AEIdeas

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Discussion: (49 comments)

  1. SeattleSam

    What if we imposed a minimum price for milk, meat and produce? Think about how much more money farmers and grocers will have. Why they will be able to stimulate the economy even more! And then we can go back to minimum airfares. Wow! The opportunities for creating prosperity are endless.

    1. Jon Murphy

      What if we imposed a minimum price for milk, meat and produce?

      Already have that. At least for milk

    2. Dontcha’ just luv government magic?

      *sigh*

  2. It’s coming from Huffington Post. Enough said.

  3. Well, if that’s the case, why stop at $9? Min wage should be $150,000 a year! Then we’ll have one HUGE middle class! Yeahh!!!!

  4. Not even worth posting links to the Huffington Compost

    1. *unless it is to an article about some celebrity’s side-boob.

      1. hahahahaha,,,,side boob.

  5. Jon Murphy

    Just to put it in context, assuming that the $21 billion number is accurate, it would increase the economy by 0.14%.

    But let’s think about this for a minute here: Let’s assume there are no adverse effects (no layoffs, no time reduction, things like that). If demand goes up, what happens to price? Price rises, too! In order for the minimum wage hike to have an actual, material benefit, the workers would need to have their actual income raise greater than the demand-pull inflation.

    1. John Dewey

      Well, Jon, even if there was no change in hours and employment levels, would there still be no impact on the economy? How does the increase in minimum wage get funded? By increases in the price of goods and services? By a reduction in the profits returned to the business owners? Wouldn’t the price increases or the reduction in prices exactly cancel out the increase in wages for the workers?

      1. John Dewey

        That last sentence should be:

        “Wouldn’t the price increases or the reduction in PROFITS exactly cancel out the increase in wages for the workers?”

        1. Exactly. And then if one *must* talk about a multiplier effect, the question then becomes which “multiplier” effect is greater – the one from money spent by unskilled or low skilled workers, or the one from money NOT spent by everyone else due to higher prices, and the money NOT spent on expanding a business and/or lower returns to stockholders.

      2. I’m also thinking that if workers must be paid a higher money wage, fringe benefits will be cut. Workers may have to face purchasing their own insurance without the benefit of their employers’ bargaining power. Thus, (making up numbers) a $100 increase in money wage will result in a $300 additional expense the worker must now bear. The worker is worse off, but he will be recorded as better off by those overly focused on raw employment numbers because his paycheck is larger and he is still employed .

  6. “In fact, raising the minimum wage is good for business and the overall economy. Why? Because when poor workers have more money to spend, they spend it, almost entirely in the local community, on basic necessities like housing, food, clothing and transportation. When consumer demand grows, businesses thrive, earn more profits, and create more jobs. Economists call this the “multiplier effect.” According to Doug Hall of the Economic Policy Institute, a minimum wage hike to $9 per hour would pump $21 billion into the economy.”

    Hmmm. ‘Economists call this the “multiplier effect.” ’ Conversely, there is a sea of economists that call it: “times some multiple of Keynesian foolishness”

    1. Jon Murphy

      Well, economists of all stripes have a multiplier effect. The question is just how large the multiplier effect really is.

      1. Barro says the multiplier is negative. Ooops.

  7. John Dewey

    from the article: ” Economists call this the “multiplier effect.” According to Doug Hall of the Economic Policy Institute, a minimum wage hike to $9 would pump $21 billion into the economy. ”

    That implies that Doug Hall is an economist. So what is Doug Hall’s real education? According to the Economic Policy Institute’s bio on Mr. Hall:

    “Education
    Ph.D. Political Studies, Queen’s University (1998)
    M.A. Public Policy and Administration, McMaster University (1989)
    B.A. (Hon.) Public Policy and Administration, York University (1988)”

    http://www.epi.org/people/doug-hall/

    In order to get the B.A. in Public Policy and Administration at York University, Mr. Hall was required to take two economics courses: Intro to Microeconomics and Intro to Macroeconomics.

    It does not appear that any economics coursework is required for McMaster University’s M.A. in Public Policy and Administration.

    I’m not sure how Doug Hall would be qualified to offer the assessment that a minimum wage hike will pump $21 billion into the economy. But it is clear that he is not educated in economics.

    1. Okay, but what’s Krugman’s excuse?

      1. Oh, Krugman opposes the minimum wage. Or at least he used to.

        http://www.pkarchive.org/cranks/LivingWage.html

        -dk

        1. Dick,

          Back when he was an economist, Krugman opposed a great many things he now embraces as a shill for the state (well, the Democrat state). In a recent column he has come out for the minimum wage.

          1. My point exactly :-)

          2. Ah! :)

          3. Methinks

            Do you mean the former economist Dr. Krugman, now known as Mr. Krugman?

          4. I never refer to professors as “Dr.”. Unless you have an M.D. after your name, you’re Mr. or Ms. to me. So, Krugnuts is a former economist, current political hack.

    2. MacDaddyWatch

      This is similar to J. Bernstein’s non-economic educational background–see my post below.

      Most policy sci guys got crushed in anything above Econ 101.

  8. Nancy Pelosi said that for every dollar spent on unemployment, we get $1.75 return on investment. I wish I could remember who, but a senator just recently said it’s now up to a $2 return. Why are these morons not laughed out of town?

    1. …because we have met the enemy, and those morons are us.

  9. John Dewey

    Here’s some insights into how “economist” Doug Hall derived the $21 billion benefit to the economy of raising the minimum wage.

    First, he assumed that the burden of funding the minimum wage increase would fall 50% on the corporate owners (reduced profits) and 50% on the consumers of goods and services (higher proces).

    Second, he used Mark Zandi’s assumptions about the multipliers of government policy programs:

    1. Hall argues that the increased wages from a minimum wage hike would have the same economic impact of the earned income tax credit; a multiplier of 1.2

    2. Hall uses Zandi’s multiplier for a corporate tax increases to show that the economy will be reduced by only 0.32 times the reduction in profits.

    3. Finally, Hall uses a multiplier of only 1.04 to take into account the economic damage caused by the increase in prices.

    I find it amazing – but not surprising – that a leftist “economist” would use a higher multiplier for increased wages than he would use for reduced profits or for increased prices.

    http://www.epi.org/publication/ib341-raising-federal-minimum-wage/

    1. MacDaddyWatch

      If a hike to $9 ph would bring all those positive economic benefits, then just think what a boom we would have with a $50 minimum.

      What the libs and dems forget is that the top 2% create millions of jobs along with economic growth, prosperity and jobs. They either (1) invest their profits back into their business and thereby create growth, expansion and new jobs, they (2) buy and invest into stocks and bonds in other firms which then reduce their corporate cost of capital and produce the very same growth, expansion and new jobs, or (3) they don’t spend a dime and simply stuff their bucks into mail sacks and unload it into their bank–which then lends these money hoards out to needy businesses that create the growth, expansion and new jobs.

    2. MacDaddyWatch

      A while back, Senior Fellow John Taylor and a group of economists at Stanford’s Hoover Institute did a major study on the “stimulus” and why it failed to produce results as advertised.

      The multiplier used to sell the “stimulus” to the public was 1.5X (J. Bernstein and C. Romer). Taylor and his group concluded, however, that it was more like 0.5X and even less if you included transfer payments.

      In reality, the Bernstein/Romer multiplier turned out to be a divisor. Needless to say, Bernstein and Romer are no longer around and are back to their old jobs.

  10. PeakTrader

    “Who knew it was so easy?”

    What’s easy is a partial equilibrium model in a static economy.

    A minimum wage may be too high or too low depending on economic conditions.

    An change in wages (unlike grades) is a zero-sum game initially.

    When there are massive idle resources (like in this depression), people hoard money, e.g. corporations, store it in metals, like gold, buy bonds at 1%, bury it in the backyard, etc..

    Instead, idle capital can shift or income redeployed into a higher minimum wage, for consumption, and therefore production, that may be powerful enough to begin generating a self-sustaining consumption-employment cycle.

    1. Money is not a resource. It is simple an abstraction, a claim on future wealth and resources. Hoarding money only lowers prices and increases purchasing power for those who do spend money.

      1. PeakTrader

        Ken, when you have money, it’s a resource.

        People save money. And when they don’t spend money, you get deflation, or no inflation, and recession.

        1. Ken, when you have money, it’s it represents a resource.

      2. Who hoards money? Money is invested in productive assets and production is an expression of demand.

        1. Would holding large amounts of cash in a deflationary environment count as “hoarding,” by your definition? What about holding excess reserves when, say, interest is paid on said reserves?

          I ask in all seriousness, no snark attending.

          1. PeakTrader

            It may be better to hoard money than loan money, for consumption and production, in an economic environment.

            There’s less interest and risk hoarding money.

            When demand is too low, there’s surplus labor and capital. When they’re not employed, they’re idle.

          2. Peak

            It may be better to hoard money than loan money, for consumption and production, in an economic environment.

            Any chance you could reword that so it makes sense?

            When demand is too low, there’s surplus labor and capital. When they’re not employed, they’re idle.

            Still getting that wrong, I see.

          3. William

            Would holding large amounts of cash in a deflationary environment count as “hoarding,” by your definition?

            Since Methinks hasn’t answered, Ill give it a shot.

            I like this definition. Note that the asset being hoarded isn’t available to others, so the phrase “stuffing money in your mattress” fits perfectly.

            Holding cash in bank accounts or money market accounts is a different matter, as this cash IS available to others as loans, which is why you are paid interest for the use of it.. When we talk of businesses “holding cash”, it’s not in the form of closets full of $100 bills, but as liquid assets that earn interest, so the term “hoarding” doesn’t actually apply. That money isn’t kept out of circulation.

            What about holding excess reserves when, say, interest is paid on said reserves?

            If interest is paid on bank reserves, you could say that the banks are being paid to hoard, or to refrain from lending as they normally would. An odd situation at best.

            From the point of view of the bank, it is good business to hold an asset that earns a risk free rate of return as opposed to lending it – especially at current low interest rates.

        2. Who hoards money? Money is invested in productive assets and production is an expression of demand.

          I’ll “Say” !

          :)

          1. :)

    2. You know pt for a short while there I thought you had penned that Huff-Po propanda piece under a pseudonym…:-)

      idle capital“…

      Really is there such a thing unless that capital is squirrelled in a mattress or something?

      1. PeakTrader

        Juandos, when capital and labor aren’t utilized in production, they’re just sitting around.

        1. when capital and labor aren’t utilized in production, they’re just sitting around“…

          OK pt I can understand the labor bit but money sitting in accounts whether domestically or in somje off-shore account or even an off-shore tax haven is being utiliized, right?

          Maybe its not being utilized to its full extent…

          1. PeakTrader

            Juandos, I’m sure, my bank accounts are being utilized, because my interest rate is lower than inflation.

            When you start or expand a business, labor and capital are needed. When a business fails or contracts, labor and capital aren’t needed.

            Currently, there’s a surplus of labor and capital.

          2. Currently, there’s a surplus of labor and capital“…

            Oh I agree with you pt, it was just the matter of degree of monetary/capital utilization that I was wondering about…

            BTW your comment reminded me of a question that has sort of been bugging me…

            How much of this surplus capital is being drawn down (if any?) by these quantitative easing programs?

        2. Juandos, when capital and labor aren’t utilized in production, they’re just sitting around.

          When labor isn’t utilized in production it doesn’t exist. The time people could have spent in production is now called leisure instead.

          There is no store of unused labor kept in jars in your garage.

    3. givemefreedom

      Peak said: “When there are massive idle resources (like in this depression), people hoard money, e.g. corporations, store it in metals, like gold, buy bonds at 1%, bury it in the backyard, etc.. Instead, idle capital can shift or income redeployed into a higher minimum wage, for consumption, and therefore production, that may be powerful enough to begin generating a self-sustaining consumption-employment cycle.”

      So let me get this straight Peak, you say we have a depression and people/corporations are hoarding money/resources. Then you say that a higher minimum wage will cause this idle money/resources to be redeployed into activities that cause economic growth??

      So these people/companies that have been hoarding money/resources, all that they have been waiting for is an increase in the minimum wage and they will now start deploying this idle money/resources?

      Why did we wait so long then? We should have raised the minimum wage as soon as the financial crisis started and we should have raised it alot more than the current proposal.

      Nice logic.

      1. Why did we wait so long then? We should have raised the minimum wage as soon as the financial crisis started and we should have raised it alot more than the current proposal.

        Nice logic.

        GMF, it seems that you, like everyone else, is struggling with this new concept of an upward sloping demand curve for labor.

        At Carpe Diem only Peak Trader has any in-depth knowledge of the subject, and he appears to be “hoarding” it. Fortunately, as you can see, Prof Perry has found some other experts on the subject at Huff Post, so maybe we can all learn more there.

        LOL

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