Re: tax cuts and minimum wage!


"Joshua Heard" <jheard@xxxxxxxxxxxxx> wrote in message
news:b3FUe.2181$h02.881@xxxxxxxxxxxxxxxxxxxxxxx
> Actually, it is much more simple than that. Wage is a cost. Raising the
> cost lowers demand. Therefore, raising the min wage will decrease the
> demand for workers, which translates into more unemployment. In addition,
> the higher costs are passed on in the prices of goods and services,
> increasing inflationary pressures.

But if the model is an economic system where the middle class is shrinking
and real wages of workers are decreasing while production increased and the
bottom workers are losing real income to the point of dipping belove the
"living wage" it is not so simple. In the model that I just described, you
must add the additional comsumer spending from the increased wages to the
flow. It is so capable of increasing demand...thus employment that Henry
Ford build a huge enterprise upon the principle of paying high enough wages
that the people he employed could buy his product. It worked until the
theory got out of hand and both management and labor began to pad the labor
supply beyond that which was really needed. Labor added rules which
accomplished nothing to production but required additional workers. They
began to lose ground as competition in Japan began to produce a better
car....cheaper. There were other things involved like out of control
designed obsolecense and the cost of taxes from a huge military (Korea, then
Vietnam) that Japan did not have to add in the cost of their cars despite
their inferior capital investment and experience in car making.

Note: It was at the peak of this time that Kennedy cut taxes and boosted
overall tax revenue. That did stimulate the economy, but the auto makers
did not reverse their destructive practises and Government spending went
absolutely crazy.....not too unlike what is happening today. When people
experience the front end loaded advantages of the Keynesian economic model
they begin to run an economy like a chain letter. Look I know there are
lots of factors........like Social Security and many others that have to be
factored in. There are so many that the numbers are not pure enough to make
accurate conclusions. Economics becomes an art more than a science.
Seriously, during this time science believed that the ability to predict the
weather depended only on increasing the quantity of data. All during the
fifties and sixties they worked to increase data.

Then when they had the data....they could not make dependable predictions.
Then chaos theory postulated that the sheer number of 50/50 probabilities in
the weather model having such extensive influence depending on which way the
unpredictable probabilitiy fell that absolute predictibility impossible.

What does this have to do with economics? Since the effects of individual
economic decisions can not be issolated from all the others, it is virtually
impossible to track results with an assurance that any given economic result
is directly linked to any given economic action at the macro level. The
economic market factors include the psycology of human beings. That is
unpredictable. As a result we have some economists explaining how Clinton's
policies moved the economy in positive directions. At the same time we have
others who explain how that positive movement was due to the delayed effect
of Bush Senior's policy.

Similiar to the way predictible patterns have been discovered in the chaos
of the weather model, there are political and physological cycles within the
economic reality. So the economy get better it gets worse, riding the
cycles are two major political parties each with different economic
idelogies and principles ascribing their policies to the good things and the
others to the bad. We can argue and present evidence.........but we really
can't prove much of anything.
>
> The minimum wage also acts as an artificial floor to the value of labor.
> This artificial floor causes a disparity between wages here and wages
> elseware, namely Mexico. Illegal immigrants come here as a result of this
> disparity. If wages were allowed to lower themselves to the true value,
> the disparity would cease, and it would not be worth the extra effort for
> illigal immigrants to come here.

I agree with that. There are cheaper labor forces than those from Mexico
and they are affecting the economy and will as those cheap labor supplies
rise to a higher standard of living. Actually, there is not much anyone can
really do about that except find a way to not depend on labor for their
income. It is really time for individual Americans to look to declining old
economic powers to see how the comfortable learned to cope and even profit
from that which hurt labor. As for my family, which is pretty much
self-employed skilled and professional labor class........I'm learning
buying and selling skills and trying to get others to focus on those skills
rather than crying over their bleeding real wage issues.

So I agree that that will happen. However, there are other considerations.
That is brutal! It is so brutal that left unchecked the economic victims of
that brutality could well band together and storm the gated communities
either politically or actually.

One additional example of how so many factors come to play is the rapid rise
of economic power of the communist China. They are rising extremely fast,
the standards of living in their country is increasing far greater than
ours. That doesn't fit our free market beliefs, yours nor mine, but we
would be foolish not to see the reality of it. Yeah, we can point to some
of the factors, but it is still a semi-communist economy gaining ground
against our semi-free market economy.
>
> With regard to tax cuts: taxes are a cost. Lower the cost, and you
> increase the supply; supply in this case being productivity. Tax cuts
> raise productivity, which in turn raises government revenue. This is the
> basic dynamic model of supply side economics.

So if we cut all taxes, then government revenue would be at its highest?
Again, I think it is a narrow window only. Also, tax revenue can be spent
wisely or unwisely. Government infrastructure increases productivity also,
and higher taxes can enable investment in valuable infrastructure.

We won't blame Bush or Clinton here for not investing in infrastructure in
New Orleans, but WE could have spent a couple of billion dollars building up
that levee system. We could have raised taxes for that couple of billion or
even borrowed it. If we had done that, it would have protected those
investments that are now gone and are projected to reduce our gross national
product by 1%. That's a lot more than a couple of billion dollars. That is
one concrete example that works against the application of the idea that in
this day and time cutting taxes increased net revenue to the Government.
Katrina would have happened, but hundreds of billions of dollars would have
been saved with the investment of a couple of billion in levees. There is
the actual cut in taxes for levee work that might not have made any
difference, but there is that tax that never happened because of the
widespread belief that cutting taxes always, in every circumstance helps the
economy. I think in this case, it does not hold true. Lots of people will
have their standard of living decreased because of that destruction. Yeah
they'll work to rebuild, but there will be massive debt and tramua to the
economy.
>
> Your Keynesian analysis is equally flawed. There is no absolutist model.
> Each supply/demand model is a curve. Each curve has an elasticity
> component. Some supply/demand models are elastic, some inelastic. Your
> flaw is based on a static approach to economics, instead of a dynamic one.
> This is common.

I admit that my mind wandered in the lectures on Keynesian theory. I never
liked it. It always seemed like hocus pocus to me. It's funny that until
recently conservatives avoided Keynesian thought. That's why I don't think
this neo-con group is really conservative. Both Reagan and Bush talked
spending cuts........all the while spending worse than a liberal. Those
expenditures have to be paid for somewhere. Keynes said a democracy that
carries a debt owes itself, like putting the money from one pocket into
another pocket. I never bought that. If you spend it, the money is gone
and you only have what it bought. If it bought nothing; you've got nothing.

I don't know how much of the garbage I write that you actually read, but
this brings us right back to the days when Ford and General Motors were
paying people a days wage to stand next to a circuit breaker, to turn it
back on if it tripped. That added nothing to the cars they were building
but cost. Now they have lost ground to other world car makers. It's
Keynesian bull!
>
> Bush's tax cuts are working. There is a direct correlation between the
> tax cuts and economic growth. You mention capital investments, but this
> is only part of the equation. You forget about the multiplier effect.
> That is, money in private hands multiplies faster than money in government
> hands.

I didn't forget that; I didn't buy it. We had an oil man running for
governor in Texas against Ann Richards. His name was Clayton Williams . He
ran an ad about how he had employed thousands of people and added hundreds
of millions of dollars to the economy. When challenged, he explained that
the 285 (exact numbers forgotton) part time drilling jobs he had provided
had multiplied money and jobs in the community to equal his thousands of
jobs and millions of dollar claims. Some of these jobs lasted for as little
as two weeks...a few of them for as long as two years.

Look! I understand money has all these types of dollars, M1, M2, M3,
M4...........I know there are discount rates where a dollar on deposit can
become twenty loaned.........but all those dollars have to have entries on
both sides of the balance ***..........1-1=1-1..

My whole belief on the existence of the universe is based on
1-1+1-1+1-1+1-1=0=in the beginning there was void. There is no free lunch,
no something from nothing.....just expanding equal and opposite values that
always and forever equal zero.

So I think when you look carefully at all those expanded
dollars........you'll see the equal and opposite values that bring it back
to zero sum game.

If we are going to have a zero sum game anyway, I'd prefer a construction
worker in New Orleans to make the $9 or better prevailing wage rather than
$4.

So
> by definition, tax cuts, which takes money from the government and gives
> it (back) to the private sector, will increase economic output.
>
> I agree that a pure free market system requires some government control to
> avoid a tragedy of the commons. However, wages, like prices, are too
> fundamental to be largely controlled by government.

I would never want them "largely" controlled by government.

The minimum wage has
> been turned into a living wage by liberals, which is not the intended
> purpose of the minimum wage. Like the so-called safety net, which has
> become a hammock, government control has become so great as to become a
> detriment to the free market. Balance needs to be restored to government
> interference in the free market.

Good luck with that balance. We are exhausted from this now, but next time
we can talk about the Medical Care system that we call free market in
America.
>
> [P.S. It is nice to have an intelligent discussion on this newsgroup
> instead of the usual flame war.]

Yeah, I learn from exchanges like this. Sometimes I state things as if I
were certain of their truth. I do that so that others will burn them with
their hottest fires. Sometimes they burn completely and are no more;
sometimes a fragment or two remains intact for me to build upon getting
ready for the next test.

I don't always have time to go into this great a detail. As much as I like
the verbal and mental exercises........I've got to get back to my other
goals soon. I've got to pile up some cash to see me through the end of this
world as we have known it thus far.

Randy R. Cox

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