# Tax Cuts Equal Spending? **URL:** \ **Category:** Great Debates\ **Created:** [October 5, 2000, 6:27am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741 "2000-10-05T06:27:44Z")\ **Posts on this page:** 18\ **Page:** 4
**Author:** ![kesagiri](https://avatars.discourse-cdn.com/v4/letter/k/7ba0ec/32.png) [@kesagiri](https://boards.straightdope.com/u/kesagiri)\ **Post date:** [October 16, 2000, 2:17am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/61 "2000-10-16T02:17:18Z")
> [@](#): > > Boy, now you have me really confused! Correct me if I’m wrong, but if the market is performing as it should and the market clearing wage is above the minimum wage in most labor markets, doesn’t that mean that the wages paid themselves would be above the minimum wage? Yes. > [@](#): > > So, are you basically just arguing that the number of people being paid within $1 of the minimum wage before the '97 hike was very small (and very small compared to now…since that is what is relevant in the current policy debate)? I am not sure what you mean by “small”. It seems to me that if the real value of the minimum wage is falling over time then the impact of increasing the minimum wage to a point still below the market clearing wage would have little or no impact on employment. One thing, I suppose we could look at is say the average and median wage for teenagers. While they don’t comprise all of the minimum wage earners they are a large percentage and I bet most of them are in low skilled type jobs, i.e. those jobs one usually thinks of as ‘minimum wage jobs’. > [@](#): > > This ought to be a fact we can easily verify one way or the other…There are pretty reliable statistics on this sort of stuff, aren’t there? Yes I am sure there is something on this at the Bureau of Labor Statistics. > [@](#): > > New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases. This model recognizes that employers may able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale. So, instead of having an increase in unemployment they are postulating a slower rate of job formation. Interesting, yes I suppose that is indeed possible. ---
**Author:** ![kesagiri](https://avatars.discourse-cdn.com/v4/letter/k/7ba0ec/32.png) [@kesagiri](https://boards.straightdope.com/u/kesagiri)\ **Post date:** [October 16, 2000, 2:28am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/62 "2000-10-16T02:28:05Z")
jshore, Try this [link](http://www.bls.gov/opub/mlr/1990/07/art3exc.htm). I haven’t read the whole thing yet. Dang I hope my vB code is right. ---
**Author:** ![kesagiri](https://avatars.discourse-cdn.com/v4/letter/k/7ba0ec/32.png) [@kesagiri](https://boards.straightdope.com/u/kesagiri)\ **Post date:** [October 16, 2000, 2:31am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/63 "2000-10-16T02:31:27Z")
Oops, [Here](http://www.bls.gov/opub/ted/2000/aug/wk3/art03.htm) is another one. ---
**Author:** ![JustAnotherGuy](https://avatars.discourse-cdn.com/v4/letter/j/278dde/32.png) [@JustAnotherGuy](https://boards.straightdope.com/u/JustAnotherGuy)\ **Post date:** [October 16, 2000, 7:51pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/64 "2000-10-16T19:51:15Z")
> [@](#): > > \*Originally posted by jshore \* > \*\* > > > [@](#): > > > > \*Originally posted by JustAnotherGuy \* > > > > First, the ‘poor’ today have so many programs available that if they simply use what is out there, they can probably live better than the middle class. > > Do you actually have any evidence to support this ludicruous statement or do you just say it because it sounds provocative?" > > Let’s call it personal experience. As a property management company, we own and manage several Section 8 housing projects. The federal government actually PAYS people below a certain salary to live in these apartments. They have to be maintained above the standards of the general public because of annual inspections by HUD, which can stop the flow of money for something as small as a hole in the sheetrock that was done by the tenant. > > Add into that the food stamp program and their salary is 100% discretionary spending. They don’t pay any taxes because their income is so low. The money received from the Feds, rent and utility allowance (sometimes utility allowances exceed $100 per month) is all non-taxable. I am not sure about the rest of the country, but due to a lawsuit by the ACLU, Baltimore had to level all of it’s high rises and build town homes and new, low-rise apartments and build and rennovate homes in the County to ‘redistribute’ the population of the poor. > > In addition there are literally thousands of programs available to the poor, some are hand outs, some are the preferable hand-ups. > > “Well, I am not exactly sure I know Bill Gates’ family background, but my guess is that he wasn’t a poor minority person growing up in The Projects, going to majority-poverty schools where kids bring so many problems to class that it is very difficult for much real learning to get done.” > I personally know of three black men, now in their senior years, who grew up in a very depressed part of Baltimore City when racism was legal, sanctioned by the government and practiced widely and created for themselves multi-million dollar companies. I work for one of them. Just because everyone doesn’t do it does not mean the opportunities aren’t there. > > You then switch to discuss the school system… let’s address that on another string. It is far too deep an offset from the tax cuts vs spending issue. > “As for the communism argument, look, what we are arguing about is a matter of direction. Of course, the extreme of everyone having equal amounts of stuff is ridiculous…But we ain’t anywhere close to that and in fact we are a lot further from that now than we were 30 or so years ago! The problems with extreme inequality are many: (1) It is not even good for the well-off in the sense that one can walk down a street in the bad part of town in Copenhagen, Denmark and even Vancouver, Canada and not feel like you are taking your life into your hands. Extreme poverty breeds high crime, drug use, high teenage birth rates… (2) Some of us feel that it is ludicruous that the most powerful and, by some measures, richest country in the world has areas where conditions are as bad as they are in the Third World while others have such obscene amounts of wealth that it is hard to comprehend. (3) There are other rich countries in the world (Denmark, Sweden, …) that have a much more progressive tax system and more highly-developed welfare state and are doing very well and seem to have a lot fewer of some of the social problems we face (high crime, infant mortality, homelessness,…)” > > 1. About walking down a street in the wrong part of town… That doesn’t overly concern me as I don’t tend to be in the wrong part of town at night with or without a car. I am in the Baltimore/DC area, some of the highest murder rates in the country. Over 300 murders per year in Baltimore. Most of it is drug related. I, for one, do not give poor a carte blanche to break the law because they are poor. > > The ramifications are an excursion by even the poor from the City to the suburbs. Racial diversification and blending as the ‘poor’ turn into ‘middle class’. Not sure what point that makes, just a biproduct of crime. > > 1. Please show me this place that is as bad as some Third World contries… I assume you mean children with exploded stomachs and no meat on their bones. I’ll personally call all our government programs have apparently failed to catch the abusers of these children. > > 2. Regarding the ‘other’ countries. I don’t think you can compare ANY country to the United States, since it is the only superpower and the biggest supporter, by money and military of other countries throughout the world. I will tell you this, I rarely see a skinny poor person, homeless maybe but not poor. > > > [@](#): > > > > The rich got there because someone rolled up their sleeves and busted their butt. I wasn’t born rich, I’m not rich now, I’ll probably never make the 1%, but I’d like to. And if someone else doesn’t have the drive or ambition to do the same, I say too bad. > > The rich also got where they are by learning how to “play the game” well…to take full advantage of the rules (check out [TomPaine.com](http://TomPaine.com) for how Cheney did this in the last 10 years!!!)…and as such they have an obligation to the society that has allowed them to prosper so. Taxing them at a higher rate than they are taxed now (or at least not lowering their taxes, as Bush wants to do!), will still leave them with plenty of reward for their hard work. [I, by the way, am not in the top 1% either…But I am in about the top 10% or 15%…and I don’t feel I need to have my taxes cut, thank you very much.]" > > one point I agree with you on… there should not be a tax cut based on a budget surplus based on the most preferential assumptions possible. However, neither should that money be squandered on new programs and spending. It should be used to pay off our prior experiences in deficit spending. THEN go for the tax cuts. > > But I think that is getting off the subject of tax cuts vs spending and the inequity of the classes. > > > [@](#): > > > > If you make everything ‘equal’ you kill that drive, you kill the American spirit that made us the only superpower in the world. > > Yes, if you made everything perfectly equal then you certainly will. Since noone is talking about doing anything remotely… **remotely** …close to that, I don’t think that we are in any danger at the moment on erring in that direction. It is all a matter of balance. Clearly, you subscribe to the belief that inequality isn’t increasing fast enough at the moment. I don’t." > > I don’t think that there is any ‘level’ of inequality that makes any difference whatsoever to me. Maybe there is a greater inequality than there was 30 years ago, I could care less. Society overall is in a MUCH superior position than Third World countries. Even amongst the poorest poor, they aren’t wondering when they will eat again. They might wonder if they can afford to have cable this month, but they aren’t looking for ways to eat unless they squandered their money on drugs/cigarettes/alcohol. > > > [@](#): > > > > The minimum wage has increased at a pace that by far surpasses inflation over the last decade. > > Your statement on the last decade may be technically correct because of the increase in '97. However, here is the scoop over a longer period of time (care of the Coalition on Human Needs): > > * * * > > In real (inflation-adjusted) terms, the minimum wage reached its peak in 1968, when it was worth $6.92 in 1998 dollars. Its value eroded somewhat in the 1970s, despite several increases, because of rapidly accelerating inflation. It deteriorated significantly in the 1980s, when no increases were enacted during the Reagan years. > > ## Increases during the 1990s have improved the situation. The latest, enacted in 1996 and fully phased in on September 1, 1997, raised the minimum wage from $4.25 to $5.15 per hour. Its real value, however, is far less than it was in 1968 and is still far below what many consider a living wage. Moreover, because the minimum wage is not indexed for inflation, much of the value of recent increases has already been lost. > > How many homes had televisions in the 60s? > How many people had homes in the 60s? > > It isn’t so much our buying power that has decreased as it is our lowering levels of luxury versus levels of necessity. > > > [@](#): > > > > Why would anyone want to punish the rich for the lack of ambition by the poor? > > I can hear the violins coming in here as a rich person drives off into the sunset in his ‘99 Lamburgini because he couldn’t afford to buy a new one this year. I mean, give me a freakin’ break. And, by the way, not all rich people think it would be punishment…some of them actually have a conscience on this issue…Check out [http://www.responsiblewealth.org](http://www.responsiblewealth.org) . I’ll also give you an approximate quote from ~early 20th century from Filene, the Boston retailer: “I don’t mind if the people take half the money I make away from me…After all, I took it all from them.” Boy, sometimes I really yearn for the days when there was a consensus that the rich owed something to society rather than that society ought to be so freaking grateful to them." > > Those few rich are totally welcome to give as much as they want to whoever they wish. Including you. But just because one group has some sense of social responsibility doesn’t give them the right to dictate their ethics to the rest of the country. I donate in excess of my taxes, to groups I want to give money to. The government is the most ineffective, inefficient system for caring for anything and yet our poor are still living relatively well. Just imagined if the government became efficient! Think of all the surpluses we would have then! > "\*\* So, in the end, I will ask my question to those on your side of the debate again: How much more unequal do things have to get before you no longer believe that “inequality is not increasing fast enough”?\*\* \*\* Who cares!? I don’t care if the richest 1% is worth 10 times what I am worth or 10,000 times what I am worth. What should impact my life is what I am making and what I can do to take care of my family. If more people would look into their own ambitions to succeed and spend less time worrying about what other people have, there would be alot less ‘poor’ people in this country. (I understand jshore that you are not poor, but your call to arms to ‘soak the rich’ and the inequality implies that you worry about what other people make) Look at it from the other perspective… between federal and state income taxes, the RICH, who get no personal deductions or exemptions because it all phases out, actually PAY about 45-50% of what they make back to the governments. This excludes property taxes, luxury taxes, social security taxes (12.4% of the first 67k) and Medicare 2.9% of all wages earned. How much inequality in the tax system is enough? Again, I submit that it doesn’t matter how inequal the system is. I have to pay more taxes than probably any 20 poor people pay a year and get relatively less benefit. I am not complaining about that. But I’m certainly not going to encourage the federal government to take more of my money when I see first hand every day how inefficient they are at spending it. And if the government actually HAS surplus tax revenues, it is not their money. It shouldn’t be ‘returned’ to the people, it should never be collected from them. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [October 17, 2000, 1:49am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/65 "2000-10-17T01:49:09Z")
> [@](#): > > \*Originally posted by kesagiri \* > > So, instead of having an increase in unemployment they are postulating a slower rate of job formation. Interesting, yes I suppose that is indeed possible. Boy, you’re quite the pessimist! I thought higher productivity, etc. was one of those things that we were supposed to all be in favor of! 😉 ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [October 17, 2000, 2:09am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/66 "2000-10-17T02:09:21Z")
> [@](#): > > \*Originally posted by kesagiri \* > \*\*jshore, > > Try this [link](http://www.bls.gov/opub/mlr/1990/07/art3exc.htm). > > I haven’t read the whole thing yet. > > Dang I hope my vB code is right. \*\* ## Interesting…I did a very quick scan of it. The abstract (which has a considerably different tone from the excerpt they had on the page you linked to, which was their introductory review of the literature) says ## A study of household data demonstrates that increases in the minimum wage reduce poverty among families more then previously estimated. This article examines the effects that raising the minimum was has on family poverty. On the other hand, admittedly, the authors note that they have not considered disemployment effects. At any rate, the article is now 10 years old and so might be a bit dated. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [October 17, 2000, 3:12am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/67 "2000-10-17T03:12:38Z")
[QUOTE] \*Originally posted by JustAnotherGuy \* JAG, I won’t respond to all of your points ‘cause it’s freakin’ 10:30pm and practically all I’ve done this evening is post to SDMB! But…a few short responses follow: > [@](#): > > …In addition there are literally thousands of programs available to the poor, some are hand outs, some are the preferable hand-ups. Well, I still hold that the claim that these people can be richer than the middle class with all they have available is way-exagerated. Certainly, our “welfare state” is leaner than almost any other First World country. > [@](#): > > I personally know of three black men, now in their senior years, who grew up in a very depressed part of Baltimore City when racism was legal, sanctioned by the government and practiced widely and created for themselves multi-million dollar companies. I work for one of them. Just because everyone doesn’t do it does not mean the opportunities aren’t there. Yes, some people do make it despite the disadvantages. But, it is a lot harder. People can be very hypocritical on this issue too. I was arguing with someone at work who was one minute telling me that the kids in the inner city can make it just as easily as anyone and then not 15 minutes later was telling me that he was against putting a small amount of subsidized housing in his rich suburban neighborhood because of the influence these kids would have on the learning of his own kids in the local schools. I was dumbfounded…He’s telling me these other people’s kids growing up in majority-povery environments should be able to do just fine, but his kids are going to be unduly harmed by having just a few poorer kids around in their school!?! > [@](#): > > 1. Regarding the ‘other’ countries. I don’t think you can compare ANY country to the United States, since it is the only superpower and the biggest supporter, by money and military of other countries throughout the world. I don’t see the logic here…Because we spend about $1000 per person on the military, we have no money left to do what other First World nations can do?!? (Our foreign aid is then another much, much smaller expense on top of that…And, I think many of these First World countries spend more per capita in that department than we do.) > [@](#): > > I don’t think that there is any ‘level’ of inequality that makes any difference whatsoever to me. Maybe there is a greater inequality than there was 30 years ago, I could care less. Society overall is in a MUCH superior position than Third World countries. Even amongst the poorest poor, they aren’t wondering when they will eat again. They might wonder if they can afford to have cable this month, but they aren’t looking for ways to eat unless they squandered their money on drugs/cigarettes/alcohol. > > How many homes had televisions in the 60s? > How many people had homes in the 60s? > > It isn’t so much our buying power that has decreased as it is our lowering levels of luxury versus levels of necessity. Well, I have a bit of sympathy for certain aspects of your point here. But, a couple things in response: It is not just that inequality has gotten greater but that, by many measures including median income in real dollars (as noted in the link I gave on inequality in a previous post), people in the middle and bottom have been standing still or losing ground while the MEAN has risen, mainly due to those at the top. Another fact is that, like it or not, people do tend to judge their own wealth in terms of those around them. Sure, by historical standards, you can tell people they ought to be incredibly happy just to have electricity and clean running water! But, I am not sure people will be satisfied with this. The part I do agree with you on is on this whole materialism-driven culture and how it affects the spending habits of people, including the poor. This rampant materialism really is a big problem. One thing I think those that are poor really need to be educated on is the fact that wealth and expensive gizmos won’t buy you happiness. I think one problem is that people in that situation rightly see poverty as the root of a lot of their problems, but rather than concluding that the solution is to pursue an education and get a job that makes enough to get you out of poverty but not fabulously wealthy, they think that the solution is to get fabulously wealthy…and the roads that seem open to them in this regard are things like drug dealing or low-probability things like professional sports. Having said that though, I also think the problem isn’t only that…because there are also lots of real barriers to them getting a good education. > [@](#): > > Those few rich are totally welcome to give as much as they want to whoever they wish. Including you. But just because one group has some sense of social responsibility doesn’t give them the right to dictate their ethics to the rest of the country. I donate in excess of my taxes, to groups I want to give money to. The government is the most ineffective, inefficient system for caring for anything and yet our poor are still living relatively well. Just imagined if the government became efficient! Think of all the surpluses we would have then! Well, we have different views on this. I think it is the right of people through **their** government to make some of these decisions. I also think that it is quite necessary because of basic human nature. As I explained to a friend who asked the question of why we need taxes instead of just having people take care of each other through charity, even though I support the idea if higher taxes for certain things, that doesn’t mean that when I fill out my IRS form I purposely don’t take the deductions I’m allowed etc. in order to give the government extra money. There’s a strong disincentive to do that…We really do need to decide some rules collectively and then all abide by them! And, by the way, no matter how many times you say how unbelieveably inefficient the government is, it doesn’t make it any truer than the time before. Sure, all bureaucracies are always inefficient. United Way is no great shakes themselves. And, let me tell you, if the bureaucracy in the government is much worse than in the Fortune 500 company that I work for, it is beyond my powers of imagination to even conceive of such incompetence! > [@](#): > > (I understand jshore that you are not poor, but your call to arms to ‘soak the rich’ and the inequality implies that you worry about what other people make) Well, I admit that my own take on this comes from my own warped perspective, as does everybody’s! Personally, I am quite frugal…not very materialistic for the most part…and am making (after taxes) nearly twice as much each year as I am able to spend. So, I guess that does make it hard for me to conceive how people who are making what I make or even a whole, whole lot more still can be so darn stubborn about wanting to keep all their money for themselves when this society has such inequalities in the distribution of wealth. ---
**Author:** ![JustAnotherGuy](https://avatars.discourse-cdn.com/v4/letter/j/278dde/32.png) [@JustAnotherGuy](https://boards.straightdope.com/u/JustAnotherGuy)\ **Post date:** [October 17, 2000, 3:29pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/68 "2000-10-17T15:29:03Z")
“Well, I still hold that the claim that these people can be richer than the middle class with all they have available is way-exagerated” If I said richer, I misspoke. I thought I said as well off, which I basically meant having similar ‘stuff’. They won’t have the new car or the satellite dish or the big screen television, but they can certainly have a used car, cable and a 36" set. So you are correct, it was more for shock value than actual fact. I also agree that the poor will have a harder time making it than a blue blood out of Harvard. But it can be done and is done every day. I’m not sure what I was trying to say about the U.S. being a superpower either. It is really irrelevant to the subject. I had a point when I wrote it, but it evades me now. Obviously there has to be some government enforcement of redistribution of the wealth, although if the offset were too great who would buy all the stuff that makes the rich richer? I was saying that we don’t need to take more away for the sole purpose of taking more away. If the government has a valid program that it can get through both houses and the President, then fine, finance the project. But don’t tax people just because you can then scramble to spend it somehow. That is why the government is inefficient. Their incentive is to spend as much as possible so that their budget isn’t reduced next year. I know people in the federal government. I just had a conversation with someone who told me that two weeks before the fiscal year end, her department was given $250,000.00 to spend right away so they wouldn’t lose the funding next year. This is not an isolated event, that is how the government operates, that is how their leadership is motivated. They didn’t do it and they got reamed out from the higher ups for not throwing the money out a window somehow. The same is true of budget surpluses. Now, let me preface that the budget surpluses being used by both candidates are best case scenario and IMHO should not be used in any way shape or form. When the previous years’ deficits are wiped clean, then they should discuss budget surpluses, but as far as I am concerned, that money should ALL go to the national debt, \*IF the government ever even sees it. Here is the budgeting process… the federal government and all it’s agencies put together a budget of what they need to spend over the next fiscal year. A Congressional Committee (I believe it is CBO) budgets estimated revenues. There are three scenarios… if Estimated Revenues are equal to Estimated Expenditures then there is no action required; If Estimated Revenues are less than Estimated Expenditures, Congress needs to increase taxes or decrease spending; If Estimated Revenues exceed Estimated Expenditures, Congress needs to decrease taxes or increase spending. But the federal government does not operate to make a profit so the budget should always balance to -0- even if that means setting aside a chunk for a rainy day (which we have). These policies of BOTH candidates for spending (not including any tax reductions, just the new program spending) the budget surplus should not be in any way shape or form based upon it’s existence. If we need federal education funds it should be done. If we need to shore up Medicare and Social Security and expand Medicare coverage, it should be done. There should be no cause and effect between surplus and spending policy. If there is, you end up with the wasteful scrambling to spend the money instead of making the policy for the right reasons… that we need the policy. But taxing the rich just because of the inequality or spending the surplus just because it exists is wasteful and hurtful. ---
**Author:** ![kesagiri](https://avatars.discourse-cdn.com/v4/letter/k/7ba0ec/32.png) [@kesagiri](https://boards.straightdope.com/u/kesagiri)\ **Post date:** [October 17, 2000, 5:12pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/69 "2000-10-17T17:12:42Z")
> [@](#): > > But taxing the rich just because of the inequality or spending the surplus just because it exists is wasteful and hurtful. Be careful here. While I am not a big fan of taxing and redistributing wealth to ensure income inequality satisifies some pols views, I have been looking around at the income inequality literature, and it appears that the new view is that income inequality can have an adverse impact on economic growth. Of course, by the same token I don’t think that this by itself is sufficient justification to implement income inequality reducing measures. For one, it is my view that “The Government” does not make decisions based on what is economically efficient or well thought out (the gas crises in the '70s being an example). Also, I haven’t read all the literature yet or what the underlying theory is, but there might be some mechanisms in the economy that can constrain income inequality. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [October 17, 2000, 6:15pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/70 "2000-10-17T18:15:03Z")
I have to point out a serious danger of high minimum wages - it makes the economy very brittle and sensitive to recession. Let’s say that we find an obscure law on the books that says Engineers must make at least $5 per hour. Someone in government sees this and says, “This is unfair! Engineers should be paid at least $15/hr!”. Now in fact, Engineers make more than this. But the new law sounds good, and gets the politician some votes from the engineering lobby. Some time later, a study is done to see what effect raising the minimum wage for engineers had on unemployment. It turns out there was none. But the reason there was no effect was because the law was totally irrelevant. Since engineers already make more than that, the law had no effect whatsoever on either unemployment or salaries. But here’s the big gotcha - let’s say the economy goes into a tailspin, and the market price for engineers starts to drop, until it goes below that threshold ($15/hr). Before the law came into effect, the result would have been simply an adjustment of salaries. But now, as soon as the real market price of engineers drops below the artificial government minimum limit, we get widespread unemployment of engineers, with the accompanying shock to other industries which rely on engineering talent. This is what could happen to us if we keep cranking the minimum wage. Either it results in unemployment NOW, or it has little effect people the vast majority of workers make more than the minimum wage. But the new law sets the bar very high for economic performance - if we have a recession, we’ll have massive unemployment instead of a smooth downscaling of wages. So even when they have no current negative effects, high minimum wage laws are dangerous. ---
**Author:** ![JustAnotherGuy](https://avatars.discourse-cdn.com/v4/letter/j/278dde/32.png) [@JustAnotherGuy](https://boards.straightdope.com/u/JustAnotherGuy)\ **Post date:** [October 17, 2000, 7:25pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/71 "2000-10-17T19:25:29Z")
In a recession to the degree you are talking about… more like a depression, the government could assuredly scale back the minimum wage if they had to. I am no student of economics, but I am guessing that the economy is more stable now than ever before. The last recession (wasn’t that in the previous Bush era?) wasn’t that bad, but it did put alot of college graduates, myself included, in aprons waiting tables. The jobs simply weren’t available. Now, sometimes companies axe their oldest employees to get rid of the high wages and bring in young bucks at a low starting salary, but that is really a different issue than the minimum wage issue. “Be careful here. While I am not a big fan of taxing and redistributing wealth to ensure income inequality satisifies some pols views, I have been looking around at the income inequality literature, and it appears that the new view is that income inequality can have an adverse impact on economic growth.” I’d like to read the same literature and we can discuss it. But from an outward glance, it sounds like propaganda and theory. ---
**Author:** ![kesagiri](https://avatars.discourse-cdn.com/v4/letter/k/7ba0ec/32.png) [@kesagiri](https://boards.straightdope.com/u/kesagiri)\ **Post date:** [October 17, 2000, 7:36pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/72 "2000-10-17T19:36:07Z")
Of course it is theory, the income inequality research. I haven’t read much about it yet, but it sounds interesting (this does not mean I accept it as fact, there are lots of things I like from a mathematics stand point in economics that I think is silly in an applied sense). As for propaganda, possible, but I doubt it. The reason I doubt is that for the most part your typical economist makes a terrible propagandist. Just too damn dismal. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [October 17, 2000, 11:09pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/73 "2000-10-17T23:09:12Z")
JustAnotherGuy: The recession can be any size. For that matter, all you need is deflation. Assuming that the price set by the minimum wage is above the marginal cost of employment (i.e. there are some people who are worth less than the minimum wage, and therefore unemployed), then any downturn at all in the economy will cause faster unemployment than it otherwise would if there were no minimum wage. And I don’t agree with you at all when you say that the minimum wage would be lowered in a severe recession. Minimum wages are like Social Security - they are politically untouchable. You can raise them, but any politician who announces that he wants to lower them will find himself unelectable, no matter how poor the economy is. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [October 18, 2000, 12:08am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/74 "2000-10-18T00:08:30Z")
> [@](#): > > \*Originally posted by JustAnotherGuy \* > > If the government has a valid program that it can get through both houses and the President, then fine, finance the project. But don’t tax people just because you can then scramble to spend it somehow. Yes, I agree, although I guess I don’t think there is a terrible shortage of things to spend it on at the moment (although admittedly that doesn’t mean that they don’t end up spending some of the money on stupid things they ought not to be spending on). > [@](#): > > That is why the government is inefficient. Their incentive is to spend as much as possible so that their budget isn’t reduced next year… Hate to break it to you…but this ain’t unique to government. The exact same thing happens all the time in the corporation where I work. Unfortunately, that’s how it works for budgets in a bureaucracy. Corporations may be run on the market principle on the large scale, but internally there is still the same sort of budgeting. And, I am sure it is the same way for charities…Certainly, in the liberal junk mail that I get (e.g., ACLU to provide a concrete example), I have never gotten a letter that says, “With a Democratic President in power and such, civil liberties are in great shape at the moment and we really don’t need you to send us as much money as you did last year. We just don’t have enough to spend it on.” (I do fantasize about receiving such a letter…but it hasn’t happened yet and I ain’t holding my breath.) > [@](#): > > But taxing the rich just because of the inequality or spending the surplus just because it exists is wasteful and hurtful. Well, I think alleviating extreme inequality is a legitimate government objective. How best to do that is an important question, but certainly taxing the wealthy and using the monies in some way…and preferably a way that, as much as possible, “teaches someone to fish” rather than just “giving them fish”…is going to be a part of it. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [October 18, 2000, 12:11am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/75 "2000-10-18T00:11:59Z")
[QUOTE] \*Originally posted by kesagiri \* > [@](#): > > Be careful here. While I am not a big fan of taxing and redistributing wealth to ensure income inequality satisifies some pols views, I have been looking around at the income inequality literature, and it appears that the new view is that income inequality can have an adverse impact on economic growth. Please let us know what you find out about this…I’d be curious! ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [October 18, 2000, 12:25am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/76 "2000-10-18T00:25:42Z")
> [@](#): > > \*Originally posted by Sam Stone \* > > Some time later, a study is done to see what effect raising the minimum wage for engineers had on unemployment. It turns out there was none. But the reason there was no effect was because the law was totally irrelevant. Since engineers already make more than that, the law had no effect whatsoever on either unemployment or salaries. I think your example comes down in many ways to what **kesagiri** and I were already talking about. I don’t believe it is true that the minimum wage increase of '97 didn’t really increase wages because very few people were making less than the new minimum…although I don’t have any numbers on it at the moment. (And, in addition, the minimum wage raise, as studies have noted, raises more than the wages of those who were above the new minimum…It pushes the whole floor up, tending to raise wages going somewhat further up the scale too.) The one thing you add in is the element of time…and, yes, I agree that the disemployment effects are likely to be greater during a downtown than during good times (although you also have to remember, on the other side, that the real value of the minimum wage is eroding over time as long as there is any inflation, so it’s real value is always peaked just after it is raised). > [@](#): > > So even when they have no current negative effects, high minimum wage laws are dangerous. Yes…very high ones might be. But the question is: What constitutes “high” (in real terms, we would still be lower after a hike by $1 now than we have been at times in the past) and what sort of trade-off between higher unemployment and lower wages is tolerable before the fix is worse than the disease. ---
**Author:** ![JustAnotherGuy](https://avatars.discourse-cdn.com/v4/letter/j/278dde/32.png) [@JustAnotherGuy](https://boards.straightdope.com/u/JustAnotherGuy)\ **Post date:** [October 18, 2000, 1:48pm UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/77 "2000-10-18T13:48:20Z")
Would you at least agree that the minimum wage has to be above what people would make on welfare? (excluding bonuses for extra children) “And I don’t agree with you at all when you say that the minimum wage would be lowered in a severe recession. Minimum wages are like Social Security - they are politically untouchable.” Social Security has been dipped into for years. We have never had a recession that would warrant a lowering of the minimum wage, but it stands to reason that if the cost of living goes down, the minimum wage can be lowered. “Hate to break it to you…but this ain’t unique to government. The exact same thing happens all the time in the corporation where I work. Unfortunately, that’s how it works for budgets in a bureaucracy.” I don’t know about your corporate atmosphere, but we reward managers for performing under budget on expenses and over budget on revenues. Of course our budget system is as all corporate budgeting should be, departmentalized by profit center, not by expense center. We are also a mid-sized company, which I am sure has an effect on wasteful spending. If I were your corporate CFO, your departments wouldn’t get away with it, I assure you that. _grin_ I am sure that your corporation isn’t nearly as good at that practice as the federal government, they have alot more experience at it. Regarding the ACLU, trust me, they have been very busy with the current administration. They are in the paper here in Baltimore on a regular weekly basis sueing over one thing or another. So your money is being well spent. "but certainly taxing the wealthy and using the monies in some way…and preferably a way that, as much as possible, “teaches someone to fish” rather than just “giving them fish”…is going to be a part of it. Agreed, that should be the focus of it. ---
**Author:** ![pantom](https://avatars.discourse-cdn.com/v4/letter/p/34f0e0/32.png) [@pantom](https://boards.straightdope.com/u/pantom)\ **Post date:** [October 19, 2000, 2:30am UTC](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741/78 "2000-10-19T02:30:50Z")
Pretty interesting discussion on the minimum wage here. Not terribly close to the OP but… Anyway, just to throw in my 2 cents: To the extent that rises in the minimum wage express tightness in the labor market, it seems to me that raising it spurs business to increase productivity more than they might otherwise be inclined, which is good overall for society. I always thought there was a clear link between a tight labor market and increases in productivity, but never did the work to dig up a link. Thanks to you guys, I went out to the BLS web site, [http://www.bls.gov](http://www.bls.gov), downloaded some tables and did some calculations on a spreadsheet. Results below: Period…Avg annual unemp. rate…Avg annual increase in productivity * * * 1950-59 … 4.51% … 3.21% 1960-69 … 4.77% … 2.53% 1970-79 … 6.22% … 1.42% 1980-89 … 7.27% … .62% 1990-99 … 5.76% … 1.06% (anyone notice how hard it is to get a table to line up?) The r squared between these two series is .8287776. I think the above shows a pretty clear relationship between how tight the labor market is and increases in productivity. IMO, there’s a causal relationship behind this correlation: as it becomes harder to find good workers or as they become more expensive, or both, businesses are forced to do more with less. To the extent that increases in the minimum wage create the “more expensive” condition, they contribute to our overall prosperity. Of course there’s a limit to everything. [Previous page](https://boards.straightdope.com/t/tax-cuts-equal-spending/35741.md?page=3)