Minimum-wage fetishism
February 6, 2013, 2:13 pm
Filed under: Uncategorized

Standard theory suggests that price-inflation has a ‘regressive’ effect, in that it harms poor people, who consume a greater % of their income, more. Correct?

With that in mind, what sense does it make to root for price inflation so that you can raise nominal minimum wage?

“We’re gonna make everything more expensive for people like you – especially people like you – so that we can afford to raise your wages a little.” Huh?

To be fair, he does nod to this tension near the end of the post:

But real wages would fall for some people (I’m probably an example of such a person) and we might worry about the impact of that especially on the lowest-wage workers. Pairing expansionary monetary policy with a higher minimum wage to ensure that the interests of currently employed low wage workers are protected could make sense.

(emph mine)

Now wait.

1. First, obviously, you can’t ‘ensure that the interests of currently employed low wage workers are protected’ all that well if they get fired – cease being currently employed – due to the increase in minimum wage you imposed on their employer.

2. At best, this is fixing a self-inflicted problem: ‘We need to raise minimum wage to ensure that you can still afford the prices that will rise due to the price inflation we’re spurring in order to be able to raise the minimum wage.’ Why enter this loop at all? Because we are minimum-wage fetishists?

3. At the very least, for people who still do, against all logic, favor a minimum wage, shouldn’t there be some consideration of real wages on the affected marginal category of people? Even if they succeed in their noble goal to raise those nominal wages (and miraculously, no jobs are lost in the process), how on earth is anyone even sure doing this round-trip helped rather than hurt the min. wage-earner’s real standard of living?

I clearly still have so much to learn about economics. Your help is appreciated.

8 Comments so far
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We need a formal name for this, because something similar came up on Jeffrey Tucker’s Facebook page. A commenter asked why abolishing patents wouldn’t completely crush the pharmaceutical industry. I responded that in the case of pharma, dashing patent protections would indeed crush the industry if the FDA’s regulatory hoops/roadmap to new product approval remained intact. But then the problem of laborious regulations gets “resolved” by the government’s allowance of unnecessary patent protection.

As I put it on FB, the government positions itself to play the role of “alcohol” in Homer Simpson’s toast: “Here’s to alcohol: the cause of, and solution to, all life’s problems.”

This sort of thing exists everywhere that government exists. First, gov’t messes everything up. Second, gov’t rushes to the rescue. Third, gov’t arrives to save us from the effects of the rescue. Repeat ad nauseum.

So what should we call this? How about Reverse-Midas Touch?

Comment by RPLong

I’m sure the same minimum-wage fetishists would abhor hard money (fixed amount, no fractional reserve banking) because … minimum wages would tend to rise in purchasing power over time without any government intervention?

Comment by Dave

They say inflation is good because of animal spirits. Seriously, that is the official answer.

Comment by Dave

I think it also has to do with ‘aggregate demand’ and ‘the multiplier’, but I’m not an economist and I also don’t have a lot of experience with baby-sitter’s clubs, so I can’t be sure. I’m learning.

Comment by The Crimson Reach

MWFs also seem to ignore the time component of inflation. Even if, in the long-term aggregate, rising prices do lead to rising wages (i.e. everything “evens out”), this doesn’t prevent short-term problems, like brief increases in unemployment or brief bouts of material poverty (but not necessarily monetary poverty). I guess the real question is, if inflation just evens out in terms of prices relative to wages, then what is the point of undergoing inflation? Is it just fir shits and giggles? If everyone is relatively the same and the only difference inflation makes is increasing nominal prices and wages relatively equally, then isn’t inflation just simply a waste?

Comment by Simon Grey

You’re right about short term displacements. As far as I can tell, this possibility is magically waved away as automatically negligible. Which is convenient I guess.

As for what’s the point, it’s hard to escape the conclusion that the point (of both ‘stimulative’ policy and minimum wage) is to Feel Good And Noble for proposing stuff that ‘helps’. Whether it actually helps, is a secondary/non-consideration.

Comment by The Crimson Reach

So it’s just busywork so busybodies can feel good about themselves? I suppose that’s more palatable than assuming that the central bank exists to screw the poor and enrich the wealthy. Still, you’d think that the government has better things to do than help busybodies feel good about themselves at the expense of the poor. But then, no one’s ever really given a shot about the poor anyway.

Comment by Simon Grey

Is it possible you are seeing a contradiction between ‘Smart People get to feel good about thrmselves’ and ‘the poor get screwed’ where there is none?

Comment by The Crimson Reach

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