Ontario raising minimum wage to $15

[Crazy Eddie]

And, once again, you built upon quicksand.

The demand for labor is not fixed. In reality all employers have multiple things they provide the customer. As labor gets more expensive the least productive of these will become uneconomic and will no longer be provided (or the quality of what is provided goes down)--thus the demand for labor goes down.

See, this bolded part is where your reasoning falls apart.

It does not follow that the removal of unproductive jobs from the market will reduce the DEMAND for labor services. Quite the contrary, it reduces the SUPPLY of terrible/unproductive service, since fewer employers are buying the crappy/useless labor at the original low rate. This will either further increase the demand for those low-end services (stabilizing at the new minimum) or force employers to get make their workers more productive to fill that demand.

You and Derec seem to be on the same page these days, so I'll explain this in terms you'll understand:

Picture a town full of prostitutes where the only form of labor is actually sex. The local pimp decrees that the lowest you can pay a hooker for the night is $50 an hour. Problem is, there's a certain demand for $20 crack whores (they're cheap and don't talk so much). That demand isn't going anywhere just because the $20 whores have to charge you $50 now, but being more expensive means the $20 walkers either clean up their act and deliver more bang for their buck, or they go out of business entirely. The net result is a sudden drop in cheap/nasty crack whores and a sudden increase in clean/classy girls who might actually make eye contact and wait until AFTER sex to light up a cigar. In BOTH cases, the result is both an improvement in the quality of service AND the creative destruction of the low-end of the industry. Customers benefit in the long run, and so do the prostitutes.

 

[bilby]

If that's true, then their choice to exclude the multi-site firms -- or even their ability to do so -- is very puzzling.

Ever hear of a phone book?

Not in the last two decades.

Around here, people are about as likely to use a phone book as they are to use gaslight, horse-drawn transportation, or water-clocks.

 

[Loren Pechtel]

Exactly. They excluded the data because they could not predict what results they would get from it. That doesn't make the data irrelevant, especially since it potentially provides context. But it makes it irrelevant to what they were trying to find, which was a direct (negative) correlation between the minimum wage and employment.

You fail to understand--without being able to figure out which employees were inside and which were outside the data is useless.

Think back to high school algebra. You have a bunch of x, y pairs to plot on a graph.

We have the x (whether they were inside or outside) and a calculated y. We should get two results from this. The multi-site companies lie somewhere in between but the researchers had no way of figuring out where in between they were. The y values could be calculated but the x is inherently unknown--how do you plot that?

In neither case (is a difference/is not a difference) do you learn anything useful from the multi-site data that you didn't learn from the single site data.

Irrelevant. A larger data set will always provide a more complete picture of a situation than a smaller one. Reducing the size of your data set to exclude data that "doesn't tell you anything more" is faulty logic; you can't know what the data tells you unless you analyze it.

No. Larger is better when the quality is the same. However, this larger would be nothing but noise. It's the same reason the effect is usually impossible to see--minimum wage workers are about 1% of the population, when you look at overall employment data it's about 99% noise. Of course you can't see the effect!

This study was special in that they had access to data that had a far lower noise level than normal. It's no wonder they found things others couldn't.

 

[Loren Pechtel]

And, once again, you built upon quicksand.

The demand for labor is not fixed. In reality all employers have multiple things they provide the customer. As labor gets more expensive the least productive of these will become uneconomic and will no longer be provided (or the quality of what is provided goes down)--thus the demand for labor goes down.

See, this bolded part is where your reasoning falls apart.

It does not follow that the removal of unproductive jobs from the market will reduce the DEMAND for labor services. Quite the contrary, it reduces the SUPPLY of terrible/unproductive service, since fewer employers are buying the crappy/useless labor at the original low rate. This will either further increase the demand for those low-end services (stabilizing at the new minimum) or force employers to get make their workers more productive to fill that demand.

You and Derec seem to be on the same page these days, so I'll explain this in terms you'll understand:

Picture a town full of prostitutes where the only form of labor is actually sex. The local pimp decrees that the lowest you can pay a hooker for the night is $50 an hour. Problem is, there's a certain demand for $20 crack whores (they're cheap and don't talk so much). That demand isn't going anywhere just because the $20 whores have to charge you $50 now, but being more expensive means the $20 walkers either clean up their act and deliver more bang for their buck, or they go out of business entirely. The net result is a sudden drop in cheap/nasty crack whores and a sudden increase in clean/classy girls who might actually make eye contact and wait until AFTER sex to light up a cigar. In BOTH cases, the result is both an improvement in the quality of service AND the creative destruction of the low-end of the industry. Customers benefit in the long run, and so do the prostitutes.

The people who went to the crack whores can't afford the classy girls. Getting rid of the crack whores has a minimal effect on the business of the classy girls.

 

[Crazy Eddie]

The people who went to the crack whores can't afford the classy girls.

Of course they can. Three visits to a crack house is worth one visit to the classy girl. They just have to combine all three of those visits into one session.

The amount of hours worked by the former crack whores is reduced by 2/3rds, even though their actual income doesn't change. So they are working fewer hours for the same money they were making in the lower income bracket. At the same time, being in the higher income bracket means they have to compete with other $50 whores, which means they have to step their game up and offer better service.

Who are the losers in this case? The poor customers now have to put up with vastly improved service and a slight delay of gratification that comes with not spending as much time with their favorite whores. The poor prostitutes now have the same amount of money and a lot more free time in which to spend it. And in all of this are a few penny-pinching customers who don't really want to spend money on prostitutes anymore because they're too expensive now... they probably lose out while everyone else wins.

Where is the downside, then?

 

[SimpleDon]

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It is hard to talk to a true believer like dismal. It is hard for them to separate what they think is happening from what they wish was happening. The major tenets of neoliberalism include the wish that the labor market was a true market where the supply and demand for labor set the wages. But it just has never worked out in practice, people aren't made that way. They like when their wages go up but they hate it when their wages go down. Therefore wages go up easily and don't go down at all.

Half right. It's very hard to push wages down, but when economic times are bad enough they do go down. Witness 2008. However, even if wages ratchet it doesn't change the fact that it does respond as a market. Yes, if wages can't go down you can't shift back along the curve--but you can still drop now-unproductive endeavors and thus lower your consumption of labor.

I am talking about a normally functioning economy, not one in a once in a lifetime depression caused by idiots who believed the impossible, that the financial sector had finally learned to regulate itself even though it never has happened before.

Or am I to assume that you believe that such depressions are suppose to be a regular feature of your ideal economy?

Yes, there is a labor market but it is a constrained market. And the constraint is embedded in human nature, workers don't accept decreases in their wages graciously. And they express their ingraciousness in often nasty ways, like riots, demonstrations, property damage, forming labor unions, staging strikes and electing people like Donald Trump.

But even after raising three generations under this heavy indoctrination they failed and human nature reasserted itself.

But you're trying to go against the basic laws of nature, also.

Ah, yes, the middle school playground taunt, "You do it too!!"

And surprise, there is no explanation, no example provided by you of where I am going against the "basic laws of nature." Am I violating Maxwell's Equations or Newton's Law of Universal Gravitation? I was just talking about human nature, things that we all understand because we are all human beings; love, greed, fear, hate, etc.

I am not the one who is suggesting that we change our current system of the mixed capitalistic economy. The system that has evolved over thousands of years of civilization. The system that is battle tested against human nature and experience. The system that developed the industrial revolution, the technology advancements that have gained us the tremendous economic surplus that we enjoy today.

And more specifically, the American school of economics, the vision of political economics that is enshrined in the purpose and the wording of the US Constitution. The American form of merchantilism that was first proposed by Alexander Hamilton, that a strong central government would combine;

• tariffs to protect American farms, industry and jobs,
• government investment in infrastructure, and later in a common education.
• government support for science, invention and industry with grants and subsidies.
• a strong central bank to discourage speculation and to encourage the more productive uses of credit.
• the use of a government issued fiat currency, i.e., easy money.

All to make sure that the US would become economically self-reliant. All of the above applied at different times with considerable controversy, but all well in place after the civil war. All of the above that made the US the largest and most dynamic economy in the world by 1900.

The American school of economics dominated in the US until it was replaced starting in the 1970's by your economics of free markets, free trade, a true labor market reducing labor to just another commodity, a weak government and the cross of gold. Your economics, the economics of the classical economists, von Hayek, Milton Friedman and Reagan.

You, Reagan, and Milton Friedman are making the same mistake that Marx made. You are proposing an economic system based on conjecture, on an unproven fantasy that is unsupported by history or even theory. Like Marx you are proposing to replace a large part of the regulation of society that government currently does with the regulation by the economic system, to subject large segments of society to the questionable "discipline" of competitive markets, including education, the national defense, health care and jurisprudence.

You deny that there are good reasons that government exists, that there are good reasons that the government regulates the economy. That to define and to regulate the economy is one of the two main reasons that government where created in the first place.

The only differences between Marxism and the neoliberal fantasy is that Marx was wrong thinking that capitalism wouldn't be able to adapt to the changes bought about by the industrial revolution, to provide a portion of the economic surplus generated to the workers, the 99% in today's understanding.

Your fantasy is that the adaptations that capitalism made were a mistake and that the 99% can be changed to accept your vision of an optimized capitalism. That markets can self-regulate and control much of what government does now. That rather than we using capitalism to improve our lives it would be better to let capitalism change us to improve capitalism. And like Marx, you are wrong.

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[SimpleDon]

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Therefore, just like Marxism, the libertarian free market philosophy would have to establish a harsh regime to force the changes in human nature require through indoctrination. Not to mention the boatload of specialized knowledge that an individual would have to have without any of the support of what the free marketers deride as the nanny state. To buy a house our model free marketer would have to understand civil, mechanical, electrical engineering, material science, construction techniques, banking, real estate law, among others or be wealthy enough to be able to hire specialists in those areas to replace the building codes and government regulations that freedom will dictate must be done away with to be truly free™.

Actually, you can make it work. You don't go hiring all those specialists, you buy a house that has a safety certification you trust.

"You can make it work" is a pretty low bar to set.

Let's look at how I think that it would work, since you either haven't thought about it or you aren't interested in explaining to us how "you can make it work."

Let's start with the obvious, you don't trust the building codes and regulations that we have now. The building codes that are codified into law by governments, the codes that builders are forced by government power to follow. Why else would you want to change them?

Since you believe that technical knowledge won't be necessary that leaves trust as the sole criteria that you would base your judgment of which building standards you would base your home purchase on in your fantasy economy. Doesn't this beg the question of why you don't trust today's building codes?

Fortunately I was intimately involved in how the current building codes are written, so I can outline how they are written and you can tell us which points in the procedure justifies your technically uninformed distrust, and how your free markets would improve on the procedure to earn your technically uninformed trust.

I was on the code writing committee for the NEC, the National Electrical Code, a part of the US's building codes,

1. The code writing committee was made up of generally electrical engineers.
2. The engineers on the committee were registered professional engineers.
3. Professional engineers have a legal duty beyond making a profit to guarantee to the public the safety and function of the buildings and installations they design.
4. They fulfill this obligation in part by serving on code writing committees.
5. Also on the committees are some few non-engineers such as trade electricians and government types.
6. The members of each committee come from the range of interested parties; consultants, equipment manufacturers, contractors, owners, government, military, and others.
7. The suggestions for changes or additions to the code come from the members of the committee or from anyone outside of the committee who is interested enough.
8. You can make suggestions on how you want the code to be.
9. The suggestions are gone through to find any ones of interest to the committee
10. Always of considerable interest are the reports of accidents, fires, deaths or injuries in the buildings and installations. These reports come largely from the various government agencies that you want to abolish.
11. Also of high interest are those related to a new technology or a new product.
12. These reports come from various government and industry sources.
13. The most interesting suggestions and the proposed wording of the change are circulated to the members of the committee for comments before the meetings.
14. The committees vote on the suggestions to be made to the code.
15. The code writing committee are actually writing code for one of the ten sections of the NEC.
16. The approved changes for one section are circulated to the committees of the other sections to see if there are any conflicts with the work of the other sections. Conflicts are rare, but they do occur, especially when considering new technologies.
17. The approved changes are then submitted to the oversight committee of the sponsoring agency, in the case of the NEC that is the NFPA, the National Fire Prevention Association.
18. The NEC is included by reference in the UBC, the Uniform Building Code of the US. And they may have some say in the changes to the NEC, but I don't know what if any they have.
19. The final step is public hearings on the changes. If there are any new objections to the changes that weren't considered by the code writing committee the change goes back to the committee to be considered, and the change slips back to the next revision of the code. This is a very rare thing to happens.
20. These mentioned codes are by law the default codes of the US. Unless the local government has its own codes that predate the default ones they must now use these.
21. Local jurisdictions can modify the codes for use in their jurisdictions but they must write the changes as exceptions to the national codes so that anyone who is familiar with the national codes only has to concern themselves with the list of exceptions.
22. These exceptions are rare, and must be provided to the contractor when he applies for his permit.
23. The codes are enforced by the permitting authority.
24. The permit fees are to cover the costs of the inspections and are not used for general revenue.

This is the way that building codes are written. It is bureaucratic and it does take a long time to operate. Suggestions for changes have to be made frequently and over a long time before they find enough support to be approved by the committees whose members represent such a broad range of interests as they do.

The electrical equipment manufacturers favor changes that require more equipment. Consulting engineers oppose cookie cutter changes that anyone can do but which err on the side of conservatism and higher expense. Contractors rail against time consuming requirements, tests, inspections and record keeping. Owners complain about everything, literally everything. But somehow it all ends up working.

This is the procedure that you want to eliminate because you don't trust it. Please list the steps that you find untrustworthy and why you do. And what your multiple standard solution will do to improve the procedure above.

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[Loren Pechtel]

The people who went to the crack whores can't afford the classy girls.

Of course they can. Three visits to a crack house is worth one visit to the classy girl. They just have to combine all three of those visits into one session.

You're assuming they value one visit to a classy girl equally with three visits to crack whores. It is obvious they do not or they wouldn't have chosen the crack whores in the first place. Thus the demand drops.

Who are the losers in this case? The poor customers now have to put up with vastly improved service and a slight delay of gratification that comes with not spending as much time with their favorite whores. The poor prostitutes now have the same amount of money and a lot more free time in which to spend it. And in all of this are a few penny-pinching customers who don't really want to spend money on prostitutes anymore because they're too expensive now... they probably lose out while everyone else wins.

Where is the downside, then?

The loser is your understanding of economics.

 

[Loren Pechtel]

Half right. It's very hard to push wages down, but when economic times are bad enough they do go down. Witness 2008. However, even if wages ratchet it doesn't change the fact that it does respond as a market. Yes, if wages can't go down you can't shift back along the curve--but you can still drop now-unproductive endeavors and thus lower your consumption of labor.

I am talking about a normally functioning economy, not one in a once in a lifetime depression caused by idiots who believed the impossible, that the financial sector had finally learned to regulate itself even though it never has happened before.

You misunderstand. I was pointing to 2008 as evidence that in the face of a sufficient force wages will go down.

Yes, there is a labor market but it is a constrained market. And the constraint is embedded in human nature, workers don't accept decreases in their wages graciously. And they express their ingraciousness in often nasty ways, like riots, demonstrations, property damage, forming labor unions, staging strikes and electing people like Donald Trump.

Unless they have a captive market such things might destroy the employer but do little to drive up wages.

But even after raising three generations under this heavy indoctrination they failed and human nature reasserted itself.

But you're trying to go against the basic laws of nature, also.

Ah, yes, the middle school playground taunt, "You do it too!!"

And surprise, there is no explanation, no example provided by you of where I am going against the "basic laws of nature." Am I violating Maxwell's Equations or Newton's Law of Universal Gravitation? I was just talking about human nature, things that we all understand because we are all human beings; love, greed, fear, hate, etc.

The basic problem is that you are trying to ignore supply and demand. The market is very resilient against anything but very heavy-handed intervention in this regard--and I don't want to give the government the sort of control on our economy that would be necessary to force what you want.

You, Reagan, and Milton Friedman are making the same mistake that Marx made. You are proposing an economic system based on conjecture, on an unproven fantasy that is unsupported by history or even theory. Like Marx you are proposing to replace a large part of the regulation of society that government currently does with the regulation by the economic system, to subject large segments of society to the questionable "discipline" of competitive markets, including education, the national defense, health care and jurisprudence.

Whereas you are proposing a system that has been shown not to work.

Your fantasy is that the adaptations that capitalism made were a mistake and that the 99% can be changed to accept your vision of an optimized capitalism. That markets can self-regulate and control much of what government does now. That rather than we using capitalism to improve our lives it would be better to let capitalism change us to improve capitalism. And like Marx, you are wrong.

I realize the markets aren't good at self-regulating. That doesn't mean that going head-to-head with the market is a good thing--the results are almost always bad. As much as possible the government should aim for the minimum intervention that accomplishes what's needed.

Also, I am categorically opposed to off-the-books accounting. Minimum wage is a form of off-the-books accounting. Look at the costs fairly, don't push them off into a corner where you can pretend they don't exist. (Thus I favor abolishing the minimum wage but expanding the EITC.)

 

[Loren Pechtel]

Actually, you can make it work. You don't go hiring all those specialists, you buy a house that has a safety certification you trust.

"You can make it work" is a pretty low bar to set.

You were attempting to show that it was impractical.

Let's start with the obvious, you don't trust the building codes and regulations that we have now. The building codes that are codified into law by governments, the codes that builders are forced by government power to follow. Why else would you want to change them?

The codes do a reasonable job at providing safety. The problem is that they are too much aimed at the means of accomplishing an objective rather than the objective itself (for example, mandating windows in bedrooms rather than mandating a layout such that no fire of <x> size can cut off escape--I have seen bedrooms where the door and the window were next to each other--legal but unsafe), and they are to a large degree written by established industry--and thus hostile to new ways of doing things.

Since you believe that technical knowledge won't be necessary that leaves trust as the sole criteria that you would base your judgment of which building standards you would base your home purchase on in your fantasy economy. Doesn't this beg the question of why you don't trust today's building codes?

It's not that I don't trust them, it's that I consider them inflexible.

I was on the code writing committee for the NEC, the National Electrical Code, a part of the US's building codes,

A code that has serious problems with a failure to adapt. Grid-tied solar violates basic electrical safety, yet nothing has been done about it. The utilities scream when it reaches the point of risking an overload of the substations but I have yet to see a peep even from them about the situation on the local segment. Now, usually the substation will be in trouble before the segment but that's not guaranteed.

 

[DBT]

Ever hear of a phone book?

Not in the last two decades.

Around here, people are about as likely to use a phone book as they are to use gaslight, horse-drawn transportation, or water-clocks.

I still get them delivered to my doorstep, never to be used. And see them in bins. They are becoming another form of Junk mail. Another waste of resources.

 

[Loren Pechtel]

Ever hear of a phone book?

Not in the last two decades.

Around here, people are about as likely to use a phone book as they are to use gaslight, horse-drawn transportation, or water-clocks.

The web versions still do the same job.

 

[SimpleDon]

What you are saying is that the more labor costs the fewer products will be produced or the quality of the products or services will be reduced in spite of the established consumer demand for the number of products at the level of quality that exists?

And I am the one who doesn't understand demand?

Apparently you think the company will fund the wage increase from the magical infinite pool of profit that funds all leftist dreams.

I don't believe that a company needs an infinite pool of profits to fund anything.

Do you believe that a company needs an infinite pool of profits to fund any salary or wage raises that they give to their non-minimum wage workers? <hoping this is a rhetorical question for you?>

Then why do you think that they need an infinite pool of profits to fund a wage increase for their minimum wage workers?

In reality the price increase gets passed through to the customer and they respond by buying less.

Why do you think that they didn't raise their prices before the minimum wage increase?

Wouldn't that put them further along the road to building that infinite pool of profits that you say that they need before they can raise the wages of their minimum wage workers?

Perhaps because they knew that their customers would buy less? Or buy from a competitor who didn't raise their prices?

What, besides their not having an infinite pool of profits, has changed when they have to pay a higher wage to their minimum wage workers?

Do you believe that they have to raise their prices and lose the business that the raised prices will force them to lose when they give a wage increase to their non-minimum wage workers?

This is about the tenth argument that you have made to justify your opposition to increases in the minimum wage. And yet you don't seem to be capable of supporting any of the arguments that you have made. Rather than answering reasonable questions and discussion about your arguments, you offer yet another argument. Just to review,

It's the same basic argument. You are basing your position on the notion the cost increase won't be passed through--a laughable position.

Fundamentally, the market is good at finding the optimum point. Any attempt to push it away from that optimum point will make things worse.

Yes, exactly! Why don't you apply that reasoning to the discussion that we are having?

You must have memorized that statement about the "market is good at finding the (an) optimum point" without understanding what it means. This is what I meant when I said that you don't understand demand.

The company has a demand for an amount of sales at an established price.

Before the minimum wage increase the company is selling X number of products or services at an established price. If they raise their price their customers will buy less or go to a competitor who hasn't raised their price. The market for their product or service has reached if not an optimum point, at least an established point.

After the minimum wage increase absolutely nothing has changed. If the company raises their prices they will lose business. The safest path is for the company to eat the increase, to pay the increased wages out of their profits, exactly the same thing that they do when they give their non-minimum wage workers a raise. And there is no infinite pool of profits required.

If the company is a marginal operation, if they have no profits to pay the increase it is still unlikely that they will go out of business. They either have capital invested in the business that they want to protect or more likely, they have loans that the bank doesn't want to write off.

But even if they do close the doors, there is still that demand for X number of products at the established price that someone can pick up. A more efficient producer. It is called "creative destruction" and it is an intergal part of capitalism.

Economists know that if they look at the whole economy that increased wages reduce profits and reduced wages increase profits.

Show

This is the very core of supply side economics, that to increase profits to provide the rich with money to invest save they had to reduce wage increases. It wouldn't have worked any other way. And they were so successful that the median wage barely kept up with the cost of living. And the supply siders knew that the federal government determined the split between wages and profits, at least in 1980. They seemed to have forgotten it. Now the split between profits and wages is due to the organic operation of the market and we dare not ticker with it or the economy will implode.

 

[SimpleDon]

I am sorry, I am responding to your posts out of order.

I am talking about a normally functioning economy, not one in a once in a lifetime depression caused by idiots who believed the impossible, that the financial sector had finally learned to regulate itself even though it never has happened before.

You misunderstand. I was pointing to 2008 as evidence that in the face of a sufficient force wages will go down.

So the answer to my question "Or am I to assume that you believe that such depressions are suppose to be a regular feature of your ideal economy?" is an unqualified "Yes!"

The Great Financial Great Recession is widely viewed as a failure of the economy and not a necessary and desirable feature.

I was using it as evidence of how extreme the forces have to be to push wages down.

Yes, there is a labor market but it is a constrained market. And the constraint is embedded in human nature, workers don't accept decreases in their wages graciously. And they express their ingraciousness in often nasty ways, like riots, demonstrations, property damage, forming labor unions, staging strikes and electing people like Donald Trump.

Unless they have a captive market such things might destroy the employer but do little to drive up wages.

Especially electing Donald Trump. This is my point, people realize that they are losing ground in wages compared to what their parents had, that they haven't participated in the success and the growth of the economy, and that their children have even less chance of doing so. They don't understand why these things have happened so they will increasingly lash out in many different directions, many if not most of these will damage the economy. So we agree on this point.

What we don't agree on is how do we prevent these things from damaging the economy and ultimately society. I propose to start rolling back the supply side economic policies that suppress wages to increase profits. The most obvious of these is increasing the minimum wage.

You seem to be full speed ahead, we should double down on the supply side economic policies, pass more tax cuts for the already wealthy, seek more free trade, more low wage countries to out source our economy to, eliminate the minimum wage, don't subsidize the health care of the poor, keep suppressing unions, etc. And now you accept periodic depressions to not just suppress but to lower wages.

The net effect of these policies is to make the workers feel insecure about their jobs and their futures. It shouldn't surprise anyone that this insecurity and worker discontent will continue to build ultimately to boil over into these disruptions and damage to society. It always has throughout history.

Can you imagine what will happen if the working class that votes for these policies realize that they are causing their own pain, that they have been duped into into fighting in a class war against their own economic interests so that they can keep their bigotries, their guns and their gods?

I am trying to head these things off. You are continuing to bet that the working class won't realize that they are the victims of a class war that they are losing.

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[Loren Pechtel]

Apparently you think the company will fund the wage increase from the magical infinite pool of profit that funds all leftist dreams.

I don't believe that a company needs an infinite pool of profits to fund anything.

The thing is you consider any analysis of whether they can afford it irrelevant. The only way it can be irrelevant is if the pool is infinite.

Do you believe that a company needs an infinite pool of profits to fund any salary or wage raises that they give to their non-minimum wage workers? <hoping this is a rhetorical question for you?>

I recognize that sometimes they can't fund raises.. You seem to feel they always can.

In reality the price increase gets passed through to the customer and they respond by buying less.

Why do you think that they didn't raise their prices before the minimum wage increase?

Wouldn't that put them further along the road to building that infinite pool of profits that you say that they need before they can raise the wages of their minimum wage workers?

Perhaps because they knew that their customers would buy less? Or buy from a competitor who didn't raise their prices?

Because they would lose to their competitors. However, when everyone's costs go up that is no longer an issue.

Fundamentally, the market is good at finding the optimum point. Any attempt to push it away from that optimum point will make things worse.

Yes, exactly! Why don't you apply that reasoning to the discussion that we are having?

You fail to see that raising costs is pushing it away from that optimum.

Before the minimum wage increase the company is selling X number of products or services at an established price. If they raise their price their customers will buy less or go to a competitor who hasn't raised their price. The market for their product or service has reached if not an optimum point, at least an established point.

Except that competitor generally is subject to the same minimum wage---their costs go up the same, they also raise prices. When the competitor is outside the area--it's called outsourcing. Note how in many cases the US companies are gone, the production is overseas.

If the company is a marginal operation, if they have no profits to pay the increase it is still unlikely that they will go out of business. They either have capital invested in the business that they want to protect or more likely, they have loans that the bank doesn't want to write off.

So they lose on each item and yet make it up in volume? You realize that's a joke, not sound economics?

Economists know that if they look at the whole economy that increased wages reduce profits and reduced wages increase profits.

Show

This is the very core of supply side economics, that to increase profits to provide the rich with money to invest save they had to reduce wage increases. It wouldn't have worked any other way. And they were so successful that the median wage barely kept up with the cost of living. And the supply siders knew that the federal government determined the split between wages and profits, at least in 1980. They seemed to have forgotten it. Now the split between profits and wages is due to the organic operation of the market and we dare not ticker with it or the economy will implode.

And what you miss is that in the long run the profit ratio is fixed. When the profit ratio is too high competitors enter, driving it down. When it's too low businesses that fail aren't replaced, driving it up.

 

[SimpleDon]

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But even after raising three generations under this heavy indoctrination they failed and human nature reasserted itself.

But you're trying to go against the basic laws of nature, also.

Ah, yes, the middle school playground taunt, "You do it too!!"

And surprise, there is no explanation, no example provided by you of where I am going against the "basic laws of nature." Am I violating Maxwell's Equations or Newton's Law of Universal Gravitation? I was just talking about human nature, things that we all understand because we are all human beings; love, greed, fear, hate, etc.

The basic problem is that you are trying to ignore supply and demand.

More taunting. I have a very good understanding of supply and demand. Let's see what the differences are between our respective understandings of supply and demand.

You believe that supply and demand through barter like exchanges set market clearing prices.

I don't have to believe, I know from studies like these,

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Kaplan, A.D.H., Dirlam, J.B. and Lanzillotti, R.F. 1958, Pricing in Big Business: A Case Approach, The Brookings Institution, Washington DC.

Lanzillotti, R. F. 1964, Pricing Production and the Marketing Policies of Small Manufacturers, Washington State University Press, Pullman, Washington.

Gordon, L. A., Cooper, R., Falk, H., and D. Miller 1981. The Pricing Decision, National Association of Accountants, New York.

Govindarajan, V. and R. Anthony, 1986, How Firms use Cost Data in Price Decisions, Management Accounting 65: p. 30–34.

Shim, Eunsup, and Ephraim Sudit 1995, How Manufacturers Price Products, Management Accounting 76.8: p. 37–39.

Blinder, A.S. et al., editors 1998, Asking about Prices: A New Approach to Understanding Price Stickiness, Russell Sage Foundation, New York.​

These are just the recent ones in the US, considerably more work has been done in the UK, dating back to the 1930's.

and others, and my own humble experience setting prices, that the vast majority of prices are administered, also called markup prices, prices set by the producer based on the average full cost, including fixed costs and some sunk costs, of production for an anticipated sales volume to keep their production facilities filled to a comfortable level with the possibility of having enough production capacity to meet some further increase in demand quickly.

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The exceptions to administrated prices are for certain commodities that aren't controlled by government in some way, like the price floors under some foodstuffs, or impacted by cartels or monopolies like oil. The barter traded commodities are a very small part of our economy where we can say that supply and demand set prices.

For me, it is hard to maintain the belief that the market sets prices using supply and demand for an economy in which 70 to 85% of companies report that they use administered pricing to set their own prices and that they average one to two years between considering price changes.

But this what you believe. Can you offer some explanation as to why?

You believe that supply and demand forces the price down to the cost to produce the very last product sold, the marginal product. That this mechanism is what forces the producer to utilize his entire production facility and what forces him to pay wages that reflect the true value of the labor, as well as rewarding the other factors . This is the theory of marginal productivity of wages.

I haven't heard you say that this what you believe, but it is the only theory that I know that forces the free market to self-regulate, which is what you believe that it will if it is relieved of government interference. If this is not the case and you have some other mechanism that can force the free market to self-regulate without government intervention, please feel free to tell us what it is.

Marginal productivity says that only variable costs set pricing, that fixed costs don't impact the pricing. How does this fit with your experience? My experience is that producers do try to recover fixed costs and in some cases even sunk costs, costs that have been incurred and have been written off. How many companies do you know even knows what their marginal cost is much less use it to make decisions?

Obviously, if supply and demand don't set prices there is no possibility that marginal productivity can force the producer to have to accept the marginal cost as the price and the free market can't self-regulate.

But this is far from the only problem with marginal productivity.

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The next hurdle for it is that it requires perfect competition. This should be obvious because less than this moves producers away from having no control over their prices to having some or total control, then they aren't forced to pay full value for labor.

There are more problems with marginal productivity, one of major ones that in the current industrial economy the forcing of the price to the marginal cost would eliminate any profits. This is because the economies of scale far out distance diminishing returns in an industrial economy.

All is not lost with marginal productivity and supply and demand. The market mechanism does match supply with demand just not through setting the price and marginal productivity does tell us a lot about the distribution of income, once again, just not through the pricing mechanism. If you can comment about either of the two I am willing to discuss them. I find them both interesting.

I am really tired of this fruitless run around on the minimum wage. Especially since you don't seem to have any interest in the nuts and bolts of the issues involved, of the theories behind them and of the reality of them. Like a climate denier you protect the faith that confirms your desire of how the world should be behind a memorized retinue of disconnected, often conflicting talking points that you sputter forth seemingly randomly. In short, you offer us no evidence that points have any validity at all beyond the fact that you really, really want them to be true.

But if nothing else than for the record I will solider on.

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[Canard DuJour]

For me, it is hard to maintain the belief that the market sets prices using supply and demand for an economy in which 70 to 85% of companies report that they use administered pricing to set their own prices and that they average one to two years between considering price changes.

(....)

How many companies do you know even knows what their marginal cost is much less use it to make decisions?

"The marginal approach requires attention to be focused on change, for without change either in the scale of an industry or in the ‘proportions of the factors of production’ there can be neither marginal product nor marginal cost. In a system in which, day after day, production continued unchanged in those respects, the marginal product of a factor (or alternatively the marginal cost of a product) would not merely be hard to find - it just would not be there to be found." - Sraffa, 1960.

 

[Loren Pechtel]

and others, and my own humble experience setting prices, that the vast majority of prices are administered, also called markup prices, prices set by the producer based on the average full cost, including fixed costs and some sunk costs, of production for an anticipated sales volume to keep their production facilities filled to a comfortable level with the possibility of having enough production capacity to meet some further increase in demand quickly.

Show

The exceptions to administrated prices are for certain commodities that aren't controlled by government in some way, like the price floors under some foodstuffs, or impacted by cartels or monopolies like oil. The barter traded commodities are a very small part of our economy where we can say that supply and demand set prices.

For me, it is hard to maintain the belief that the market sets prices using supply and demand for an economy in which 70 to 85% of companies report that they use administered pricing to set their own prices and that they average one to two years between considering price changes.

You can't set your price below what it costs to produce + a reasonable profit if you want to stay in business. This is therefore a floor. Beyond that you listen to the market if you can--in practice, only when competition is limited.

Note, however, that you have just shot yourself in the foot--raise the minimum wage and the cost to produce goes up. Thus the administrated price goes up.

You believe that supply and demand forces the price down to the cost to produce the very last product sold, the marginal product. That this mechanism is what forces the producer to utilize his entire production facility and what forces him to pay wages that reflect the true value of the labor, as well as rewarding the other factors . This is the theory of marginal productivity of wages.

The price isn't forced down to the price of the very last one to be produced. It is forced down to the average cost to produce + a reasonable margin. A company that tries to charge more than this without a protected market finds itself losing market share to the competition. If that cost is too high they go out of business.

Thus, while market forces dictate the price you actually see administered prices because the market forces are pushing it against the floor.

The rest of your argument is about the marginal cost, but that's not what's going on so it's irrelevant.

 

[LordKiran]

You can't set your price below what it costs to produce + a reasonable profit if you want to stay in business.

First of all, yes you can. people do it all the time when they need to make inventory space or get rid of product before it expires.

Secondly, what constitutes a "Reasonable profit"?

Thirdly, if employees are considered service providers (The service being their labor to perform a given task), then why aren't they also entitled to a reasonable profit? (The overhead being things needed to maintain a household for said employees. Homeless people with an insufficient caloric intake don't make for good service providers.)

 

[Don2 (Don1 Revised)]

Loren wrote: "You can't set your price below what it costs to produce + a reasonable profit if you want to stay in business."
I am swapping this around to "f you want to stay in business, [y]ou can't set your price below what it costs to produce + a reasonable profit."

Well, first, this is confusing a number of things such as the price of a single item and the total company profit. Companies often have multiple products and some may make profits while others don't and there may be reasons for this such as new entry into a market to corner the market or that product#2 profit is dependent on product#1 being sold, even at a small loss. Plus, start up companies may be looking for making a profit in the long-term, not the short-term, and so may accept losses. Let's ignore all that for now...

I will add the following rule to Loren's set of a single rule on businesses staying afloat:
"If you want to stay in business, give your employees a living wage and allow them to have career growth and other incentives."

If you can't do that, then you actually have a bad business model because you will waste and abuse your labor resource until it bites you.

Also, this:

...if employees are considered service providers (The service being their labor to perform a given task), then why aren't they also entitled to a reasonable profit?...