I am not ignoring supply and demand. I just said that the interaction of the two doesn't set the price. And that demand is not infinite, that in order to have economic demand it is not sufficient for there to be a supply and the desire to own a product or to consume a service, there has to be money to realize the desire. And that the economy is demand lead and that it is no longer constrained by the supply.
The interaction of supply and demand sets what people are willing to pay. The cost of production + profit sets the minimum that companies will sell for.
You contradict yourself in the span of two sentences. Amazing.
I'm not contradicting myself, I'm saying the situation is more complex than you're making it.
You are making up your own construction of economics to justify your ideology. You aren't basing your ideology on anything realistic. You believe in your heart of hearts that raising the minimum wage has to result in nothing but catastrophe for the economy. Lacking any evidence that it does you adopt this odd explanation of how supply and demand interact in the mistaken belief that it shores up your position. It is probably the third or fourth different version of how you believe that supply and demand interact that you have given me over the years, representing not so much an evolving view on your part as what fits the argument of the moment.
Supply and demand sets what something can be sold for. Production + profit sets the minimum it can be sold for. If the former exceeds the latter (ie, most Apple products) then company pockets the difference. If the latter exceeds the former the company quits making the product, this causing the supply & demand curve to be rebalanced for the other producers of the product.
Now, there may be specific deviations from this for a while in markets that aren't too competitive. If widgets are underpriced and thingamajigs are overpriced the company can continue in that state until someone else comes along and undercuts them on thingamajigs. At that point they have to fix the situation or go under.
Suppliers take losses on specific products all of the time, for many different reasons. I don't have to talk about widgets and thingamajigs. I worked for a German company that built and sold big ugly capital machines that crushed, ground, cooked, melted and burned thousands of tons of rock a day, to get out the copper, iron, graphite, carbon, gold, diamonds, coal, etc. that the rocks had locked up in them. We took loses on individual products all of the time for many different reasons,
- Customers prefer to deal with as few vendors as possible, and we prefer that they deal with as few vendors as possible as long as they dealt with us. This means that we would sell some products at a loss to be able to sell them the products that we made the most money on.
- We would sell products at a loss to gain experience with the product, when it was a new product or an old one in a new use. We re-purposed an oxygen furnace used for processing copper to sinter, melt, the worse of the worse of human waste, shit.
- We couldn't sell the process to waste treatment plants because it was too expensive and too radical, out of the customers' comfort zone. So we built a plant with our own money and charge a tipping fee for every ton of sludge that they brought to us. The fee didn't reflect how much it cost us to burn a ton of sludge, they just undercut the cost of the alternative methods of disposal.
- We would build the plant for them, often at a loss, so that we could sell the machinery to them.
- We would sell the machinery at a loss some times rather than lose a customer. We knew that over time we would make the money back in spare parts and services.
- We would sell products at a loss in recessions to keep our staff together and employed.
- We had a tremendous amount of money in capital invested in our machinery to make our products. We couldn't just abandon a product because we didn't make a profit on it. Some money is often better than no money for a product.
- No German company would give up on a product because it doesn't re-coop its costs plus a profit as you suggest. They would stick with it until it was working and producing for our customers.]
- Our reputation was the most valuable thing that we owned.
- German tax rules aren't as favorable for losses as US rules. In Germany you can't double dip on depreciation as you can in the US. If it is depreciated to zero it is worthless.
I said that supply and demand exist but that they don't set the price. You say in the first sentence that that they do set the price, but in an unique, typically Loren way, that supply and demand determine what people will pay. This is wrong in every type of economics that I have seen. People buy something if they want it and if the price seems reasonable. If they think that the price is too high they won't buy it. They don't look up how many of the products are produced verses how many are sold and calculate what price they will pay. It must take you forever to grocery shop.
You don't have to look them up, you just have a mental impression of what's a good price for <x>. (And woe to the person who doesn't. While my father was never diagnosed with any sort of memory issue in his last years he had what I described as fossilization of the intellect. His worldview was basically fixed--he could incorporate new information but couldn't update what he already knew. He kept refusing to buy needed things because he was waiting for a price that would never be seen again. I utterly failed to teach him how to handle a word processor because he was stuck on using space and backspace as cursor-movement keys.)
This is what you base your economic world view on? My father is a child of the depression. His family lost a considerable fortune and business when the Japanese invaded China. I wouldn't consider his buying habits to be duplicated in anyone else, much less a reflecting the entire body of American consumers as you burden your father.
Once again, I think that you are betrayed by the extra words that you feel you have to add. I have no idea what "If the latter exceeds the former the market disappears" means.
Why not, "if the demand exceeds the supply the supply will increase to meet the demand over time." The first sentence is correct, in a grading on a curve way.
There is no fixed demand. A company with a monopoly may set it's production for maximum revenue, not maximum sales.
I don't consider demand to be fixed. I consider the economy to be demand lead, not supply lead. This means that the changes that we see in the economy are primarily changes in demand.
Do you believe that rent controls threaten the economy as seriously as you feel that raising the minimum wage does? Is this one of those slippery slope things, let in rent controls or increases in the minimum wage and prepare yourself to say "whatever you want commissar?"
I used it as an example as the bad effects are reasonably well known.
Where did rent controls come into this? Did I defend rent controls anywhere in this or any other thread? I doubt it. I am opposed to wage and price controls. The only time these would be justified is in very rare conditions of a snap shortage of supply or sudden increase in demand, caused by say, the start of a major, maximum effort war like World War II was. Absent such an obvious need like that, which will probably never be required again, the support of the people needed for such controls to work will not exist.
The minimum wage is a form of wage control.
Wage and price controls try to maintain the levels of both, to keep them from increasing or decreasing. The minimum wage is nothing more than a long line of standards that businesses have to follow to be in business. It is the same as prohibitions against polluting or selling unsafe products or employing illegals or children or indentured servants or slaves. Do you consider any of these to be wage controls?
We have too many levels of government because they were needed in the 18th century when communication and travel both moved only as fast as a horse could walk. The government was remote and out of touch for most people, and had to be brought down through the state and county levels to the people, and the people's concerns and needs had to be transferred up through the levels.
And we have too many governments around our major cities for the same reason, based on the speed of a horse walking, but also now we have preserved this balkanization of governments to increase and to maintain property values and to allow the beneficiaries of the higher property values to enjoy the benefits of living in a major city without having to pay the higher taxes of living in a major city.
I'm not sure it's that bad. Yes, extra levels of government are a cost, but they also are a protection. The county I live in has 2/3 of the total population of the state. It results in the rest of the state seeing us as a cow to be milked. City and county funding don't get sucked off by this.
So the state sucks the city off. This is what I mean by too many levels of government, the levels in the middle are the least responsive levels of government. The federal government and local government, the city, are watched very well. The state government and regional governments aren't watched over as well.
I am a capitalist, I believe in the elegance and the power of markets. I just don't believe that they can self-regulate to prevent criminals from taking advantage of the markets and consumers. I don't believe that there is any market mechanism to impose externalities into the simple exchanges of the marketplace. The Austrian/Libertarian so-called solution of writing contracts between a polluter and all of the parties that are affected by the pollution or relying on everyone suing everyone else doesn't strike me as being very practical. Do they to you?
The Libertarian answer here doesn't work. However, I don't like the current answer, either. The decisions as to what to permit or not permit are far more political than scientific. Instead, how about working with the market instead of against it?
Forget about regulating what industries can emit what. Instead, when a pollutant is created you tax it. When a pollutant is destroyed or rendered non-polluting the tax is refunded. Note that there is no requirement that it be the same company. Company A mines a pound of coal. They pay the carbon tax on one pound. Company B grows a tree and sticks wood from it totaling one pound of carbon in an old salt mine. They are paid the tax on a pound of carbon for doing so.
I fully agree. The market for acid rain has worked very well and a carbon tax would gain my support. When I wrote this I was thinking more along the lines of health care, jurisprudence and education as being areas that don't lend themselves to the market and to decisions based on the costs. I don't believe that the financial sector can ever be deregulated, because there are people in it that can make a huge amount of money out of chaos who have the means to cause chaos.
But there are other things that markets can't provide us. Things that require balancing the opposing needs of different groups, things that are too complex to be solved by the simplistic mechanism of answering what is the cost. Things that require a vision of more than right now. Things that bring penalties to people for bad behavior. Things that require a moral vision. Things that require the sacrifice of the few for the benefit of the many. Things that build the common property.
In most cases I think it can be reduced to balancing cost by measures that translate that cost into dollars.
You think that service in the military is best if it is reduced to a question of cost?
Or that the abortion question can be settled by economics?
That education is best left to private, for profit companies who have a vested interest in the education system over producing the number of students in the disciplines that cost businesses the most?
You want private for profit businesses deciding who gets H1B1 visas? What cost considerations would decide this?
Jurisprudence? What would costs decide who is guilty and who is innocent? Based on costs, of course.
How do you see cost as dealing with the education of the mentally impaired? How about teaching the learning disabled?
I spent large amounts of money to teach my son who had a serious learning disability at a time when the schools could wash their hands of him. He graduated from Georgia Tech with arguably the hardest degree he could take, Chemical Engineering, with highest honors and went on to Medical school at Emory and earned his MD and a research PhD. He founded and sold two start ups and in spite of his training he is now mainly a computer programmer writing medical research tools. How can you reduce this to a matter of cost? Has my son contributed to society?
My wife and I certainly never asked if the costs were justified, only how we could do what we knew we had to do, to send him to those schools that cost us twice what we were paying for our mortgage and property taxes. The schools can no longer wash their hands of the disabled. And you feel that the private, for profit sector could handle it better by reducing the question to one of cost?
The main problem with our health care system to me is the degree to which for profit businesses have taken it over. In 1970 we had the same medical costs per person as the average of the OECD countries in the world. We now have twice the costs per person as the average of the OECD countries. It can't be due to a better standard of care in the US, we barely are average in the outcomes that we produce.
The only thing that has changed in the US that hasn't happened in the rest of the first world is that the for profit motive is now much more ingrained in our medical care. And you think that increasing the amount of for profit will improve the current situation? Please, explain how?
And if you believe that medical costs have soared because of the mountain of regulation that they must follow be prepared to answer the question of why did the mountain of regulation grow? In 1970 we had a system run by local governments and charities. Who needs regulations more, the Sisters of Mercy or the for profit Hospital, llc & inc?
The medical system panicked in the 1960's and 70's when they thought after Medicare was introduced that the government was going to take over medicine. So they turned to the for profit medical insurance companies to help to prevent this. And they were successful, they prevented Medicare for all with a campaign of propaganda and the buying of politicians. But it came at a cost, paid by the patients, the previously mentioned doubling of real costs.
And this result was inevitable as soon as the for profit insurance companies were called in. Under ObamaCare the health care insurance companies were limited to charging premiums that represented 25% more than the medical costs. Before ObamaCare it was more like 30%. The medical insurance companies make more money when the medical costs were going up. 25% of more is more profit. Money that they receive without added risk, without added investment. And you expect the insurance companies to better control added medical costs when they profit from the added costs? How, through stupidity? The insurance companies were essentially encouraging hospitals and doctors to over charge, because the insurance company profited from regular predictable increases in medical costs.
Our economy is very resilient. It adapts very well to changes, including changes in policies. I don't see how this helps your argument. It means that exactly what I am proposing, raising the minimum wage won't damage the economy. The CBO, all trained mainstream economists said that raising the minimum wage by three dollars an hour would increase wages for the working poor by a total of 20 billion dollars a year, at a cost of 17 billion dollars a year in lower profits. In a 20 trillion dollar a year economy. What is that, 0.1% of the economy?
And no cost in job loss? I'm not buying it.
Without any evidence, without any theoretical support. I can tell you the theory that is used to believe that increasing the minimum wage has to result in unemployment and bankruptcies. But if I told you what it is you would accuse me of me of building a Scotsman fallacy to tear down easily. It is that flimsy and obviously wrong. It involves Say's law and the lump of labor fallacy, you have to believe in both to believe that a moderate raise in the minimum wage will result in unemployment and bankruptcies.
