I’d add that I should have used the word “offset” instead of “replace” in the sentence about monthly checks. If someone was already getting more than the monthly check - say, from Social Security - those payments wouldn’t get reduced. They’d continue to get the higher amount.
And I’d add the single biggest thing the government could do to reduce unemployment and increase income equality would be to stop trying to reduce the deficit.
The sectoral balance equation says that private financial savings equals the government deficit, minus the trade deficit/surplus. Which means that so long as there’s a world-wide demand for US dollars (and there is) and people want to save (and they do) the only way to avoid recession and unemployment is for the government to finance the trade deficit. That means the government must run a deficit at least equal to the world-wide demand for dollars. And, I would argue, in times of high unemployment and low inflation they should run a deficit higher than that.
The obsession with eliminating the deficit is a recipe for another recession and world-wide financial disruption.
Well, I cited two popular versions of the argument: 1.) that minimum wage laws cause unemployment; and 2.) that taxing the rich causes unemployment (they fire maids or servants or whatever).
The idea is that attempts to increase income equality (by taxing the rich or raising minimum wages) increase unemployment.
It’s wrong economics. Or, at least, it’s economics that’s been empirically dis-proven. I don’t expect you to actually read the first chapter of Inequality and Instability (although I linked to it), which is why I summarized Dr. Galbraith’s findings: that whether measured across time or across space income equality is linked to high employment, and income inequality is linked to high unemployment. In other words, countries that have high levels of income equality (Germany, Scandinavia, for example) have low levels of unemployment. Countries with high levels of inequality (say, Spain or Italy) have high levels of unemployment. That doesn’t prove that income equality causes low unemployment, or vice-versa; there could be a common underlying factor. What it is does is disproves the idea that income equality causes unemployment.
In science, even social science, if the empirical evidence doesn’t support the theory, you don’t just throw out the evidence.
I don’t think you understand what I’m saying.
What I’m saying is that if the majority allows a tiny minority of super-rich individuals and corporations to manipulate the government into protecting their interests at the expense of everyone else, everyone else will be worse off, and the country as a whole will be poorer, and weaker, as a result.
You are conflating income inequality and minimum wage changes. Why?
So you’re saying the principles of supply and demand and price floors have been empirically disproven? Cite? I’m sure the Nobel in Economics will be forthcoming.
How does this relate to minimum wage at all? Or…again, so what? This is not something profound unless you’re saying that we’re already in this situation and if that’s the case you haven’t made the case for it.
What I can say, is that any government intervention/improvement should be carefully considered before implementation.
A hypothetical for your consideration: a pharmaceutical company requires 5 years and 500 million dollars to develop a new drug that treats migraines. They conduct market research and determine that with only a 5-year window of exclusive distribution, they will only make 400 million in sales. With a 20-year patent, their projected sales would be well over a billion dollars. If the government only offers 5-year patents, this potentially revolutionary headache medicine will not be invented given the resources required.
The extensive regulatory burden imposed by the FDA, which I posit a net benefit to society, adds a major cost to the company that must be offset some other way. Throughout the years, an acceptable middle-ground has been reached. My point in this scenario is that “improvement” versus “intervention” is just a debate of values. Economic principles must be ensured before we have the government running around saying “you have too much money we’re gonna punish you.” The FDA could easily put every major pharma company out of business in the misguided attempt to “help the little guy.” That would not be an improvement.
That’s not what I’m doing. As I said before, I’m saying that those who argue that income inequality leads to more employment are wrong. Minimum wage and the “trickle down” theory are just two examples of people making that argument. Which, as I said before, is wrong.
Income inequality is associated with higher unemployment; not lower unemployment.
I already gave the cite. It’s in the first post of this thread. If you don’t want to read it, that’s up to you.
I doubt any Nobels will be forthcoming, at least not for years. Generally people are dismissive of ideas that contradict the prevailing wisdom of the time.
It doesn’t relate to minimum wage, at least not directly. I’m arguing, among other things, that the very rich use the influence their wealth buys them to use government intervention in the economy to increase their wealth, at the expense of everyone else, and of the country as a whole. If you think that doesn’t matter, we’re pretty much done here. As far as “making the case” for it, I’ve already given examples up-thread.
I get the feeling you’re relying rhetorical devices in your responses, rather than actually reading what I’m saying.
My example was about copyrights, not patents, because I know more about the former than the later.
However, your general point is sound: patents, like copyrights, should be granted for the purpose of enriching the country as a whole; not for the purpose of enriching particular corporations or individuals.
Who is making the argument that income inequality leads to more employment? That reducing min wage can increase emploment is not an argument related to income inequality at all. That’s why I am saying you are conflating min wage and income inequality. You have no way to link the two without doing that.
There’s a problem in assuming that one law will have the same effect on everyone it’s applied to.
For a business that’s doing well and paying minimum wage out of greed, raising minimum wage would benefit the existing workers and everyone they choose to do business with. OTOH, for a business that’s already struggling to get by, a higher minimum wage could be the final nail in the coffin.
As for wealth inequality, you must first determine that the government has the ability to close the gap through legislation. If, hypothetically, I am the owner of a company making around $450,000 a year, and my lowest level employees are making around $35,000 a year, raising their pay to $45,000 a year isn’t going to make much of a dent in that inequality.
The problem with setting a high minimum wage is that it takes away any incentive for low-rung workers to want anything else. If I can get by folding clothes or flipping burgers, why bother getting a higher education?
As for whether or not the wealthy have an unhealthy influence on government, it’s pretty clear the answer is YES. The government, like any other entity, cannot function without funds. Add to that personal greed and corruption, and those in power will always favor the rich.
HOWEVER, the government also cannot risk giving too many benefits to corporations, as personal taxes still make up 87% of total taxes collected (in 2014: http://taxfoundation.org/sites/taxfoundation.org/files/docs/SR218.pdf). Push the general population too far and it will most likely backfire- but, as with any other matter, most people choose not to take action until they are personally affected. I’m guilty of this as well.
You said: “One of the theories of conservative economics is that income inequality drives down unemployment.” If this is actually one of the theories of conservative economists, then it should be extremely easy for you to quote a conservative economist who says so directly. Yet you haven’t done so. Why not? As it happens, I’ve read a fair numbers of books and articles by conservative economists and have never found any of them saying “income inequality drives down unemployment”, or anything similar to that. Hence it seems pretty like that what you’re saying about conservative economists is really a load a bull.
Then you say “For example, they argue that eliminating minimum wage laws would increase employment, because owners of businesses could afford to hire more workers.” But how on earth is that an example of conservative economists theorizing that income inequality leads to more employment? There does not appear to be any relationship between the “theory” you seek to pin on conservatives and the argument about the effects of minimum wage.
Your declaration that conservative economists believe that income inequality drives down unemployment thus appears utterly fatuous.
The OP mentions Germany as a country with low levels of unemployment and income inequality. This is a very recent trend. Germany had previouslybeen a high unemployment country. What changed was the Hartz reforms which was similar to the welfare reform America did under Clinton. Since a few years after that Germany switched to a low unemployment country and currently has one of the lowest unemployment rates in Europe. Germany has no minimum wage and many of these jobs have been low wage. Income inequality has increased in Germany during this time of low unemployment. But this is misleading because every country has an actual minimum wage of 0. Those who are locked out of employment because of the legal minimum wage, these people don’t count for income inequality measure because they are not working but the actual divide is between people who work and people who don’t.
Germany shows that the OP is wrong no minimum wage, more income inequality has equaled low unemployment and one of the best economies in Europe.
In fact, I doubt you’d be able to find any economist who advocates “Trickle Down” as some sort of useful theory. And you’re right, it has nothing to do with income inequality.
I have no idea what the OP means when he says “Minimum Wage”. It’s been fairly well established that small changes in the MW probably have little effect on unemployment, but no one would argue that the two are completely decoupled. Eliminate the MW tomorrow, and unemployment will go down. Tripple it tomorrow and unemployment will go up.
So your argument, if I can restate it, is that reducing the minimum wage to, say, $1 per hour - thus increasing the gap between the highest and lowest paid workers (otherwise known as income inequality) - would increase employment. And that increasing the minimum wage - to say $21 per hour (which would decrease the gap between the highest and lowest paid workers) would increase unemployment?
Not really. My argument is that those changes in the MW would have that effect independent of whether they would affect income inequality. If you made those changes to the MW and also mandated that the highest earnings a person could make should be adjusted so that income inequality was unaffected, it would have the same effect.
This should be obvious. A MW of $1/hr stops technological innovation because it’s cheaper to just hire more and more people rather than invest in automation machinery and other capital-intense expenditures.
A MW of $21/hr greatly incentivizes automating as much of the process as possible.
Would Starbucks rather pay its employees $21/hr or have a computer screen at the register where the customer simply types in what drink they want?
Except it isn’t cheaper to hire people at $1 an hour, because even if it were legal to offer work at that rate no one would take it. You’d be better off selling pencils on the streetcorner. Or collecting pennies from fountains. Or collecting aluminum cans. Or more logically, doing useful work at home for the people you live with.
A person who is only worth paying $1 an hour isn’t worth paying anything for, because such a person would cost the business more in losses than they could generate. There are plenty of people you wouldn’t want working for you even if they worked for you for free. Employers fire people every day even from shitty-ass jobs. The argument that these people who are unemployable at $7.51 an hour would suddenly get a job at $5.00 an hour is nonsense. We could get rid of the minimum wage tomorrow and we wouldn’t see more than a handful of employers trying to offer wages much below minimum wage.
This is because the current minimum wage is really really low. That is, the tiny minimum wage increases we seen over the past few decades have been much smaller than the rate of inflation, and so the minimum wage has fallen dramatically in real terms.
I don’t advocate raising the minimum wage by any great amount, but imagining that we could lower unemployment meaningfully by repealing minimum wage laws is just a fantasy.
Well, that’s probably true for the most part. You have to look at your labor market. Most likely, you COULD pay people (teens or older retired people looking to supplement their income, which is really the bulk of those making minimum wage today, along with illegals) a rate below the current minimum wage and get some takers, but there is a certain ceiling inherent in our labor market that’s going to cause diminishing returns the lower you go. At a certain point you simply won’t be able to find anyone to work for you, and will be forced to either increase your wage offering or spend the capital in automation.
That’s why the current minimum wage has a very small effect overall. I don’t know where the market rate would actually be (no doubt it would vary wildly depending on where you were looking in the country…some places would sustain a rate below the current minimum, some have higher rates than the minimum today in order to attract anyone to work those jobs), but there is certainly going to be a floor that’s above $1/hour regardless (I doubt you could even attract illegals at that rate in the US).
I think most reasonable people understand that small changes to the minimum wage will have small effect, and I agree with you that there is a definite floor in the US for our labor market…you simply aren’t going to be able to attract many/any workers if you try and go below that market rate.
However, I also agree with others in this thread that the OP is trying to couple income inequality with minimum wage and it doesn’t work that way.
Well…yes. I’ve been doing the budget here for years, and I can tell you that if you attempted to push through a minimum wage of $21/hour (well above what we pay our tech 1 and tech 2 employees), we’d have to eliminate several positions to make budget. We currently have 6 tech 1 and 4 tech 2. The tech 1 positions are $13/hour and the tech 2 positions are for $17/hour (our tech 3 positions are only $22/hour). You can do the math yourself if you like, but we have a fixed annual budget for personnel (2X loaded costs), with only a projected 3% increase per year, so you can see we’d pretty much have to eliminate several positions or we wouldn’t be able to make budget…and there is zero chance that our budget would be increased to maintain the new salaries and keep all the positions. In addition, you’d have a cascading effect…people currently making that $22/hour would need a bump, or what would be the point of them being a tech 3 (or a systems admin, network engineer, developer, etc)? That would further inflate the budget. And I’m only talking about IT…you’d have this for the entire state, and all the counties. It would be a major disruption if you pushed it to that level, and you’d have a lot of people being laid off either in the short or medium term…certainly in the long term, and automation was invested in.
Can you offer any evidence that this would not be the case?
Forgetting the bit about $1/hour for now, are you saying that raising the MW would not increase unemployment? If not, how much could it be increased before it would adversely affect the unemployment rate and how did you determine that?
And what is really the big deal about increases in income inequality?
Say you have two people - the first makes $20/hour and the second makes $100/hour, a spread of $80. Each gets a raise of 10%. Now the first is making $22/hour and the second is making $110/hour, a spread of $88. Income inequality has increased but both are better off. Is this not a desirable outcome all other things being equal?
Yes, income inequality in and of itself is not bad. I think what people are concerned about is when the $100/hr guy gets a 25% rase and the $20/hr guy gets nothing. It’s the first derivative (rate of change) of income inequality that has people concerned.
Devil, meet details. That’s more nuanced than the usual arguments around here about income inequality, and you’d have to look at a case by case basis for WHY the $100/hour guy gets a big raise while the $20/hour guy didn’t.
In the end, I don’t see income inequality in and of itself as an issue either, depending on the why of it…and depending on how rich the overall society is and how overall that society is gaining or losing wealth. If you are talking about the difference between a couple of extremely rich autocrats where most everyone else is dirt poor, there is no or little rule of law or rampant corruption at all levels, then certainly income/wealth inequality is a serious issue. In a wealthy nation like the US, where even the poor here are by and large better off than even the middle class of some nations, then…well, not so much.
Broadly, and IMHO (as a non-economics expert and not having stayed at a Holiday Inn Express in quite a while), the reasons for why (some of) the rich have gotten richer (and the definition of ‘rich’ is constantly having to be upgraded as more and more people become ‘rich’…at least by some of the definitions on this board) while some of the middle class/poor has gotten richer less quickly, some has stagnated and some has even gotten poorer has to do with the fact that US labor is overpriced and adds no additional exceptional value for why they SHOULD be keeping pace with the rich, who have gotten richer due to capital investment. Companies are more productive/profitable, but it’s not because of labor, by and large, but due to automated and expert systems, refined processes and procedures and general expansion of markets and efficiencies. At least that’s my broad take, though the devil is in those details.