How to increase the GDP rate to 4%

Great Debates
81

This does not mean that if MW does not get increased, then I never have to raise my prices.

People sometimes get upset about price increases, but they for the most part understand that that is something that happens.

I am all for a MW increase, as I need to raise my prices from time to time anyway, to keep up with rent increases if nothing else. I was a fast food manager last time there was a MW increase, and we increased our prices significantly more than the increased labor cost. We had a larger bottom line, both in terms of real dollars, and in terms of percentage of sales.

So, if MW goes up, I have a good excuse to raise my prices, and make more money.

82

Cool, you know the problem with employees isn’t paying them, or respecting their rights, or obeying labor laws, it is getting them to show up.

Can you tell me the last time that touchscreen kiosk called in sick?

83

Exactly.

Unless there is policy action that is supporting the increase in the productivity, this kind of wage action is the recipe for the revisting of the 1970s experience of “stagflation.”

It is a legitimate economic policy question to ask if the market power of the capital side of the equation may not be unbalancing the equilibrium in the market clearing of wages, but to think only of the wages distribution and to intervene in policy focused on that, the track record is very, very, very bad.

84

I don’t understand this. If your customers could bear an increase in price, why don’t you do it now and make more money?

85

What keeps you from raising your prices simply to make more money is your competition. If you could do that without worrying about the competition when the MW goes up, just do it now and make even more money.

But the fact is, when the MW goes up, you’re not going to be able to raise your prices much more than your competition, unless you’re offering something better than they offer. If you’re lucky, you will be able to make as much money as before, since you have higher costs to offset. And it’s not about whether you “mind” whether prices go up or not, the OP is claiming to to be able to raise the rate of increase of GDP by mandating a higher MW. That is something else entirely.

86

First, I will agree that the OP is not a good economic theory. While I do think that there is economic benefit to raising MW, no matter what level you take it to, it is certainly not going to be able to make 4% increase in the “GDP rate”, and doubling MW in short order is going to cause more problems. An increase to around $10 over 2-3 years is much more reasonable.

Now, as far as what you have to say about raising prices in the face of an increased MW, like I said, it gives me an excuse to raise my prices.

My competition will be raising their prices, they will need to, as many of their workers are actually at (or below) MW, while my lowest paid employee already makes over $10 an hour, so no, I don’t need to increase my costs, unless I want to give them raises, and I give them raises as they increase their productivity and my profit off of their labor.

MW hits everyone across the board. If a business complains that a higher MW will make them go out of business or lose money, then they are poor at running a business.

87

By that thinking, I assume you would be fine with every single grocery store going out of business. Or perhaps you are unaware that the grocery business has a notoriously low profit margin.

88

From everything I’ve seen, there’s really only one thing that causes an economy to expand at any significant pace: the majority of it’s people having money to spend on more than food and shelter.

That means either lowering the cost of living generally, or raising the amount of pay for work, relatively.  Raising the minimum wage, even a significant amount, wont accomplish that.  And we already know, from having tried it several times, including twice recently, that lowering taxes on the rich does absolutely dick.

Want to see a lot of real growth?

Try something no one else has: stop taxing the peasantry altogether, but keep everything else the same.

89

But I know if I squeeze that stone hard enough…

90

As I said above, please show us how your math works. With all due respect, this sounds like faith-based economics since you’re talking about an effect that isn’t measurable.

If a raise in the MW results in a raise in prices, that offsets the value of the raise to the workers, and causes inflation.

That’s an unusual hypothetical where you pay your workers much higher wages than your competition does. How common is that?

Yeah, screw those crappy business people. If their business dies, it only affects them. Their employees can still collect their paychecks-- and at the higher MW, too!!!

91

I assume that you are unaware that every business has a low profit margin. That’s the nature of a free market. If your profit margin is higher, then somebody else undercuts you, so they all pretty much take the profit margin that makes it worthwhile to them. If the costs go up across the board for all grocery stores, then they can all raise their prices the same amount, and maintain the same profit margin.

I also assume that you did not notice that small grocery stores have been going out of business for quite some time and have been replaced with wal-marts or other large scale shopping centers. Those grocery stores typically paid better than their larger corporate replacements.

Another assumption that must be made in order to justify your comment is that you did not know that grocery stores have not been automating their checkout processes, as well as increasing the efficiency of their remaining employees.

A final assumption that must be made if your thoughts are to be relevant is that wal-mart will be driven bankrupt by an increase in MW.

I am sorry, but your scenario is actually just a bit sillier than the OP’s economic theory.

92

According to CBS News, that’s not true. They have a list of the industries where profit margins are as high as 18.3%, the average is 7.7%, and some are lower.

Obviously, it will vary between individual companies, as well.

93

As I said that a MW increase is not going to result in a 4% increase in GDP growth, I am not sure what you are asking, I can only assume that you did not read my post very well.

We have inflation, and we have had inflation. We had inflation before there was a MW. We have had inflation since the last MW increase. A moderate MW increase is not a cause of inflation, it is a consequence of inflation.

Unless you are making the claim that without MW increases, there would be no inflation.

Not all that uncommon. I do much higher quality than my competitors, and steal away all of their clients. The reason that I do much higher quality is that I pay my employees enough to care about their jobs and do quality work.

You are probably used to going to the lowest price for any goods or services that you purchase, and the receive corresponding poor service that is offered due to the low wages those employers are willing to pay. It’s a niche market for people who are willing to pay for quality, but it is large enough to keep my phone ringing off the hook.

Well, yeah, screw them. If they are put out of business just by an increase in MW, then they were certainly not providing a very good environment for their employees. As just about every fast food and retail establishment around here has a hiring sign, the employees will be fine, and at a higher MW too!

You know, MW is not the only cost that goes up. If energy costs go up, and that puts them out of business, who are you going to blame then? What if their rent goes up, do you think that that never happens? If their suppliers charge them more for the products that they use in their business, that will increase their costs as well. You seem to think that the end all of cost is based on MW, but that is very far from the truth.

94

You are correct that I was generalizing to businesses that employ MW and near MW workers, as that is what we are talking about in this thread. If we want to talk about industries that employ highly compensated individuals, that’s a whole different topic, one that MW nearly no effect upon.

As they say in the article, “The most profitable industries are those in which the business model relies heavily on human capital among the business owners and professionals,”

Pretty much by definition, this eliminates businesses that pay lower wages.

95

In my eyes, this sums up a lot of the anti-business rhetoric coming from the Left. It seems much more of an emotional reaction than a logical plan.

96

This is a little more than simplistic.

If increases in MW hit everyone, in that everyone gets a raise and everyone raises their prices to cover the increased cost, then everyone’s purchasing power decreases such that you are paying more and getting the same. That’s just inflation, and doesn’t help anyone.

But increases in MW don’t hit everyone. I would not get a raise if they increased MW - my salary is not tied to MW in any sense, and my boss would laugh at me if I asked for a raise because the servers in my local restaurants got a raise. Increases in MW hit hardest on businesses with larger numbers of employees who are earning between what the MW used to be, and what it is increased to. Thus if you raise the MW from $7.25 to $10.10, the businesses hit hardest are those with the largest numbers of employees who earn between $7.25 and $10.10, because they all have to get raises.

So now the businesses just raise their prices to cover the increased cost of labor, and everything is hunky-dory, right?

No. Because consumers have choices, and because economics operates largely at the margins.

Suppose you have a restaurant. You have a lot of busboys and servers and whatnot who are earning between $7.25 and $10.10 an hour. I take my wife there twice a month, and we have dinner. OK - now the MW is increased to $10.10. The busboys and servers get a raise, and the restaurant raises prices to cover the raises.

I didn’t get a raise - as mentioned, I make a lot more than MW. So the amount I have to spend on entertainment doesn’t change. But the prices at the restaurant have changed - they went up. So instead of going there twice a month, we go there once a month and the other night we stay in and cook a nice meal and use the good china and make a night of it. And the restaurant loses out on that once-a-month revenue even though they have increased costs.

You seem to be assuming that demand is going to be constant, because everyone is affected the same by increases in MW. [list=A][li]No, it isn’t, and [*]no, they aren’t.[/list]The CBO report projected that an increase in MW to $10.10 would raise income for many, and cost a half million jobs. TANSTAAFL. [/li]
There was a very old legend about an “investment” idea. We open a cat farm, next door to a rat farm. Rats breed faster than cats, so we can feed the rats to the cats. Then we kill and skin the cats, and feed their carcasses to the rats. We feed the rats to the cats and the cats to the rats, and get the skins for nothing.

Or we increase MW, so workers spend more, which increases revenue, which increases profits. We feed the rats to the cats and the cats to the rats, and get the profits for nothing.

Regards,
Shodan

97

Anything in a bank or in a CD is being used. The bank pays you interest so it has to make that money work to earn that interest. It provides you a service for managing your money, so it needs to make your money work to cover the costs of that service. Banks generally do that by lending money to others. Cash, precious metals, and similar stuff? Yes, you are indeed sitting on them.

98

We’re already seeing a decline in restaurant traffic as restaurant prices go up out of proportion of other expenses. The price of food away from home is up 26% since 2008, compared to just 15% for food at home (which is about the same as it was three years ago.)

https://www.wsj.com/articles/going-out-for-lunch-is-a-dying-tradition-1496155377

99

That’s I tell kids when teaching them about how banks work, and if only it were so. But I’m not earning interest on most of my cash, and excess reserves ($2.2T), while down from their all-time high ($2.7T) in Aug 2014, are still higher than anything before 2013 and over 1000x typical pre-'08 levels (<$2B). Deposit too much, and you might just get a bill for troubling the bank with your money. Bank Deposits

100

Take an industry with a lot of MW and near MW workers then, such as the restaurant industry. Profit margins vary widely, from 19.8% to .3% (2012 figures).

So even then, EVERY business doesn’t have a low profit margin, as you claimed.