A Replacement for Minimum Wage and Unemployment Benefits

Alright, lets start out by stating some important information

Lets say a nation has 10000 consumers, and those consumers circulate 10,000,000 dollars a year, that is 1,000 average dollars circulated per person.

Then lets say you decrease the amount of consumers by 5000 (50%), then then the average dollars circulated per person rises to 2,000, which is inflation.

Now lets say you increase the number of consumers, this causes deflation.

Most importantly for what I'm about to talk about, if you add 1000 circulated dollars to the nation, and one more consumer, you have neither inflation or deflation.

So here is what I propose a government do: Create, for example, one government job that pays minimum wage (about 15000$ a year in the USA), Print the average amount of money each person makes in a year (47,000 dollars in the USA's case), increase the yearly tax income by that amount, make a tax rebate that gives away the money not spent on the job, and do away with minimum wage and unemployment benefits.

What this effectively does is create one new job (though the method can theoretically create more), puts the average amount of money each person makes in the nation into the economy, adds one consumer, adds one worker, adds what is produced by that government job, and doesn't cause inflation by not increasing the average yearly income.

If this job creating plan works how I believe it works, then it's a good government program a government should have.

I also want to note that while I put a lot of thought into this, I could always be missing something. If you see I'm missing something, please let me know in a response below, but in that response try and create an amendment to this plan that solves that problem, if one can be made.

I appreciate any serious, respectful feedback, so please let me know if you like this plan or not!

 

There will be no inflation because you still have the same amount of dollars circulating, just in fewer hands.

 

So if suddenly 50% of the USA's population suddenly died and lost all their money to someone else, those people wouldn't have more money to spend, they wouldn't buy more stuff, businesses wouldn't make more money and want to hire more workers to keep up with demand, wages wouldn't rise do to the increase demand for labor, and prices wouldn't increase from the rising costs of labor?

 

Those people would, but there would be an equal decrease in demand because 50% of the population would not be spending money anymore (because they died).

 

Demand will decrease by 50% because the surviving people won't spend their 1000 more dollars? Or are you saying there is less consumption? In that case there will also be 50% less production to match the decrease in demand thus no inflation.

 

The surviving people are spending 1000 more, but the dead people are spending 1000 less...because they are dead. So no, there is no more spending. Lol. I'm going to assume that if you still don't get that you are just trolling.

 

I understand there is not an increase in total dollars spent, but the spending gets more concentrated in a smaller population and the average dollars per person increases. production goes down 50%, but consumption goes down 50% as well. when the average dollars per person increases you have inflation because they spend more per person, employers hire more people to keep up with demand, a shortage of labor occurs (relative to how much the previous supply of labor), wages rise, and the increased wages increases the price of producing goods and you have inflation: dollars being worth less then they were before.

Please, if you still disagree, make your own theory on what happens like I have in the last sentence of the paragraph above.

Also how badly is this site trolled? Do trolls actually enjoy talking about politics?

 

You made it seem like total demand doubled, which is not the case. The people died, and everything they had produced also was destroyed (something you did not specify). So you are basically saying that present supply is cut by 50%, whereas spending remains the same. Then of course this will cause a price increase--a lower supply results in a higher price.

If you were to add 1000 more circulated dollars, you would just get more inflation. The creation of money is not the same as the creation of the supply of goods and services money can buy. It would have the same effect as reducing production--higher prices.

Money only has wealth because it can be exchanged for wealth. Creating more money will raise prices wherever that money is spent. It will not miraculously increase supply the moment it comes into existence.

 

Well I'm glad we settled the first point, that inflation would occur in that situation without printing dollars.

I see you made a statement against printing dollars, which makes me curious... where do you stand on the rest of my economic plan? Do you think that creating one job through printing money will cost other jobs? If so, how?

 

This was based on a false premise. Inflation isn't caused by the number of dollars per person available. It is caused by the total number of dollars divided by the total amount of goods produced. The number of people is irrelevant.

 

So inflation is caused by the formula for value of the dollar, and not by the formula for the value of the dollar shifting down?

I'm going to assume you meant the formula for the value of the dollar shifting down.

Well you got a point, but it changes nothing about how my plan would work. decreasing the population still decreases the amount of goods produced and causes inflation, same is true for deflation when you increase the population, and same is true for increasing the amount of dollars and the amount of people at proportionally equal rates.

 

Production isn't controlled by the size of a population. There are nations that have seen a growth to their GDP even though their population wasn't growing.

Just consider manufacturing. When production was purely done by hand, there were far more workers but much less productivity. Now that many processes are automated, we have far fewer workers but much higher production.

 

It will reduce real wages. The increase in the money supply will cause prices to rise, thus people will be able to buy less with their wages.

 

Well what I mean by population is working and consuming population (didn't want to confuse people by being too specific on everything) Those countries are expanding their GDP by employing previously unemployed people.

Well anyway lets get into the real meat of the plan, can we?

 

Inflation, in regards to fiat currency is generally caused by amount of dollars in inflation and demand for said dollar. More dollars means that dollar buys less. Less dollars, it buys more. Not to mention other factors that cause our costs to rise and savings to deprecciate...

 

Well you know what, that might keep the average annual earnings the same but it would cause inflation with the rest of the people who aren't employed by the government, so I'll amend that to only pay the 15000 circulated dollars to the worker. That wouldn't cause inflation because the government is producing 15000 circulated dollars a year and consuming that much more a year.

 

But when you produce 15000$ more a year worth of goods and services, and print 15000$ circulated dollars a year, that doesn't cause inflation because the equation "Money circulated a year" divided by "goods and services produced a year" = "value of a average good/service" (yes I stole that from hiimjered, he had an excellent point, and am glad he responded) stays the same by increasing both variables at a proportionally equal rate.

 

Why are you assuming creating 15000 more dollars will result in more goods and services of an equal amount?

 

because you are putting a man/woman to work with that money. that will produce a good or service, and it will be worth 15000 dollars a year because that's what it costs to make it.

 

Sorry but your OP is nonsensical. There is no understanding of inflation, minimum wages or job creation. There is just an artificial attempt to suggest simple relationships exist

 

The price of a good is not determined by the costs of production of that good. Price in terms of dollars is merely a ratio of value. (the value of the dollar relative to the good, or vice versa). The price is therefore determined by the supply and demand of dollars and the supply and demand of the good.

Also, where did the resources (equipment, etc.) come from to make that good? There are no more resources than before, other than another human and some pieces of paper.

Furthermore, production does not occur instantaneously. So prices will still rise, simply because there is more money being spent on the same amount of present goods. What your new worker is being employed to produce exists in the future, not the present. In the present, prices will rise. In the future, the supply will increase.

Your argument only works if you assume that more resources magically appeared to be used in additional production and that final product to be consumed came into existence at the exact same time the new money was created.

If just creating more money could grow an economy, poverty would not exist.

 

Wrong again! As soon as market power exists cost-plus pricing is the norm. Elementary error!

 

Well supply and demand also come in to play but supply is basically the cost to produce that good, unless in the case of diamonds where the cost of labor is cheap to extract them and the demand is so high they pay hundreds of dollars for them. In the large majority of cases you can just hire more workers to produce more of that good or service to meet that demand, and when supply and demand are equal, it's the cost to produce that good that determines the price/value. (note I'm still learning about economics here, as my old economics teacher didn't teach me that much, I'm hoping good criticism will shape this plan into something viable.)

To get the capital needed for producing good you can get it out of taxes. Yeah taxing hurts the economy but government spending helps it, so it balances out.

You don't put the entirety of the 15000 dollars into the market all at once, put it in paycheck by paycheck as to not shock the economy. This is also solved by paying the worker after he/she produces the good/service (or a reasonable part of it, like working on a house)

This plan still needs a lot of work I admit, but that's why I brought it here for! Like me forgetting to mention capital would be bought with taxes. so They don't just magically appear.

Also the government basically consumes the good by taxing for it (after the 15000 is put into the economy of course)

Poverty exists because we don't know the solution to managing the economy. And governments in the past haven't printed money irresponsibly, for instance directly buying a good instead of producing one with a new worker. So please, this is a new idea that hasn't been tried, you can't say it has already been proven to fail without direct reasons why.

 

Read the posts on the thread, I explain how this wouldn't cause inflation there.

 

That isn't going to happen. Consider something like replacing the minimum wage. That wouldn't be a cunning idea, as basic labour theory will show. First, a minimum wage reduces the inefficiency generated by monopsony (to derive that result we just need job search frictions and therefore workers adopting a reservation wage strategy, ensuring that the firm will have wage making power). Second, it is used to narrow inefficient wage differentials such that fewer resources are attracted to product with a low income elasticity of demand. Essentially a minimum wage is vital if you don't want a low skilled equilibrium (where the economy harvests an abundance of low paid labour)