So you are saying these statements were pulled out of their ass?
Yes for the most part. These are economists after all. Let me pull some statements.
To depict the circumstances deemed most likely to apply by minimum wage advocates, the analysis below assumes that no employment or profit losses occur as a result of minimum wage increases
"Thus, our simulations make three related assumptions:
• consumers do not reduce consumption as prices rise,
• all increased labor costs are passed on in higher prices, and
• low-wage workers remain employed at the same number of hours after the minimum wage rises.
Taken together, these three assumptions provide a setting for simulating the expected effects of minimum wage increases in a relatively straightforward manner"
They also look at gross family income not selecting out impoverished families or effects on individuals which would better measure effects on those groups. In other words, all teen workers who live at home have their income counted with their families and this waters down the aggregate numbers.
___________
Implict here is that an increase in the minimum wage will result in increased prices. They don't explain how that would be true.
Austrian economics is grounded in the belief that prices are determined by supply and demand. This is close to ground zero of their house of cards logic built on the fundamental, base assumption of human action. That supply and demand will determine the price.
So what about raising the minimum wage changes either the supply, the number that can be produced, or the demand for the item, the marginal utility of the item for the item at the price before the minimum wage increase? Nothing.
According to the Austrians themselves, the price is completely out of the control of the producer, in order for the price to go up the demand curve has to shift to the left or the supply curve has to shift to the right. .
Austrians claim that the supply curve shifts to the right because of "marginal productivity," that supply and demand drive the price of the of all of the products sold, down to the marginal cost of producing that last item, the marginal product. This is expressed as
MR = MC
That the marginal price (revenue) equals the marginal costs of producing that final item.
And since the increased wages are now part of the marginal cost the price MR goes up.
To say that this marginal productivity assumption is the basis for all of Austrian economics is almost an understatement. This is the price discipline that they claim can control economic agents, producers and consumers, better than the government can with its piles of laws and regulations.
It is the same price discipline that guarantees the maximum social justice. That workers are paid for the full value of their labor, for example or that the full capacity of the producer's facility is utilized, that is the maximum efficiency.
There is just a small problem with this assumption. In a modern industrial economy this pricing level not only guarantees that you will have those things, it is an absolute guarantee that you won't have something else. Any profits. None. Zero. In fact, it guarantees that you will operate at a loss. Everyday, for every item that you produce and ship out.
Profits are important. They are the incentive to get people to invest money in the venture. No profits, no investment, no production, no economy.
How does this flaw happen?
Because to have a profit the MC, the marginal cost, which is equal to the price that the market sets for all of the items produced remember, must obviously be higher than the average cost of the entire production plus all of the fixed overhead costs, rent, executives' salaries, etc., plus any profit. When you plot the costs of production versus the number of items produced it has to be a ”U" shape, with the costs of production rising as you approach the full capacity of the production facility. What is called "diminishing returns."
Unfortunately in a modern industrial economy you almost never see a "U" shaped production cost curve. Why? Because of something called the 'economies of scale.' Almost always the last item that you produce is the lowest production cost item that you will produce because you have spread the fixed overhead costs over the largest number of products possible. Obviously, if as the Austrians say, that this is price that you get for your entire production run you are in serious trouble. No profits. Nothing but losses.
What does it mean for Austrian economics? It is just another reason that it is a fantasy.
This never seems to bother Austrians, especially the rather crude internet Austrian economists that you run into on sites like "Marginal Revolution." Most of these Austrian economists have adopted Austrian economics not because of the elegance of the logic that it exposes but because they are drawn to it because it satisfies they long head political beliefs. Most haven't read anything written by an Austrian economist with the exception of chapter 10 of Hayek's
Road to Serfdom in which Hayek in no uncertain terms declares during the second world war that if a country didn't embrace an economic system based on individual liberty and the truly free market that they are doomed to slide down that slippery slope to either fascism or communism, the road to totalitarianism, the road to serfdom.
The fact that none of the European Social democracies slid into the serfdom of communism doesn't seem to convince any of the internet Austrians that Hayek was wrong. It demonstrates a stubborn lack of critical thinking skills that is repeated constantly by Austrians and Libertarians. Logic can't penetrate their political beliefs. Most are political conservatives and as such resigned to being wrong. Always. About everything.
