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


Larry Harvilla wrote:
> 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."

You do realize that this show is an infomercial?
>
> 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.

Truman said that he only knew two economists that knew anything, and
they disagreed with each other. Anyway, economics and Wall Street are
two different things.

> 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:

So the guy has figured out the question of the age, how to make a sure
big return on Wall Street, and is willing to sell the deal to you for
only $19.95, plus shipping and handling. That ought to turn a light on
for you.
>
> -- 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.

Yes, you are missing something. And you cover it in your paragraph
above. "REAL" wage growth, which is wage growth after inflation.
Setting the minimum wage (which is an artificial market interferance
factor anyway) overly high just causes inflation. The real good
produced's, in this case the labor, marginal utility to the Market has
not changed, so paying people $10/hour for work that is really worth $5
just causes inflation.

And no, setting the minimum wage is not "corporate welfare". First, of
couse, welfare is the taking of someone's money by government and
giving it to someone else who government thinks needs it more. No
one's money is being touched by government here. But anyway, if a
person's labor is worth $10, they will be paid $10, if the minimim wage
is $5 or 5 cents. All the MW does is protect the lowest value workers,
whose labor is worth less than $5, because it artifically raises their
wages to the minimum level, despite the fact that the marginal utility
of that labor is not really worth that in a trully unregulated market.
A MW IS a form of welfare, if you broadly define welfare. But not to
corporations (who still have to pay anyone other than those whose labor
is equal to or greater than the minimum, their fair value) but to low
value laborers (who have to be paid the MW).

>
> 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;

No, because the costs of the food would raise, because of the increased
costs of production and distribution. Under your argument, you might
as well say if we raised the MW to a trillion dollars an hour, more
Americans could buy Lamborginis. It does not work that way.

> 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.

So people who ILLEGALLY sneek into the USA and people who ILLEGALLY
hire people who have ILLEGALLY sneak into the USA will not have AN
INCREASED INCENTIVE to continue their illegal activity, because the
cost of a legal worker, under your plan, will have doubled. Raising
the MW will increase illegal activity, as the true value of the labor
and the market interfering minimum will be twice as far apart. The
difference between those two numbers being the incentive to cheat.

>(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.")

One word. Depression. High tarriffs (which is politically described
as "paleo-conservatism") caused the 1930s depression. They just don't
work.

And, at the more micro-level, they just cause rural poverty. You have
high cost goods, made by a few priviliged (northern) workers, and the
farmers and the service industry workers (southerners and rural
midwesterners) without the money to obtain them. The major cause of
the equalization of prosperty between regions was breaking the monopoly
of high cost (and low quality) manufactured goods by placing these in
competition with lower cost goods, which gave those not involved in the
production of high cost goods a choice.

And choice is always good.

SP Cook

.

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