Way OT: Can any econ majors help me out here?

I know this is way the hell OT for MTR, but I also know there are many
bright minds here as well, so here goes ...

A few weeks ago, I was driving through central upstate NY on the Thruway
(obligatory roadgeek content) ;-) and listening to my Sirius radio. In
particular, I tuned into the long-running "MoneyTalk" program hosted by
Bob Brinker, a name I'm sure any of you investors out there know quite
well. On this particular night, he invited Joseph H. Ellis, the author
of a new book titled _Ahead of the Curve_ to appear as a guest on
"MoneyTalk."

Like Brinker, Ellis spent 30-odd years at some of the premier investment
banking firms on Wall Street, and quite obviously knows his stuff when
it comes to economics. Even as the type who doesn't have any significant
investable savings, and therefore doesn't follow Wall Street too
closely, I found the interview fascinating; in particular, one thing
that Ellis mentioned really turned a light on for me.

In _Ahead of the Curve_, Ellis has tried to show that there is a
predictable pattern in leading economic indicators that investors can be
on the lookout for to maximize their returns. To summarize, it goes like
this:

-- Real wage growth (wage raises minus inflation) makes it way into
workers' pockets and bank accounts. As a corollary, inflation must be
kept reasonably under control, which the Fed under Greenspan (and
hopefully also under Bernanke) has done a decent job at.

-- With higher disposable income, the lower and middle classes can
purchase more things they need or even merely want.

-- This causes higher demand for products, leading companies to invest
in increased production capacity and hire more workers. Theoretically,
this leads to overall real wage growth for more people, completing the
circle.

-- In sum, wage growth and inflation are the best leading indicators,
and (un)employment numbers are really more of a lagging indicator.

Now I'm no genius, and it's highly possible I'm missing something here
that wasn't mentioned that night on "MoneyTalk." I have to admit that
I'm going to get a little bit political here, but Ellis' argument kinda
begs the question: wouldn't we improve the economic lot of a hell of a
lot of Americans by enacting policies to push wage growth? I mean things
like raising the minimum wage from $5.15/hour to something people can
actually live on, like $10.00/hour. Obviously, I know that raising the
minimum wage to $10/hr overnight isn't exactly the greatest thing for
certain low-margin small businesses, but you can't tell me that $5.15/hr
is anything but corporate welfare for medium to large corporations.

Let me posit another theory, and feel free to point out anything I might
be missing with this one as well. If our minimum wage is $10/hr, more
Americans would suddenly be able to "put food on their family" (can't
resist using the W malaprop here) on minimum wage jobs; isn't that one
of the arguments in favor of allowing illegal immigrants from Mexico to
stay here, that 'Americans won't take certain jobs'? I mean, if
minimum-wage jobs at $10/hr are suddenly that much more attractive to
Americans, that should theoretically squeeze illegals out of the US
employment market. (Anticipating the reply that companies will simply
move more jobs overseas where labor is cheaper, I come prepared with the
following Jeremy Lance quote: "One word: tariffs.")

Like I've said, if anybody is seeing something obvious that I haven't
mentioned, bring it up. Let's avoid name-calling and inane partisan
bull*** and keep this to an academic discussion of economic theories.

--
Larry Harvilla
e-mail: roads AT phatpage DOT org
blog-aliciousness: http://www.phatpage.org/news/

also visit: http://www.phatpage.org/highways.html
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