must adjust the greed of the controlled market
place ever so slightly to keep the distribution of profits and rewards for
capital and labor to be somewhat efficient.

For centuries, the model of feudalism was for the lord to provide the serf
with an income sufficient to provide for a wife and three children. That
is one man works and takes enough of his own production to support a wife
and three kids. That allows enough to replace the man and wife as workers
and a little more in the third child for growth and insurance. All excess
production beyond this survival level went to the lord of the land.
Exceptionally hard working or talented serfs, like blacksmiths or inventors
or other, were given more than the basics of their production. Some who in
war or production demonstrated superior skills were allowed to move to the
higher classes and partake even in the productions of others.

This is the model that served for the beginning of the industrial
revolution. Then the wife began to work, and the portion of production
allocated to the workers family were reduced. Now at the basic level
(minimum wage) was reduced to two workers and three family members. Then
the older children were absorbed into the work place. During some times of
the industrial revolution child labor was a real problem.......that was
mitigated by law in the civilized countries but now happens in third world
countries. Minimum wage laws are part of the "intelligent design" to
prevent our economic system from reverting to feudalism in an age where
special interest can implement obstructions to the normal free market via
lobbying and legislation.

That old minimum wage myth has no demonstrable evidence to support it.
There is no evidence pointing to decreased demand on labor by raising
minimum wage laws. There is evidence of increased standard of living at the
lower income levels by increases in that minimum wage.

I was an obsessive conservative for twenty years. I am well aware of these
delusions. I once believed in them. It is pure theory that fails to gather
about it evidence that proves it operates in the real world.

As to the tax cut increasing revenue. READ MY CEREAL BOX! When tax cuts
are so burdensome that profits from investment are taken away from the
entrepreneur to the point that no profits are left for new investment, or
the entrepreneur is no longer motivated to take risks because the state
takes his profits without leaving him enough to be worth his trouble, then
tax cuts really do ultimately increase overall revenues to the state.

Neo-con believe this marginal truth operates as an absolute. It does not!
When existing investment and equipment is idle and or not being used to
capacity, then cutting taxes will not increase capital investment. If you
are using a drill press one hour a day, you will not buy a second one and
hire a second drill press operator because you get to keep some of your tax
obligation. Why would you do that? If you can't sell what you produce with
the equipment you have, you won't buy additional equipment and you won't
hire additional workers.

Can you admit that this Keynesian Liberal economic principle is operative in
a narrow economic window and not an absolute? Keynes also developed curves
that showed how to find optimum prices for optimum profits. There are times
when lowering prices will increase consumption because more can afford a
product, and the increased numbers of production lowers the unit cost of
production. Therefore lowering price can increase profits...........but
that works in certain narrow windows. It is important to consider, but it
is foolish to take as an absolute.

If you took the price model as an absolute, then lowering the price of a
product to zero would maximize profits. That is obviously not true.

In exactly the same way, if you cut taxes to zero, it will not maximize the
revenue of the state.

Bush's tax cuts did not work because the tax rate before was not crippling
and our investment capital was not working at capacity but relatively idle.
We can't judge the outcome of Bush's tax cuts because of the recession that
followed them. We can't extrapolate the recession to Bush's tax cut because
the recession (or adjustment) started before Bush's tax cut, and then there
was 9-11. It muddies the waters. The evidence is not really clear. Each
side can make a case.

Only the extension of the premises to the absolute can demonstrate the
falseness of thinking of those tax cuts as absolutes. They are not. There
is the evidence of increased National Debt. Those of you who don't even
read Cereal Boxes cling to the absolutes as proof the tax cuts are the right
thing to do.

If you can show me a formula, or draw a graph to show the points at which
the tax cut fails, then I'll concede you may know more about the economy
than I do. If you smugly pronounce the absolute Keynesian-Liberal premise
that if you lower taxes, you will stimulate the economy and the ultimate
revenue to the state will increase, then you are quoting
scripture........not thinking.

I can show you how that doesn't work to an extension to the absolute. You
can't show me where it works and where it doesn't.

So we disagree. I see you as simple and unable to understand that if you
lower taxes to zero there will be zero revenue. You see me as unable to
accept that lowering taxes always increased revenue.

I offer what I believe is a well thought out argument. I offer metaphor and
logic. You offer ridicule. If you take one of my points and destroy it
with reason, then I will learn something. If I know anything it is by years
of learning from those that tore apart my arguments. I didn't abandon the
pure free market ideology of Ludwig von Mises in a day. It took a decade
for me to move to the middle. I continue to appreciate the free market.
With open eyes, I can see that it is an ideal that will never be accepted.
It is unfair to enforce the free market against labor and extend protection
and controlled non-market favor to the those at the top. It is unfair to
allow three major companies in a particular production to squeeze out their
smaller competitors, and fix prices among themselves and then bust the
collection of workers that seek to negotiate terms on a We/We basis.


I don't know what background you have in Economics, but I have a little bit
more than reading the back of a Cereal Box.

When I drew a parallel between tax cuts and minimum wage cuts, it was with
some basis in reality.

Randy R. Cox


.

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