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Thread: interesting viewpoint on the minimum wage ...

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    Default interesting viewpoint on the minimum wage ...

    from

    (snip)"It is price inflation that is the killer of economies; and price inflation is manifested, of course, as higher prices, but which is the same as a fall in the purchasing power of the money. Knowing that, you are ready to hear Rep. Ron Paul (hopefully the next President of the United States) writing at LewRockwell.com, who reports that when you deflate/inflate 2006 dollars to achieve buying power parity across different points in time, the buying power of the current $5.15 per hour minimum wage translates to, "$9.50 before the 1971 breakdown of Bretton Woods." This is, of course, the infamous year that Nixon finally severed the official gold/dollar link.

    And if you want some proof of his towering intellectual competence with regards to economics, not only relative to his fellow dimwitted Congresspersons, but also in absolute terms, then I am happy to report that he went on to say, "Congress congratulates itself for raising the minimum wage by mandate, but in reality it has lowered the minimum wage by allowing the Fed to devalue the dollar." This is exactly the mechanism at work!"(snip)

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    Arrow Re: interesting viewpoint on the minimum wage ...

    Here Here !

    Another fellow american citizen who reads past the smoke and mirrors of the deceptive double-talk we are expected to accept at face-value.

    The day they announced this, a friend who works in food-service was completely excited, nearing "ballerrific" happiness:

    His salary would increase by about $3.

    I attempted to explain how this was a negative, ESPECIALLY for the working class, since it would serve to create a "great divide" between the working class and the rich; i.e. decimating the "middle class," since the middle class would, by default (or careful palnning), be catapulted to the higher bracket-

    I guess there is much more to the recent fashion stylings of Hollywood celebrities donning spandex leggings (shudder) and metallic fabrics (double shudder); Can we say, "Hello 80's ?"

    Biggest difference? That most taxpayers at this point are in HUGE amount of debt (thanks to greater access to credit for school / homes / cars / etc.) and already in the red line, and they will almost certainly be designated the burden of burying the country out of deficit (Funding wars result in deficit).

    Decode the jargon and we find the truth behind the words - a "Retro" economy:

    Not cool.

    Great thread Melonie (Nice to meet you).


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    Default Re: interesting viewpoint on the minimum wage ...

    So people should struggle to put food on the table for the good of the greater economy?

    Now THAT is not cool.

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    Default Re: interesting viewpoint on the minimum wage ...

    ^^^ actually, the point seems to be that the economy is a system of actions and reactions. Therefore any gov't action will produce an economic reaction. Or based on the history that Rep. Ron Paul points out, the recent increase in several state minimum wage rates will not actually put any more food on the table of minimum wage workers (at least not after sufficient time has passed for the reaction to take place). Yes some minimum wage workers will have fifty extra US dollars in their paychecks, but between increased prices and increased taxes and lost social welfare benefits they won't actually be able to afford any more than they could before the minimum wage was increased. At the same time, increased prices to cover increased labor costs affect everybody !

    'Dollars' are not a constant. If the gov't increases the amount of dollars that must be paid in exchange for the same value of labor, eventually the prices of everything based on that labor readjust such that the 'purchasing power' of those greater number of dollars is exactly the same as before the gov't enacted the increase. Unfortunately, this loss of dollar 'purchasing power' affects every aspect of the economy from higher paid workers to retirement funds to savings.

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    Default Re: interesting viewpoint on the minimum wage ...

    Melonie...do you by chance read F.A. Hayek or Ludwig von Mises?

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    Default Re: interesting viewpoint on the minimum wage ...

    ^^^ I subscribe to the Austrian School, sure !

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    Default Re: interesting viewpoint on the minimum wage ...

    Quote Originally Posted by Melonie View Post
    ^^^ I subscribe to the Austrian School, sure !
    Oh my...I'm in love...

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    Featured Member flickad's Avatar
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    Default Re: interesting viewpoint on the minimum wage ...

    Quote Originally Posted by Melonie View Post
    ^^^ actually, the point seems to be that the economy is a system of actions and reactions. Therefore any gov't action will produce an economic reaction. Or based on the history that Rep. Ron Paul points out, the recent increase in several state minimum wage rates will not actually put any more food on the table of minimum wage workers (at least not after sufficient time has passed for the reaction to take place). Yes some minimum wage workers will have fifty extra US dollars in their paychecks, but between increased prices and increased taxes and lost social welfare benefits they won't actually be able to afford any more than they could before the minimum wage was increased. At the same time, increased prices to cover increased labor costs affect everybody !

    'Dollars' are not a constant. If the gov't increases the amount of dollars that must be paid in exchange for the same value of labor, eventually the prices of everything based on that labor readjust such that the 'purchasing power' of those greater number of dollars is exactly the same as before the gov't enacted the increase. Unfortunately, this loss of dollar 'purchasing power' affects every aspect of the economy from higher paid workers to retirement funds to savings.
    Aren't raises to the minimum wage generally slightly behind the CPI, if anything?

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    Default Re: interesting viewpoint on the minimum wage ...

    ^^^ well, that depends on what you pick for a starting point for comparison !!!

    The bottom line is that minimum wage laws do not create any more 'value' in exchange for the mandate to pay more dollars. This is inflationary by definition. If an employer is mandated to pay more dollars for labor, those extra dollars must be recouped by charging higher prices for the goods or services provided. Unless more 'value' is created somehow, increasing labor costs leading to increased prices for goods and services simply amounts to a revaluation (actually devaluation) of the US dollar for everybody who uses US dollars.

    This US dollar devaluation then instantly increases the US dollar cost of all imported goods and services, with the major items being oil / gas, metals and plastics (major components in every manufactured good) - which sets off yet another round of dollar inflation. This will of course be immediately followed by calls that the minimum wage as well as wages of higher skilled higher paid Americans must be increased yet again.

    Seemingly the only 'winner' in this inflationary spiral is actually the US federal / state / local govt's because their tax rates are progressive. In other words if taxable incomes in terms of total US dollars go up 10%, tax receipts go up MORE than 10%. Also, these govt bodies benefit because their old debts i.e. outstanding bonds can be more easily paid back with tomorrow's US dollars that are 'worth' 10% less than yesterday's US dollars. Heavily indebted consumers also benefit from the same mechanism.

    However, savers / investors get screwed because they must stand by and watch the 'value' of their savings / investments drop in terms of purchasing power even though the US dollar value of those savings / investments is nominally still increasing. Going back to Dr. Paul's comments about 1971 prices, one could buy a decent new car for US$5,000 and one could retire comfortably on US$100,000 back then, where the minimum wage was something like US$3.00 per hour. Compare that to today's decent new car costing $15,000, a minimum retirement nestegg being about $333,000, and the new minimum wage being $7.25 today in some states. In terms of 'purchasing power', even with the increase the minimum wage worker has lost - as have middle class workers, savers / investors i.e. essentially everyone who deals in US dollars.

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    Default Re: interesting viewpoint on the minimum wage ...

    Quote Originally Posted by Melonie View Post
    ^^^ well, that depends on what you pick for a starting point for comparison !!!

    The bottom line is that minimum wage laws do not create any more 'value' in exchange for the mandate to pay more dollars. This is inflationary by definition. If an employer is mandated to pay more dollars for labor, those extra dollars must be recouped by charging higher prices for the goods or services provided. Unless more 'value' is created somehow, increasing labor costs leading to increased prices for goods and services simply amounts to a revaluation (actually devaluation) of the US dollar for everybody who uses US dollars.

    This US dollar devaluation then instantly increases the US dollar cost of all imported goods and services, with the major items being oil / gas, metals and plastics (major components in every manufactured good) - which sets off yet another round of dollar inflation. This will of course be immediately followed by calls that the minimum wage as well as wages of higher skilled higher paid Americans must be increased yet again.

    Seemingly the only 'winner' in this inflationary spiral is actually the US federal / state / local govt's because their tax rates are progressive. In other words if taxable incomes in terms of total US dollars go up 10%, tax receipts go up MORE than 10%. Also, these govt bodies benefit because their old debts i.e. outstanding bonds can be more easily paid back with tomorrow's US dollars that are 'worth' 10% less than yesterday's US dollars. Heavily indebted consumers also benefit from the same mechanism.

    However, savers / investors get screwed because they must stand by and watch the 'value' of their savings / investments drop in terms of purchasing power even though the US dollar value of those savings / investments is nominally still increasing. Going back to Dr. Paul's comments about 1971 prices, one could buy a decent new car for US$5,000 and one could retire comfortably on US$100,000 back then, where the minimum wage was something like US$3.00 per hour. Compare that to today's decent new car costing $15,000, a minimum retirement nestegg being about $333,000, and the new minimum wage being $7.25 today in some states. In terms of 'purchasing power', even with the increase the minimum wage worker has lost - as have middle class workers, savers / investors i.e. essentially everyone who deals in US dollars.
    If the US minimum wage was $3 in the 1970s and is now $7.25 (an increase of $4.25 in forty years), then in real terms it has actually dropped, non?

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    Default Re: interesting viewpoint on the minimum wage ...

    ^^^ in terms of 'purchasing power' yes it has dropped since the 70's, as has the value of the US dollar in general. However, arguably, today's level of 'purchasing power' of unskilled labor pay rates is on the same level as existed in the 1930's or the 1900's.

    The problem of course is that the 'value' of unskilled minimum wage labor has not increased since the 1970's. However, the ability to 'outsource' unskilled labor and the ability to import goods from foreign countries produced with unskilled labor has been greatly increased. And those foreign countries value their unskilled labor at it's actual 'world market' level - which is far below the US dollar exchanged level of $7.25 per hour. In the 70's if Americans wanted / needed unskilled labor they were forced to pay the US minimum wage, which even at $3 an hour was well above the 'world market' level at that time, because the outsourcing wasn't available and the imported goods were 'shoddy' - in other words, a captive market. That captive market was based in no small part on the World War 1 / 2 era destruction of the industrial facilities of countries like Germany and Japan and China, as well as the World War 1 /2 era destruction of the economies of practically every country in the world besides the USA / UK / Commonwealth.

    Today the World War 2 era damage to industrial facilities has been replaced with brand new facilities, the banking systems of Germany and Japan and to some extent China are back on their feet, thus the market is no longer captive. Therefore the US gov't issuing mandates that employers must pay uncompetitively high labor rates for unskilled labor can only be accomplished via inflation and/or transfer of wealth from higher skilled higher earning Americans and/or bankruptcy of that employer and/or elimination of US unskilled labor jobs in favor of automation or consolidation. I suppose there is also the option of starting World War 3, with the resulting economic and physical damage (again) eliminating foreign competition, but that's definitely a topic for another thread !

    Looking at this from a different angle, had it not been for the destruction wrought by the US entry into WW1 and WW2, unskilled Americans would not have enjoyed the high standard of living that was 'paid for' by the destruction of foreign competition. Thus the US standard of living for unskilled Americans would have remained on a par with the levels of the 1900's and 1930's all the while. The 1950's comparison chosen by Dr. Ron Paul, as well as comparisons to America's 'roaring twenties' both occurred at the height of America's 'captive market' since in both cases the foreign competition had recently been bombed out of business and the competitors' economies bankrupted. Thus in the absence of a WW3 to again 'erase' the competition, unskilled Americans have no reason to expect that the artificially high standard of living they enjoyed in the aftermath of WW1 and WW2 is sustainable into the future.

    !
    Last edited by Melonie; 03-25-2007 at 08:06 AM.

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