I wasn't really thinking in terms of wage inflation. Though if the minimum wage went to 10.50$ that would technically be wage inflation in nominal terms. In constant dollars it would return us to where we were in 1965, which I believe would be a great help in getting full employment and the economy hitting on all cylinders. I believe using taxes to, in effect, supplement wages covers up a fundamental weakness in the economy that ought not to be covered up. There are of course those who profit from the status quo and some of these profiteers have great financial power and hence great influence. From my point of view when you are looking at a 7.25$ wage in 2015 you are looking at a defect in the businessman's free market theory. (see below) We should be very careful to make sure that we are using the same definition of "free market'. To the common man that term means freedom to compete in the market place on the basis of the quality of ones services and/or products, without interference from cartels or monopolies -- or, indeed, the government!. On the other hand, it means something very, very different to the businessman. To him it means laissez faire and freedom from regulation of and government interference with their own business. I have always assumed by "free markets" you meant the second definition, which would be consistent with our libertarian philosophies. But of course the two definitions are incompatible, unless of course you deny human nature. ____________________ This problem of dual and incompatible definitions is one that I have never seen addressed in the common media. The result is that two otherwise perfectly sane people can be carrying on a discussion of "free markets" and be puzzled why the one can't grasp what the other is saying, while all the while they are actually on different planets. It is also an interesting observation that the printed definitions "of Free Market" are essentially all compatible, whereas the common man pays no attention to the printed definition but instead uses the definition that makes sense to him. He naively expects a free market to be just what it sounds like it should be.
There's no inflation because the money from QE hasn't made it's way into the greater economy. It sits, parked at the Fed (bank reserves) and is used to generate more leverage on assets (stocks, bonds, commodity, land, whatever...). This is why we get more Cost-Push Inflation, and not Demand-Pull (which is what we prefer, right? We want demand to cause inflation, not a rise in commodities, etc). As for the supposed positives of QE, what were they? Please detail what we got out of it. If you are purely talking about the stock market, then I cannot argue. But what was the benefit to the greater economy? Please show what has improved. And don't give me the BS about "you should have seen what it would have been like without QE!" Because that's all it is - BS. A stock market bubble that will have to burst and then be re-inflated over and over isn't the smartest way to "create wealth". It does, however, provide an awesome way in the redistribution of wealth.
The taxes issue aside, how does raising $10.50 get us to full employment? About the only way I can see it might help is because it might make it more worthwhile to get off welfare/SNAP/Housing Assistance/Disability, etc. But I doubt it. Of course, you could reduce the welfare state and stop paying people to not work, and that would do the same thing. I agree with everything here, and on a side note, would like to thank you for refraining from telling me how wrong I am for once and instead telling me what your opinions and beliefs are. In return, I'll keep snark out of my responses. I do not believe them incompatible and do not understand how you do. Please elaborate. You can't build the discussion on the premise that they are incompatible without first establishing why that is so.
On the first issue of how does raising the minimum wage get us to full employment, we have to think more broadly. And of course raising the minimum won't get us to full employment by itself; it's a very helpful step along the way. Let me begin by defining a term that I call the true cost of labor. What's included in the true cost is housing, clothing, feeding, utilities (energy, water, internet, telephone) transporting and providing medical and dental care for the average minimum wage worker. That's not as difficult to estimate, on average, as it might seem. Economists can do it, and when they do they get a number somewhat above the poverty level. Thinking broadly then, when wages are below the true cost of labor, the difference must be made up somehow. That can be parents in the case of a teenager or young adult single person, or it can be the local, State, and Federal governments in the case of an older adult worker, particularly one with dependents. From my point of view, raising the minimum wage for labor, up to the point of the true cost but not beyond, has, for both business and society, virtually no disadvantages, on average, and many advantages. Much is to be gained by doing this! Here is another fine example where the common wisdom is dead wrong. The common wisdom has it that employers will simply pass the additional cost of labor to their customers as higher prices and we won't have accomplished anything. Nothing could be more loaded with disinformation then this often heard retort when progressives mention the need to raise the minimum wage. Let's closely examine this false wisdom. We need to start by recognizing that the cost of minimum wage labor in a product or service is highly variable and ranges from zero to some moderately high value, it is virtually never 100% however. On average it is some quite small percent. So even if the common wisdom were correct, the amount passed on, on average, would be small. A minimum wage employer, McDonalds, for example, has a product cost that is nowhere near 100% minimum wage labor. They have raw material and supply costs, overhead costs, management costs, equipment costs, facility amortization, advertising , Franchise costs, and taxes to name most of them. So for even an employer such as McDonalds the amount of minimum wage labor (not total labor) cost incorporated into a product sold, say a Big Mac, is relatively small, and even if you doubled the minimum wage it would still be relatively small. On the other hand, there are some products, particularly where the product is a service, where nearly all the cost is labor, but in most of these cases the labor is not minimum wage labor. What really happens when the minimum wage is raised? There are several possibilities: a. a portion of the raise, not the entire raise is passed on. How much gets passed on depends on competition and how much room there is to adjust other costs; b. A raise in the minimum wage is used as an excuse to raise prices beyond what is justified by the wage increase; c. The entire price is passed on but no more or less. Regardless, and overall, raising the minimum, whenever it is far lower than the true cost of labor, will be highly beneficial. Raising the minimum wage to 10.50/hr (which is about where it should be nationally),,, a) would have an almost a negligible affect on prices or inflation in most regions -- unless employers use the raise as an excuse -- because $7.25 is so far out of balance with what wages should be, that in much of the country there are practically no workers making as little as $7.25. Therefore in a practical sense the pay raise for most lower wage workers would be considerably less than the maximum of 3.25$/hour. And in high cost areas the new minimum would still be below the prevailing wage; b) would put a small amount of disposable income in the hands of each worker, but a large amount collectively. (The amount of disposable income in the hands of minimum wage workers now is zero!) If spent, a portion becomes potential capital in the hands of business, and to the extent this disposable income is retained, the entire amount becomes potential capital. The net effect over time is a boost to the economy, and therefore, ultimately, job growth! c) would provide some incentive to work rather than live off the government dole. Presently the incentive is negative, or nearly so, if the only job one can get is paying only $7.25$. d) would stop tax payer subsidy of minimum wage employers which creates a less honest labor market by favoring some businesses over others. It also forces tax payers to subsidize businesses that they may choose not to do business with. e) would move a small but significant number of workers from poverty to the lowest rank of the middle class, and in doing so, restore hope. Sociologists and psychologists know that many societal problems can be traced to a belief that one's situation is hopeless. f) would be, from a strictly personal point of view the morally right thing to do!
Regarding the incompatibility between the naive and dictionary definitions of free markets arises because one definition precludes monopolies and cartels, the other allows it -- in a classical laissez faire sense, even champions it!.
I'm not sure what you're getting at with this "true cost of labor" stuff, but it is not a company's responsibility to house, provide clothing for, feed, etc, it's employees under most circumstances. I think, but am not sure, you are trying to indicate that it is the government's responsibility to make up the difference between the wage and the "true cost of labor". If so, I completely disagree. Minimum wage jobs are typically jobs that require no skill, very little in the way of education and are typically paid such because anyone can step forward and do so. Regardless, if no one accepted employment for the wage offered, the wage would have to be raised or the job would go unfilled. Ideally, these jobs exist for people to enter the work force and move on to better assignments - either within or outside of the company. The burger flipper at McDonald's is not meant to be a career job. When I was a kid, the fry guy had just got his work permit. He worked there until he got a retail job in the mall. Then he worked in college at some local bar, or retail job until he got an internship (which he worked at for free until getting a corporate job). For those who did not go to college, they learned a trade, something that put them on a path other than the fry guy for life. This was because if they did not do this, they consigned themselves to a life of poverty. Handouts were uncommon, the government provided actual food stamps which no one wanted to use because of the stigma, and being unemployed went unrewarded. Anyway, I'm rambling, but my point is this true cost of labor is irrelevant in the discussion of what should be paid for a job. I'm sorry if this sounds insulting, but have you ever worked for a corporation and taken a look at the P&L? Labor isn't a COGS component at all. It's an expense line. Traditionally it falles under a payroll object code that is included in SG&A expense. An incremental dollar of SG&A results in an incremental dollar taken away from profit. It's a 1 to 1 ratio. Now, does that mean that the gross sales price is taken up a dollar to compensate? Not at all. But the price increase is substantial to the consumer. Follow the simple P+L: We sell Widgets for $1 each. Last year we sold 100 widgets. Gross Sales: $100 Trade/Sales Deductions/Pricing Adjustments/whatever that effected the Gross Sales (including returns and damaged widgets): $5 Net Sales (or Operating Revenue if you wish): $95 Cost of Goods Sold: $35 Transportation/Warehousing, etc: $6 Gross Profit: $54 Overhead expenses (Salaries, advertising, Utilities, whatever): $14 Operating Income (Net Profit): $40 In this case, my Gross Margin is 56.9%. My Net Margin (since we're going to look at a rise in payroll expenses) is 42.1%. That is to say that in this imaginary company, for every $1 I take in, $.42 hits the bottom line. Now we decide to take the workers and bump their salaries up $5 in total compensation. Overhead expenses now jumps to $19, and profit drops accordingly to $35. To get back that $5, with all other expenses being equal, I need to sell just under another $12. It's not dollar for dollar, it's more. So I either need to sell more, or raise my price accordingly. How much do I raise my price? About 12%. That's a sizable price increase. Now imagine every company out there (because the Federal Minimum Wage is hiked) having to take up their business accordingly and watch what happens to inflation. The cost passed on to each consumer isn't the same amount of each salaried person who gets a raise (and I don't recall anyone ever saying it was), because there are more consumers than employees (hopefully). But it's substantial and it is passed on to the consumer. That's your desired inflation. How is it you came to the arbitrary number of $10.50? 12% in the above example is not negligible. Food stuffs, housing, education, etc., it's all rising already, just not fast enough for some of you crazy people who want it to rise further. Many people are happy if it doesn't rise at all. Lower costs and your minimum wage workers have more disposable income. Raise costs and everyone suffers. Sure, those you gave a wage increase to might be better from a percentage perspective, but seniors, the disabled, those on fixed incomes, kids looking for work living with their parents, all suffer. Not to mention the whole argument (that I won't get into) that has proven that when the poor get more money, they spend it and don't save it - keeping them poor forever. Right. So lower the freebies. What subsidy is this? Are we talking about the freebies still? If so, lower them. Make it not profitable to be unemployed. And make those on fixed income, unemployed (which might be more under the proposed increase) etc, even more miserable. Sure, you're restore hope to those who got the raise, and heap more pain on those who did not. In effect, socialism to the core - reallocation of money. What you consider moral is not the subject of this conversation.
I defined what is meant by the true cost of labor. Perhaps It would help to read it again. If you are a business and you hire people to work for you, you expect then to be well rested, clean, properly clothed, have reasonably good health, be able to get to and from work on their own, and be able to communicate with them outside of working hours. If a person does not meet these basic requirements of your business you won't hire them. If you, however, expect to pay them a wage that will make it impossible for your worker to meet these basic requirements, then you have a defective business model, and the only way you can stay in business is if some entity other than your business pays the difference between the true cost of your labor and what you are paying. From the point of view of proponents of laissez faire, however, taking advantage of some entity other than your own business to cover all or part of your true labor cost is a good thing that adds to the bottom line. They do not see a business model based on labor costs supplemented by an outside entity as defective. They welcome such practice. You are clearly an advocate of laissez faire practices, entirely consistent with your libertarian point of view. And that is why you have such a hard time grasping an alternative point of view. I, on the other hand, will argue that the point of view of the laissez faire business man, your view , is short sighted, wrong-headed, and damaging to society. In short, your laissez faire model is for the reasons I have given, defective. As proof I ask you to consider, on average, the robustness of economies in every place where the the minimum wage has been raised by local or state law in comparison to every place where it remains at the Federally mandated level, and allowing in your comparison for those places where the federal mandate has not been superseded; yet the de facto minimum wage is well above the federal mandate (which are nice examples of the naive definition of "free market" working as it should.) $10.50/hour is equal to the minimum wage in 1965 in constant dollars.
I read your definition several times, and it's still ridiculous. It is not a business's responsibility to ensure someone is well rested, clean, properly clothed and healthy. It is the individual's responsibility if they would like a job. Businesses are not having a hard time finding people to fill their minimum wage jobs. If they were, they would raise the wage they are offering for the job to remain competitive, or else their competition would take all the good labor. The fact that they are posting jobs for minimum wage, and there are people taking these jobs (and getting hired) means that the salary offered is acceptable for the job. It may not be optimal, or even liked, but someone out there deems that amount of money acceptable on an hourly bases for an agreed job. Additionally, that someone is well rested, dresses appropriately, clean and apparently healthy enough to perform the work requested. Although what any of this has to do with the original topic of the thread and our discussion on Fed policy, I cannot say.
I love this! From today: William Dudley speaks.. and the market front-runs.. as he indicates that weakness in March is due to the weather (hawkish) but that "the timing of the Fed's first rate hike is later" (dovish)... data dependent... blah blah blah... *DUDLEY SAYS WOULDN'T TAKE HUGE SIGNAL FROM MARCH PAYROLLS DATA *DUDLEY SAYS DROP IN ENERGY PRICES A GOOD THING ON BALANCE *DUDLEY SAYS RECENT DATA HAS SURPRISED TO THE DOWNSIDE *DUDLEY EXPECTS BUSINESS INVESTMENT TO ACCELERATE *DUDLEY: CAN IMAGINE SCENARIOS IN WHICH JUNE LIFTOFF IS IN PLAY *DUDLEY SAYS RATE RISE DEPENDS ON DATA *DUDLEY SEES REASONS TO ERR ON SIDE OF BEING LATE ON RATES *How we react after liftoff will depend on how the market reacts. And there it is: DUDLEY: FED RATE PATH WILL BE SHAPED PARTLY BY MKT REACTION. the Dow Data Dependent Fed Ah yes, how the market reacts. Because the Fed doesn't care what the market does, it'll do the right thing - right Pie? We can "count on it". LOL!