Loren Pechtel's response post #51 to the second split of three that I made out of my response to his initial post. I hope!
I have identified one problem, when we click the "reply with quote" the system chops off the first second level quote and starts with the direct response to that second level quote. But only in long quotes, which is all that I see of course! When I reply with quote this post of Loren's the first thing that I see is Loren's statement that begins "In other words, you want to freeze the total standard of living and redistribute it instead." I have manually added my paragraph that appears in his response but that didn't make it into mine when I pressed "reply with quote" button.
This means that I owe Loren an apology for accusing him of editing these quotes out. I owe the same to Lumpenproletariat and Boneyard Bill too.
I want to be absolutely clear, I want to reduce profits in the long term. The seed corn as you call it has filled all of the available storage. As I said before tens of trillions of dollars in monetary capital are sitting in banks here and overseas, money earned in profits over the last thirty five years of conservative, supply side economic fiscal policies.
In other words, you want to freeze the total standard of living and redistribute it instead.
No, I want to slow down and reverse the redistribution of money from wages to profits that we started thirty five years ago with the unrealized promise that it would result in higher domestic investment in production facilities. I want to increase the wages of the lower 50% of earners to eliminate poverty. This would be a tremendous increase the standard of living for the lower earning 50%.
Down the road we won't develop solutions to our resource problems. Goodbye humanity.
Hyperbole. We are currently suffering from too little demand in the economy due to low wages. And financial instability because of too much monetary capital with no productive investments available to use it because of the low demand. This is the only reasonable solution, increase wages and decrease profits.
Note: There's no such thing as being full up with seed corn. It's just a matter of diminishing returns.
We passed the point of diminishing returns on increases in monetary capital very shortly after we started to intentionally boost profits and therefore monetary capital. We almost immediately started building various asset bubbles as this excess capital tried to find investments. We quickly reached negative returns as one after another the bubbles popped causing financial crises, recessions and lost growth. The excess monetary capital is causing crisis after crisis and recession after recession.
The reason for the large amount of monetary capital just sitting in banks is that this money can't find any real investments in production facilities that is the only investments that finally count to grow the economy. The reason is that there is insufficient demand for the production that the investments would produce. And what is the primary source of demand? Wages. What is the obvious solution for a excess of monetary capital caused by high profits and a lack of demand caused by low wages? I will leave you to work it out. If you need help contact me. Or re-read this.
A short-term problem. You're trying to fix it with a long-term solution.
If you believe that thirty five years is a short term.
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.
I am assuming that the survivors are more efficient than the marginal companies that fail. This is wrong because you think that the more efficient companies will fail while the less efficient companies don't?
The point is that you are assuming there is always a more efficient supplier. When things get bad enough even the efficient ones fail.
I was told by you about three paragraphs up that I can't assume that there are more efficient suppliers, but you can? I don't know where that leaves us. If I can be so bold to assume like you do that there are more efficient suppliers that would let me tell you that you are absolutely right, that when things get bad like they did in 2008 even the more efficient suppliers fail. All the more reason to dry up the excess monetary capital that builds huge asset bubbles like the one in home mortgages that caused the largest recession since the Great Depression when it burst.
Loren, you live in a world of absolutes. Where everything is either black or white, either good or bad. I am sure that I can't be the first person to tell you this.
No. I recognize that there is a spectrum, you do not. Since it's a spectrum there's always somebody on the edge that won't take a lot of pushing to fall over. You're dividing the world into efficient (able to withstand any shove you might choose to administer) and inefficient (which will go under anyway.)
This discussion is about your belief that a mandated increase in wages always forces suppliers to fail and that their production and jobs aren't replaced. And you believe this because supply and demand force the prices below a floor of marginal product cost that has been increased by the mandated wage increase, causing the companies to fail completely.
And you believe that this represents a measured, nuanced theory that is based on the consideration of only the most on the edge of the spectrum supplier. That this consideration of the most inefficient suppliers should be the basis of our policies. And you don't consider this to be an absolutist position because we should always govern to protect the most inefficient companies even if by doing so we commit 4 million minimum wage workers to a wage that confines them in poverty.
But voluntary wage increases don't cause these problems. For this part of your theory we have to abandon the marginal product cost theory because it doesn't distinguish between a voluntary wage increase and an involuntary one, either would require the loss of jobs in the neoclassical version or the company completely failing in the measured, multifaceted, full spectrum Loren version.
To support this assertion all that we have to do is to assume that it is correct, and by the application of logic, there is your proof, that mandated wage increases cause companies to fail and voluntary wage increases don't. Not absolutist at all.
Coupled with a rather incomplete knowledge of the economics theories that you believe in and champion it leaves you rather poorly equipped to discuss these matters. If this is the way that all of your opinions are formed I would think that this observation would extend to almost any adult subject.
Your "economics" only make sense if there is an infinite pool of profit to take to fund your ideas.
If my wages go up by $20 a week, my employer's profits go down by what? My economics says by $20 a week, ignoring tax considerations. Where have I assumed an infinite pool of profits?
The minimum wage is raised to $10.10 an hour over three years. The CBO estimates that this will increase wages by a total of 19 billion dollars a year and decrease profits by 17 billion dollars a year, the difference is added profits from the increase in demand. Where have they assumed an infinite pool of profits?
Among the rabid opponents of any increase in wages you stand out as the most determined. There is no exception to "this will cause unemployment" that you won't dismiss out of hand without any explanation, but with a simple chant, "no exceptions, any increase is economic suicide."
I'm not saying it's economic suicide. I'm saying that you are trading wages for unemployment. Saying it's a bad thing isn't the same as saying it's suicide.
Okay, it isn't economic suicide, it is just a bad thing, but it is enough of bad thing that we shouldn't do it because any increase is enough to push some supplier somewhere over the edge which though something like the 'butterfly effect' might bring businesses down like what happened in 2008?
I don't get upset at the often offered idea of "if a ten dollar minimum wage is a good thing and won't cause unemployment why don't we raise it to one hundred dollars?" (Which I am not saying that you have ever asked.) I am an engineer and we are taught to consider the boundary conditions of any question. This is a boundary condition and obviously it tells us something, that there is a limit to how high (and how fast) we can raise wages, obviously.
But it is not the only boundary condition. So I ask you, will we cause unemployment if we raise the minimum wage by 10¢ an hour? About what inflation will reduce the purchasing power of the wage this year.
But you're still missing the point. We are proving two data points: Current unemployment vs the extreme unemployment of an extreme minimum wage. An engineer certainly can draw the line through those two points. Realistically, also, there's a third point, albeit fuzzy: Minimum wage $0 leaves almost no unemployment. Thus you have something approximating a hyperbola in the first quadrant.
If you are right that raising the minimum wage will improve the situation you have to show that it's actually at least a third order equation. No effort is being made to show how this effect works--and I'm sure you're familiar with Occam's razor.
Occam's Razor can be stated as when faced with multiple possible solutions go with the one with the fewest assumptions. This would rule out mainstream neoclassical free market economics completely. They actually have a tenet that says that the more assumptions that are made the closer the result is to an universal truth. I am not kidding. This was dreamed up by Milton Friedman. Of course, he was so wrong so often that he had to come up with all manner of excuses.
I seriously doubt that unemployment is solely dependent on just the minimum wages that are paid. There might be a few more variables that go much further to determine the unemployment rate than the level of the minimum wage. This is your contention, that there is a direct relationship between the minimum wage level and unemployment.
You have assumed that a zero wage produces no unemployment. You do realize that this slavery, right? You anchoring your unemployment to minimum wage rate killer function at slavery?
I don't believe that employers will hire more people if their wages drop. Most employers only hire the minimum number of people that they need to do a job.
Since you can so clearly visualize the relationship between unemployment and the minimum wage I am expecting that you will now be able to answer the questions that you have ignored up, if we increase the minimum wage by 10¢ an hour how many people are going to be unemployed? And if we raise the minimum wage to $10.10 an hour how many people are we going to throw out of work? Because businesses will fail and the jobs and the production can't be replaced because you say that it can't since it is a forced wage increase.
I don't have to show that raising the minimum wage produces a third order affect on unemployment. I am raising the minimum wage in order to improve these people's lives. It is the minimum that we have to do.
We are suffering from too little demand right now, and it is only going to get worse. Look at the huge numbers of baby boomers who are retiring. We are not going to able to replace many of them because of demographics. And those that do come in to the workforce will be earning much less money than the baby boomers who are retiring. Wages equals demand. You won't have any supply without demand for it, just more excess monetary capital to build asset bubbles with, and its resulting financial instability.
Likewise as I have explained many times here is that it makes no sense for an employer to lay off employees when wages go up. The supplier will lose more profit by laying off the workers. I assume that you now understand this and this is the reason for the strained 'any increase is going to force businesses to go under and these jobs and this production can't be replaced as they would be normally because if they could that would mean that I am wrong' theory.
Loren, an improvement over your one line responses. Good.
Its too late to break this apart.
