Business Realities or What I Have Learned From the Internet.

[ksen]

I accept your apology.

 

[bilby]

If prices are set by costs why do Nike's still cost well over $100?

Note the exception I specified: Government protection against competition.

Nike has a trademark.

People pay extra for the brand--partially because they trust the product, partially for the logo.

Well it's a good thing that most Minimum Wage employers - you know, like McDonalds^TM, Walmart^TM, and Burger King^TM - don't have trademarks, or your entire argument would be rendered void.

Oh, wait...

Shit.

 

[Canard DuJour]

- Market mechanisms are undermined by government intervention and subsidies, leading to suboptimal economic development.
- It is the proper role of government to top up wages.

- Monopolies and oligopolies are impossible in a free market because competitors will always undercut them.
- Increased costs cause all firms to raise prices in unison.

- Exchange values of goods and services derive from the subjective preferences of consumers, not the labour necessary to produce them.
- All production costs are ultimately labour costs, which are passed directly to consumers.

- The economy is in the toilet because government discourages risk taking by investors and financiers
- The economy is in the toilet because government encouraged risk taking by investors and financiers

- The unemployment and inflation caused by minimum wage are invisible beneath statistical noise.
- Minimum wage increases cause prices to increase in direct proportion.

- Employers have no power over workers because they must compete for employees.
- Employees demanding better wages and conditions will simply find themselves replaced by immigrants and machines.

- Workers have nothing to fear from mechanisation.
- Workers demanding better wages and conditions will simply find themselves replaced by machines.

etc.

 

[ZiprHead]

An increase in wages or theft always results in massive layoffs and huge price increases.

I don't know where you found this one. I don't recall anyone arguing it.

It has been argued over the years.

Holy crap, that was Loren's argument in the franchise thread.

 

[Loren Pechtel]

An increase in wages or theft always results in massive layoffs and huge price increases.

I don't know where you found this one. I don't recall anyone arguing it.

It has been argued over the years.

Holy crap, that was Loren's argument in the franchise thread.

The problem is the use of the word "massive".

I'm saying that forcing wages to rise causes layoffs. I didn't say how big the effect would be.

 

[Nice Squirrel]

An increase in wages or theft always results in massive layoffs and huge price increases.

I don't know where you found this one. I don't recall anyone arguing it.

It has been argued over the years.

Holy crap, that was Loren's argument in the franchise thread.

The problem is the use of the word "massive".

I'm saying that forcing wages to rise causes layoffs. I didn't say how big the effect would be.

Like I said. This position has been argued.

 

[Loren Pechtel]

An increase in wages or theft always results in massive layoffs and huge price increases.

I don't know where you found this one. I don't recall anyone arguing it.

It has been argued over the years.

Holy crap, that was Loren's argument in the franchise thread.

The problem is the use of the word "massive".

I'm saying that forcing wages to rise causes layoffs. I didn't say how big the effect would be.

Like I said. This position has been argued.

You're still doing it--inserting the word "massive". That's what I'm calling you on, not the basic argument.

 

[Emily Lake]

If prices are set by costs why do Nike's still cost well over $100?

It seems as if you have a fundamentally flawed understanding of how prices work. Cost sets the floor for prices, the minimum that the seller will sell them for and still be in business. The final price for a going concern is set predominantly by supply and demand, with caveats present for regulatory pricing, sales tax, etc.

 

[Nice Squirrel]

An increase in wages or theft always results in massive layoffs and huge price increases.

I don't know where you found this one. I don't recall anyone arguing it.

It has been argued over the years.

Holy crap, that was Loren's argument in the franchise thread.

The problem is the use of the word "massive".

I'm saying that forcing wages to rise causes layoffs. I didn't say how big the effect would be.

Like I said. This position has been argued.

You're still doing it--inserting the word "massive". That's what I'm calling you on, not the basic argument.

Feel free to review all the threads I've posted in over the last 15 years. The position has been argued.

 

[SimpleDon]

An increase in wages or theft always results in massive layoffs and huge price increases.

I don't know where you found this one. I don't recall anyone arguing it.

It has been argued over the years.

Holy crap, that was Loren's argument in the franchise thread.

The problem is the use of the word "massive".

I'm saying that forcing wages to rise causes layoffs. I didn't say how big the effect would be.

Because you don't know or because you don't want to tell us?

 

[Loren Pechtel]

If prices are set by costs why do Nike's still cost well over $100?

It seems as if you have a fundamentally flawed understanding of how prices work. Cost sets the floor for prices, the minimum that the seller will sell them for and still be in business. The final price for a going concern is set predominantly by supply and demand, with caveats present for regulatory pricing, sales tax, etc.

Although competition usually drives the actual cost down to that floor--but that doesn't apply when there can't be competition. Nobody else can make a Nike, thus the price of a Nike will be costs + whatever value people place on the brand.

- - - Updated - - -

An increase in wages or theft always results in massive layoffs and huge price increases.

I don't know where you found this one. I don't recall anyone arguing it.

It has been argued over the years.

Holy crap, that was Loren's argument in the franchise thread.

The problem is the use of the word "massive".

I'm saying that forcing wages to rise causes layoffs. I didn't say how big the effect would be.

Because you don't know or because you don't want to tell us?

We don't have enough data to know.

 

[Nice Squirrel]

It seems as if you have a fundamentally flawed understanding of how prices work. Cost sets the floor for prices, the minimum that the seller will sell them for and still be in business. The final price for a going concern is set predominantly by supply and demand, with caveats present for regulatory pricing, sales tax, etc.

Although competition usually drives the actual cost down to that floor

No it doesn't usually do that. This is one of the great myths of capitalism. Companies are wise to avoid cutthroat competition because it cuts into profits and nearly all products and services sold do not compete on price.

 

[Emily Lake]

It seems as if you have a fundamentally flawed understanding of how prices work. Cost sets the floor for prices, the minimum that the seller will sell them for and still be in business. The final price for a going concern is set predominantly by supply and demand, with caveats present for regulatory pricing, sales tax, etc.

Although competition usually drives the actual cost down to that floor--but that doesn't apply when there can't be competition. Nobody else can make a Nike, thus the price of a Nike will be costs + whatever value people place on the brand.

Well, no, it doesn't. Theoretically, it should, but in reality competition doesn't drive price down to the floor, or there'd be no profit in commodities ever. And it's patently untrue that there's no profit in commodities. Dairy farmers and egg companies still make profits, so it's obvious that they're charging a price that is above their floor.

Reality is always more complicated than the models are. And in the case of commodities, every seller wants at least some profit. Although I don't know for certain, I would guess that there's a "natural" level of tacit agreement among the sellers of those commodities, and that they don't price below floor+small profit. If they price at literal floor, then they'll go out of business as soon as something unexpected goes wrong, because there's no squish. And although there's no formal discussion, no actual agreement, and thus no collusion... Everyone knows it. There's going to be a natural state where all of the players in the game are comfortable with the margin, but none would be comfortable with less.

Beyond that, it's a game of making your product less fungible.

 

[Loren Pechtel]

Although competition usually drives the actual cost down to that floor--but that doesn't apply when there can't be competition. Nobody else can make a Nike, thus the price of a Nike will be costs + whatever value people place on the brand.

Well, no, it doesn't. Theoretically, it should, but in reality competition doesn't drive price down to the floor, or there'd be no profit in commodities ever. And it's patently untrue that there's no profit in commodities. Dairy farmers and egg companies still make profits, so it's obvious that they're charging a price that is above their floor.

Reality is always more complicated than the models are. And in the case of commodities, every seller wants at least some profit. Although I don't know for certain, I would guess that there's a "natural" level of tacit agreement among the sellers of those commodities, and that they don't price below floor+small profit. If they price at literal floor, then they'll go out of business as soon as something unexpected goes wrong, because there's no squish. And although there's no formal discussion, no actual agreement, and thus no collusion... Everyone knows it. There's going to be a natural state where all of the players in the game are comfortable with the margin, but none would be comfortable with less.

Beyond that, it's a game of making your product less fungible.

The floor isn't zero profit. The floor is the point where a company wouldn't be interested in getting into the market in order to make that amount of profit.

Go above this and new competitors will show up in time unless they are prohibited from doing so.

 

[Emily Lake]

Well, no, it doesn't. Theoretically, it should, but in reality competition doesn't drive price down to the floor, or there'd be no profit in commodities ever. And it's patently untrue that there's no profit in commodities. Dairy farmers and egg companies still make profits, so it's obvious that they're charging a price that is above their floor.

Reality is always more complicated than the models are. And in the case of commodities, every seller wants at least some profit. Although I don't know for certain, I would guess that there's a "natural" level of tacit agreement among the sellers of those commodities, and that they don't price below floor+small profit. If they price at literal floor, then they'll go out of business as soon as something unexpected goes wrong, because there's no squish. And although there's no formal discussion, no actual agreement, and thus no collusion... Everyone knows it. There's going to be a natural state where all of the players in the game are comfortable with the margin, but none would be comfortable with less.

Beyond that, it's a game of making your product less fungible.

The floor isn't zero profit. The floor is the point where a company wouldn't be interested in getting into the market in order to make that amount of profit.

Go above this and new competitors will show up in time unless they are prohibited from doing so.

It seems then that you misinterpreted my initial statement. I said that cost sets the floor for price. Very literally, the total cost of production sets the minimum that can be charged for the product in order to break even. The company must be able to recoup it's costs, or it is not in business. That doesn't include any allowance for profit. Profit is any excess above that floor.

That, at least, is the definition that I was taught. Now that was several years ago, but it seems quite straight forward and sensible to me.

 

[SimpleDon]

It seems as if you have a fundamentally flawed understanding of how prices work. Cost sets the floor for prices, the minimum that the seller will sell them for and still be in business. The final price for a going concern is set predominantly by supply and demand, with caveats present for regulatory pricing, sales tax, etc.

Although competition usually drives the actual cost down to that floor--but that doesn't apply when there can't be competition. Nobody else can make a Nike, thus the price of a Nike will be costs + whatever value people place on the brand.

So you both are saying that the supply and demand mechanism sets prices, except when it doesn't.

The obvious question then is how many prices in the economy are set by the supply and demand mechanism and how many are set by other price setting mechanisms?

It would seem to me that there is a big difference between there being 80% supply and demand set prices and there being only 20% supply and demand set prices in how the economy reacts to something like an increase in the minimum wage. Wouldn't you agree?

Also, neither of you considered profits in your pricing theories. Are profits fixed? Do increased wages affect profits?

Mainstream economics has spent a lot of time and research money trying to establish that that profits are a cost of production like wages, that they are payback for capital investment and for enterpriship, the reward for innovation and risk.

If you accept that profits have what mainstream economists call "marginal productivity," that they are a cost of production like wages, wouldn't any increase in profits cause layoffs too?

For that matter wouldn't any increase in costs cause layoffs? Why would just an increase in wages cause layoffs?

And as we see below Loren seems to be saying that only a forced increase in wages causes layoffs.

So if that is the case Loren, what is the economic mechanism that differentiates the effect of an increase in costs due to a forced increase in wages from all of the other possible cost increases?

...

I'm saying that forcing wages to rise causes layoffs. I didn't say how big the effect would be. ...

Because you don't know or because you don't want to tell us?

We don't have enough data to know.

I was being a little bit cute Loren, I know that you aren't hiding data that proves that forced wage increases cause layoffs. You would be waving it in our faces if such data existed.

We collect tremendous amounts of data on the economy. It would be hard to believe that there are some critical pieces of data that we aren't collecting that would prove your assertion.

Aren't you really saying that this "forcing wages to rise causes layoffs" effect of yours is so small that it doesn't even show up? That it exists but it doesn't impact the overall economy in any measurable way?

And that your assertion is really just your opinion that you hope is true?

 

[Loren Pechtel]

The floor isn't zero profit. The floor is the point where a company wouldn't be interested in getting into the market in order to make that amount of profit.

Go above this and new competitors will show up in time unless they are prohibited from doing so.

It seems then that you misinterpreted my initial statement. I said that cost sets the floor for price. Very literally, the total cost of production sets the minimum that can be charged for the product in order to break even. The company must be able to recoup it's costs, or it is not in business. That doesn't include any allowance for profit. Profit is any excess above that floor.

That, at least, is the definition that I was taught. Now that was several years ago, but it seems quite straight forward and sensible to me.

Ok, acceptable.

I was thinking of the realistic floor for a price which is cost + a reasonable profit.

Note that your floor isn't absolute, either--sometimes with sunk costs it makes sense to sell goods at a loss so long as the price exceeds the marginal cost of production.

And occasionally regulators make companies sell at a total loss--if you want to sell anything you have to sell this at the price we specify. (Common with insurance.)

 

[Emily Lake]

So you both are saying that the supply and demand mechanism sets prices, except when it doesn't.

The obvious question then is how many prices in the economy are set by the supply and demand mechanism and how many are set by other price setting mechanisms?

It would seem to me that there is a big difference between there being 80% supply and demand set prices and there being only 20% supply and demand set prices in how the economy reacts to something like an increase in the minimum wage. Wouldn't you agree?

Well... I can't speak for what Loren Pechtel has said, since I believe I've disagreed with some of his positions. But I will answer on my own behalf.

The model is not perfect. For the most part, prices are set by supply and demand. The minimum price is defined by the cost or production. What this means is that if supply and demand produce and aggregate price that is below the cost of production, then you go out of business. You can't stay in business if you can't recoup your costs. So if you want to be in business, then supply & demand have to produce a price that at least meets your floor - your cost of production.

Profit is the excess of price over that floor. When price is above the cost of production, then the excess is profit.

There's always a bit of a balancing act: You can sell fewer items at a higher price or you can sell more items at a lower price. This is because each individual consumer is going to have a different and unique budget line and indifference curve. The lower a price the seller is willing to accept, the more consumers whose indifference curve they'll meet and whose budget line they'll fall below.

So the seller has to work toward optimizing their revenue: what's the optimal price? What price will get them the highest net profit? That's usually where they try to set their price.

But it's all pretty much supply and demand at play.

The exceptions come in when you've got regulated businesses where some outside entity is setting prices (for example, where the government has oversight on the price of health insurance) or where the seller is a monopoly and can charge whatever they want, or where there is a coercive effect at play (as with some prescription drugs, where you pay the price regardless, or you die).

All the rest of the things that Loren and I have mentioned - concepts around brand and the fungibility of your product, those are all manipulations of supply and demand. So at the end of the day, they're still supply and demand .

- - - Updated - - -

It seems then that you misinterpreted my initial statement. I said that cost sets the floor for price. Very literally, the total cost of production sets the minimum that can be charged for the product in order to break even. The company must be able to recoup it's costs, or it is not in business. That doesn't include any allowance for profit. Profit is any excess above that floor.

That, at least, is the definition that I was taught. Now that was several years ago, but it seems quite straight forward and sensible to me.

Ok, acceptable.

I was thinking of the realistic floor for a price which is cost + a reasonable profit.

Note that your floor isn't absolute, either--sometimes with sunk costs it makes sense to sell goods at a loss so long as the price exceeds the marginal cost of production.

And occasionally regulators make companies sell at a total loss--if you want to sell anything you have to sell this at the price we specify. (Common with insurance.)

Sure. I believe I mentioned exceptions, particularly with respect to some regulated businesses, but also in some monopoly situations and also coercive goods. Beyond that... it's all a matter of how complicated you want to get with the model.

 

[SimpleDon]

It seems then that you misinterpreted my initial statement. I said that cost sets the floor for price. Very literally, the total cost of production sets the minimum that can be charged for the product in order to break even. The company must be able to recoup it's costs, or it is not in business. That doesn't include any allowance for profit. Profit is any excess above that floor.

That, at least, is the definition that I was taught. Now that was several years ago, but it seems quite straight forward and sensible to me.

Ok, acceptable.

I was thinking of the realistic floor for a price which is cost + a reasonable profit.

Note that your floor isn't absolute, either--sometimes with sunk costs it makes sense to sell goods at a loss so long as the price exceeds the marginal cost of production.

And occasionally regulators make companies sell at a total loss--if you want to sell anything you have to sell this at the price we specify. (Common with insurance.)

I would like to see an example of regulators forcing an insurance company to sell at a total loss, which for an insurance company would mean that they essentially were forced to give insurance coverage away. Insurance companies are financial services companies, their product is a piece of paper. Their business is taking money from one person and giving as little of it as possible to someone else, their profit model is holding on to as much money as they can and hold on to the money that they have to pay out for as long as possible. The cost of production of their product is pennies printing the piece of paper; their main expense, like all of our FIRE sector companies are for the sales and promotion of their product. And the expense of the highly paid executives of course.

I think that I finally understand what your concept that 'supply and demand set prices except that prices can't be driven below a below a floor price representing costs + reasonable profit' means. You said that prices can't be driven below the floor but you really meant that if the prices go below the floor for, presumably, very long the producer can't or won't stay in business. Okay, I am finally with you.

But you and Emily are just considering the effect on the level of a single business, or more exactly, you are looking at the microeconomic effect. But we are talking about the macroeconomy, the economy as a whole, we can't just stop with a 'companies had to go out of business and this means unemployment,' if it did any increase in wages or other costs would cause unemployment, even an increase in profits. This is obviously ridiculous.

Marginal companies fail all of the time, it doesn't mean that we will have economy wide unemployment. You have to look at what happens economy wide after the failure of the companies do see if we finally lose those jobs.

In the case of a forced increase in wages like an increase in the minimum wage, before the increase, there is enough demand at the pre-increase price and enough profit in the pre-increase price for the marginal producer to stay in business, buy your reasoning, right? And the wage increase won't affect the demand at the price, right? So the only thing that can raise the price is if the supply decreases. (I know the ', right?' at the end of the sentence is annoying. I will stop.)

So you are basing your theory that 'forced increases in wages cause price increases and unemployment' on the loss in production of the failed companies. But you are forgetting that there is still the undiminished demand at the old price. As long as there are more efficient producers who can make a profit at the old price while paying the higher wages they can make more total profit when they increase their production to provide the additional products that the failed companies were providing.

So now we can say that your theory is based on the loss in production of the failed companies if no other companies can step in an increase their production to replace the lost production. How realistic is it then that the more efficient suppliers can increase their production?

In the modern industrial economy it is likely that the remaining more efficient producers will be able to increase their production to cover the lost production of the failed inefficient companies, especially an economy like ours that is currently using only 75% of its capacity to produce. How can they do this? Let's count the ways,

• Adding extra shifts of production.
• Trade, in an open economy the lost production can come from other countries.
• Using spare capacity. Companies ask for more capacity than they need when they build production plants, spare capacity is cheaper if it is included in the original plant design. Say 20% extra capacity might only increase the facility cost by 10% if included in the initial design. Adding 20% capacity to an operating plant might cost 3 to 4 times that.
• Tolerance spare capacity, the designers of the plant will always design the plant using over sized machinery, a safety factor to make sure that they achieve the production required.
• Optimizing, once any production facility is running even if the owner is getting the production that he asked for it will be obvious that there is only one or two critical machines limiting production, replacing or modifying these machines will increase the production of the entire facility up to the point that another critical machine limits it, allowing the process to start again.
• The production facilities of the failed company don't disappear, someone can buy it probably at a discount that reflects the realities of the market such that it will be profitable.

This will cover about 98% of all of the production in the US. There maybe a small number of industries where all of the competitors are running at full capacity and no one is making a profit. But high demand and restricted supply and low prices are not going to happen. It is not only going against economics, it doesn't make any logical sense.

And if all of the competitors in an industry are operating at full capacity I would question why any of them are capable of losing money. But this is not even the end of the story if it is the case.

I assume that you are also talking about long term effects. I would hope that you would agree that a slow gradual increases in wages will just lower profits in the short term. That your "can't operate without profits" is a long term effect, say years.

But the ability of more efficient suppliers being able to add new production capacity to satisfy any unfulfilled demand from the long term loss of the inefficient supplier going bankrupt is in the same time frame, years.

Not to mention that no business that was making a profit before an increase in wages who can't make a profit afterward is going to be rare.

I can see arguing that a specific wage increase is too high that it will put people out of business, the 100 dollars an hour or a million dollars an hour that some wag always puts forward as the killer argument against any increase in the minimum wage.

But a moderate increase in the minimum wage slowly introduced over a number of years to recoup its loses over the years to inflation something less than its historical high isn't it.

 

[Loren Pechtel]

I would like to see an example of regulators forcing an insurance company to sell at a total loss, which for an insurance company would mean that they essentially were forced to give insurance coverage away. Insurance companies are financial services companies, their product is a piece of paper. Their business is taking money from one person and giving as little of it as possible to someone else, their profit model is holding on to as much money as they can and hold on to the money that they have to pay out for as long as possible. The cost of production of their product is pennies printing the piece of paper; their main expense, like all of our FIRE sector companies are for the sales and promotion of their product. And the expense of the highly paid executives of course.

Look at what is happening in areas of high hurricane threat. They're being required to sell homeowners policies at far below cost if they want to do business at all.

Or look at the big blowup with medical malpractice insurance rates at the turn of the century--the trigger there was the biggest underwriter deciding that they couldn't make a profit at the rates they were allowed to charge and they simply quit writing medical malpractice insurance. It's not that rates really spiked, it's that the biggest, lowest price company pulled out of the market.

I think that I finally understand what your concept that 'supply and demand set prices except that prices can't be driven below a below a floor price representing costs + reasonable profit' means. You said that prices can't be driven below the floor but you really meant that if the prices go below the floor for, presumably, very long the producer can't or won't stay in business. Okay, I am finally with you.

Yeah, I mean in the long run if you drive the prices too low the suppliers either go under or pull out of the market.

But you and Emily are just considering the effect on the level of a single business, or more exactly, you are looking at the microeconomic effect. But we are talking about the macroeconomy, the economy as a whole, we can't just stop with a 'companies had to go out of business and this means unemployment,' if it did any increase in wages or other costs would cause unemployment, even an increase in profits. This is obviously ridiculous.

The workers in the destroyed industry add to the unemployment pool. However, the main effect is destroying the industry.

Marginal companies fail all of the time, it doesn't mean that we will have economy wide unemployment. You have to look at what happens economy wide after the failure of the companies do see if we finally lose those jobs.

Look at 2008. So long as the failures don't spike you just get the normal turnover. When they do spike you get big problems.

In the case of a forced increase in wages like an increase in the minimum wage, before the increase, there is enough demand at the pre-increase price and enough profit in the pre-increase price for the marginal producer to stay in business, buy your reasoning, right? And the wage increase won't affect the demand at the price, right? So the only thing that can raise the price is if the supply decreases. (I know the ', right?' at the end of the sentence is annoying. I will stop.)

In reality when you raise the costs on an industry as a whole it rapidly translates into higher prices--everyone knows their competitors are going to have to do the same thing so they won't be pricing themselves out of the market by passing along the price increase. Demand will drop due to the higher price and some businesses on the edge will fail but they're still better off passing on the price increase rather than eating it and having a much higher chance of going under.

Note, also, that if they do eat it their profit margin is now too low, the normal attrition will not be replaced. The availability of their product will drop over time.

So you are basing your theory that 'forced increases in wages cause price increases and unemployment' on the loss in production of the failed companies. But you are forgetting that there is still the undiminished demand at the old price. As long as there are more efficient producers who can make a profit at the old price while paying the higher wages they can make more total profit when they increase their production to provide the additional products that the failed companies were providing.

Once again the infinite pool of profit meme shows up. Your side thinks everything can be funded out of profit!

In the modern industrial economy it is likely that the remaining more efficient producers will be able to increase their production to cover the lost production of the failed inefficient companies, especially an economy like ours that is currently using only 75% of its capacity to produce. How can they do this? Let's count the ways,

• Adding extra shifts of production.

• 
  
  My former employer tried that to cope with demand. We gave up because we couldn't get competent swing-shift workers.
  
  

  [*]Trade, in an open economy the lost production can come from other countries.

  
  Depends on the product. We had no foreign competition because of shipping times and costs.
  
  

  [*]Using spare capacity. Companies ask for more capacity than they need when they build production plants, spare capacity is cheaper if it is included in the original plant design. Say 20% extra capacity might only increase the facility cost by 10% if included in the initial design. Adding 20% capacity to an operating plant might cost 3 to 4 times that.
  [*]Tolerance spare capacity, the designers of the plant will always design the plant using over sized machinery, a safety factor to make sure that they achieve the production required.
  [*]Optimizing, once any production facility is running even if the owner is getting the production that he asked for it will be obvious that there is only one or two critical machines limiting production, replacing or modifying these machines will increase the production of the entire facility up to the point that another critical machine limits it, allowing the process to start again.

  
  All of these things have limits, when they're gone they're gone--and in the case of a growing company they'll be gone in time.
  
  These are all basically variations on the pool of profit meme.
  
  

  [*]The production facilities of the failed company don't disappear, someone can buy it probably at a discount that reflects the realities of the market such that it will be profitable.

  
  It depends on the situation. And note that you can't have growth this way--but our population is growing. If the industry doesn't grow the effective supply drops.
  
  

  This will cover about 98% of all of the production in the US. There maybe a small number of industries where all of the competitors are running at full capacity and no one is making a profit. But high demand and restricted supply and low prices are not going to happen. It is not only going against economics, it doesn't make any logical sense.

  
  Unless someone is artificially holding prices down. For an example consider generic drugs bought mostly by the government. Shortage after shortage after shortage because there isn't enough profit to make it worthwhile for the companies to spend to ensure a continual supply when glitches happen.
  
  

  I assume that you are also talking about long term effects. I would hope that you would agree that a slow gradual increases in wages will just lower profits in the short term. That your "can't operate without profits" is a long term effect, say years.

  
  Yeah, I'm taking the long term view. In the short term you can feast on seed corn.
  
  

  But the ability of more efficient suppliers being able to add new production capacity to satisfy any unfulfilled demand from the long term loss of the inefficient supplier going bankrupt is in the same time frame, years.

  
  You're assuming there are more efficient suppliers. You have no basis for this assumption.
  
  

  Not to mention that no business that was making a profit before an increase in wages who can't make a profit afterward is going to be rare.
  
  I can see arguing that a specific wage increase is too high that it will put people out of business, the 100 dollars an hour or a million dollars an hour that some wag always puts forward as the killer argument against any increase in the minimum wage.
  
  But a moderate increase in the minimum wage slowly introduced over a number of years to recoup its loses over the years to inflation something less than its historical high isn't it.

  
  There are always some on the edge that will be pushed over.