Hello. I remember reading from this thread and someone mentioned that artificially inflating the minimum wage would be bad, because people having too much money would cause inflation. What I don't understand is, if we choose NOT to increase the minimum wage, this would mean that the business owners would get to keep most of the money. These people might also spend this money in our economy (such as buying yachts, luxury vehicles, just to name a few). This is also money circulating in our economy. So why doesn't this cause inflation too? It's the same money. Just in different people's pockets. Help me understand, thanks.
When you post something like The minimum wage is only bad for the people who earn it And are not being sarcastic..you really need to stop posting
Here is my take on the issue, admittedly from someone without an education in economics: General inflation is caused by an increase in the money supply relative to the amount of economic activity. Raising the minimum wage, on the other hand, does not affect the money supply, but rather results in redistribution of money among players in the economy. Thus, higher minimum wage cannot lead to general inflation. However, an increase in the minimum wage CAN result in price increases. The reason is that money is redistributed from those that hoard it to those that spend it, thus increasing the rate of turnover. Thus, money previously sitting on the sidelines (reducing the "effective" money supply) gets back into circulation, thus creating more money chasing the same amount of goods and, thus, a price increase.
Understand something their is no evidence at all that minimum redistributes money from the top to the bottom, what little redistribution there is runs from the middle to the bottom.
More money in circulation can be inflationary if demand exceeds supply because of it. Minimum wage increases should be incremental enough as to not cause excessive inflation, ie give the manufacturers time to tool up and hire up and the low end consumers have more to spend. Why is it inflationary if the bottom spends it? Because the money is going to change hands many times up the food chain. The Wendy's worker buys a bike. The bike salesman buy a motorcycle. The motorcycle salesman buys a used can. The used car salesman buys a new car. When in the hands of the hyper rich they can't consume it with nearly the same speed as the millions of low income people can. Consume is the operative word. The low income end are consumers, they have little or nothing left over after buying food, housing, entertainment, etc... The hyper rich have a lot left over even after buying their fancy wines and caviar. So they invest in wealth rather than just consume. Buildings, once built, no longer provide much in jobs so the wealth sits there. The solid gold bidets once cast no longer provide jobs so they just sit there. The 14 ca diamond once cut no longer provides jobs but just sits there. But, according to trickle down, since the hyper rich have so much money by now they should be producing with such a capacity inflation would be impossible. But then that would be if trickle down worked.
There are many things that can cause inflation, even psychological aspects can cause inflation such as the combination of recession and inflation, aka "Stagflation" that occurred in the late 1970s. People couldn't find jobs yet prices were rising at double digits, so people would make major purchases before they needed to just so they can get them at lower prices than buying it later. Raising minimum wages are more likely to put poor people (minimum wage earners) out of work because a sole proprietor of a business has a BUDGET to follow. He can't create money out of thin air to pay higher wages and if he/she is at break even, then is going under or laying people off. In other words, deflation follows if it takes a lot of people off the jobs. To others here, forget the "yachts." That's such a childish notion. Steve
That's a new theory to me. Usually, when the minimum wage is discussed, conservative mantra is that it leads to inflation, because it will force businesses to raise prices. As I discussed above, this it simplistic thinking, because the change in minimum wage does not change the money supply. A change in minimum wage can, however, change the money velocity. The question is then, how would money velocity change? If it decreases, as you propose, then deflation could arise. However, there are offsetting effects to the simple "business will lay off workers" that you base your proposal on. Workers will also have more money due to the increased wage, thus creating more demand for goods, and will in turn spend that additional money to flow right back into the pockets of businesses. So, cause and effect is not as simple as some may envision, once considering a cyclic system.
Actually, we have discussed similar information before. I am a Post-Keynesian economist. That is REAL WORLD economics. The theories you cite are Neoclassical theories from Alfred Marshall, circa 1870s. That is what is taught for basics in the majority of colleges and universities. Yes, it is the conservative approach. It is based upon a supply orientation, while Post-Keynesian is based upon a demand orientation. Steve
Interesting, because most people emphasizing the demand side are on the left wing of the spectrum. Don't know much about post-Keynesians, but at first glance doesn't seem to fit with conservative dogma.
Inflation in this country has pretty much been driven by unions demanding more money, and their help from democrats. Democrats because they passed high taxes to buy the vote of the poor and the lazy.
If you look at the months following minimum wages increases unemployment goes down and tax revenues go up. The fallacy that businesses can't afford workers sounds good but it really makes no sense. It implies that an employee hires workers based on how much he has in the budget. If I ever had a manager who hired based on that and not based on the number of employees needed to get the job done it's that manager joining the unemployment line. McDonalds doesn't keep an extra two or three on the payroll because they are cheap. Exceptions being companies that hire useless children too spoiled to work for anyone else.
It is causing inflation---in stock pricing. I look at it from a more micro level. Raising the MW might very well increase velocity nationally and be a statistical bump for the national economy for a short period. The problem is that bump in the national numbers could be devastating for businesses in economic deadzones and we have too many of them right now. In other words, great for Amazon but a disaster for Sal's Pizza in rural wherever. A bit dated, but this article discusses these areas: http://www.alternet.org/story/153875/america’s_dead_zones:_from_detroit_to_dyersburg,_why_does_prosperity_pass_so_many_places_by
Money is the current medium of exchange in the form of coins and banknotes. It does not have any value of itself. A soldier doesn't fight for money but for duty, a farmer does not work for money but for duty. The money we spend, or receive is just a measure by ourselves and others of the value put on the work or product. rasing the minimum wage just shows how much we value thier work.
