The best solution to poverty is a robust job market, not minimum wage

[SimpleDon]

The BEST solution to poverty is for everyone to be rich.

Sadly, that seems about as likely to happen as a 'robust job market'.

A minimum wage at least has the advantage of being something that can be implemented and/or modified. It might be a good or a bad idea - and clearly the debate on which it is will run and run on this board - but unlike a robust job market, it is at least in the class of actions that are both doable and measurable. A politician can promise a $20 minimum wage, and a government can implement one, and everyone can see and agree that that is what has been done (even if they disagree about whether it should have been done).

If the government wants to establish a robust job market, what legislation must they pass to achieve this? How can we expect people to agree whether or not they have met that goal?

The OP is comparing apples to oranges; A robust job market is not in the same category of solution as a minimum wage, so it is irrational to attempt to consider which is "best" - even if we could agree on a universal definition of what "best" means in this context. Which we probably can't.

Not to mention that we should be elevating poverty in all economies, good and bad. We shouldn't be relying on a robust job market to reduce poverty. The consequences of a poor economy should be shared by all of society, not just one segment. Otherwise it becomes a moral hazard, if like now a powerful segment of the society believes that they are immune to the worse of a downturn or even stand to benefit in the long term from one.

I don't see why a sensible increase in the minimum wage under the right conditions is controversial. No study has shown it to have any large impact on the economy other than the rather large positive impact on those earning the minimum wage or close to it. The studies that concluded that it causes unemployment admitted that the effect was so minimal that it couldn't be seen except by looking only at teenage employment and even then it was a small impact. How this can be interpreted to denying the vast majority of minimum wage workers some relief from poverty is beyond me. I think that it is better for all of us to have an economy where teenagers go to school instead of working.

This all out war on the minimum wage seems to be a "We Shall Fight on the Beaches" attitude to not allow the least toehold of the rather obvious idea that it is largely government policies that determine the split between wages and profits, and not some mysterious, natural condition of capitalism that can't be changed without seriously damaging it. Rather than a genuine concern for preserving jobs for the poor.

 

[SimpleDon]

No government forced Wal-Mart to offer these wages in Williston, ND ...

Axulus, I'm surprised that you are not mourning increased labor costs. Because that's what higher wages are: increased labor costs. Denying that is not an argument.

Profits are also costs of production according to mainstream economics. Higher profits result in higher costs under this formula just like higher wages. Denying this isn't an argument.

In fact, all of the admittedly low inflation that we have seen since 2009 is due to higher costs because of higher profits.

Obviously what we want isn't higher prices, it is higher wages that reduce profits.

If you have an argument that profits are now too low and must be increased from where they are now let's see it.

I am arguing that wages are too low, poverty for the working poor as an example, and that profits are much higher than they have to be, a never ending string of asset bubbles as too much financial capital chases too little productive investments offering returns, three to four times the amount of the business investments made every year.

Instead this excess amount of financial capital has gone into paper investments that are little more than zero sum gambling able to produce overall profits only by the Ponzi scheme like introduction of new money into the process and by the use of huge amounts of hidden debt to boost returns. Debt that increases the instability of the financial instruments that use it. The instability that spreads to the entire financial sector, with disastrous results when the financial markets collapse in 2008.

 

[Nice Squirrel]

Instead this excess amount of financial capital has gone into paper investments that are little more than zero sum gambling able to produce overall profits only by the Ponzi scheme like introduction of new money into the process and by the use of huge amounts of hidden debt to boost returns. Debt that increases the instability of the financial instruments that use it. The instability that spreads to the entire financial sector, with disastrous results when the financial markets collapse in 2008.

Yep.

 

[whichphilosophy]

Axulus, I'm surprised that you are not mourning increased labor costs. Because that's what higher wages are: increased labor costs. Denying that is not an argument.

Profits are also costs of production according to mainstream economics. Higher profits result in higher costs under this formula just like higher wages. Denying this isn't an argument.

In fact, all of the admittedly low inflation that we have seen since 2009 is due to higher costs because of higher profits.

Obviously what we want isn't higher prices, it is higher wages that reduce profits.

If you have an argument that profits are now too low and must be increased from where they are now let's see it.

I am arguing that wages are too low, poverty for the working poor as an example, and that profits are much higher than they have to be, a never ending string of asset bubbles as too much financial capital chases too little productive investments offering returns, three to four times the amount of the business investments made every year.

Instead this excess amount of financial capital has gone into paper investments that are little more than zero sum gambling able to produce overall profits only by the Ponzi scheme like introduction of new money into the process and by the use of huge amounts of hidden debt to boost returns. Debt that increases the instability of the financial instruments that use it. The instability that spreads to the entire financial sector, with disastrous results when the financial markets collapse in 2008.

The less workers are paid the less they spend in the economy to create more jobs in shops and businesses where the money is spent. The last paragraph is perfectly correct.

 

[Jayjay]

Profits are also costs of production according to mainstream economics. Higher profits result in higher costs under this formula just like higher wages. Denying this isn't an argument.

In fact, all of the admittedly low inflation that we have seen since 2009 is due to higher costs because of higher profits.

Obviously what we want isn't higher prices, it is higher wages that reduce profits.

If you have an argument that profits are now too low and must be increased from where they are now let's see it.

I am arguing that wages are too low, poverty for the working poor as an example, and that profits are much higher than they have to be, a never ending string of asset bubbles as too much financial capital chases too little productive investments offering returns, three to four times the amount of the business investments made every year.

Instead this excess amount of financial capital has gone into paper investments that are little more than zero sum gambling able to produce overall profits only by the Ponzi scheme like introduction of new money into the process and by the use of huge amounts of hidden debt to boost returns. Debt that increases the instability of the financial instruments that use it. The instability that spreads to the entire financial sector, with disastrous results when the financial markets collapse in 2008.

The less workers are paid the less they spend in the economy to create more jobs in shops and businesses where the money is spent. The last paragraph is perfectly correct.

I never understood this rationale. The money would be spent anyway, just by someone else and for other things.

 

[laughing dog]

The less workers are paid the less they spend in the economy to create more jobs in shops and businesses where the money is spent. The last paragraph is perfectly correct.

I never understood this rationale. The money would be spent anyway, just by someone else and for other things.

Not necessarily. Richer people tend to save more.

 

[Axulus]

I never understood this rationale. The money would be spent anyway, just by someone else and for other things.

Not necessarily. Richer people tend to save more.

Saving money doesn't mean it won't get spent if that savings is loaned out or invested. Also, the rich not spending and saving would put downward pressure on prices by sellers since there is less quantity demanded (compared to a scenario where someone else has the money and will spend it instead of saving it). Lower prices tend to induce others spend when they otherwise wouldn't have if the price were higher.

 

[whichphilosophy]

The less workers are paid the less they spend in the economy to create more jobs in shops and businesses where the money is spent. The last paragraph is perfectly correct.

I never understood this rationale. The money would be spent anyway, just by someone else and for other things.

The money would be invested,hoarded or spent on different things. if it is spent at a grass roots level, it would develop consumer services (shops, bars restaurants, supermarkets). If you look at India which I have visited a few times, where an economic boom mainly turned millionaires into billionaires but the poverty continues.

 

[laughing dog]

Not necessarily. Richer people tend to save more.

Saving money doesn't mean it won't get spent if that savings is loaned out or invested.

It is usually a good idea to actually read a post (see the bold-faced italics) before responding.

Also, the rich not spending and saving would put downward pressure on prices by sellers since there is less quantity demanded (compared to a scenario where someone else has the money and will spend it instead of saving it). Lower prices tend to induce others spend when they otherwise wouldn't have if the price were higher.

Well, the macroeconomic of that effect has not been noticed to my knowledge. And the whether the sector specific reduction in prices in inducing more spending by lower income classes would depend on the extent of the overlap of spending patterns between the groups. For example, if the rich reduce their spending on pate and luxury cars, the resulting price decline would probably not induce much spending on the part of the working classes.

 

[bilby]

Not necessarily. Richer people tend to save more.

Saving money doesn't mean it won't get spent if that savings is loaned out or invested. Also, the rich not spending and saving would put downward pressure on prices by sellers since there is less quantity demanded (compared to a scenario where someone else has the money and will spend it instead of saving it). Lower prices tend to induce others spend when they otherwise wouldn't have if the price were higher.

If the money goes to people who are not living hand-to-mouth, then there is every likelihood that it won't be spent. Richer people tend to have debts - at the 'low end' are people who are a little better off, who owe a large sum on a home mortgage; and as you go up the wealth ladder, more and more debt is found, as the wealthy use it as 'leverage' to increase their investing power.

A bit more money going to these wealthier people - who have debts and who do not spend their entire income on goods and services - may mean more debt being paid off; which is money that is removed from the economy altogether. A bit more money going to the poor may well lead to more money being created, if their higher incomes lift them to the level of being a good credit risk.

It is not a zero-sum game.

 

[Canard DuJour]

So they will build lot of homes, oil wells eventually dry out and then what? Lots of empty homes for sale?

Wouldn't make sense, would it? More likely the prefabs will stay for the oil boom, then get towed away. So if we accept that an oil boom in Williston, ND constitutes "a robust job market," then, far from being the best solution to poverty, it will have resulted in people paying through the nose to live in relative squalor.

 

[Eric H]

No government forced Wal-Mart to offer these wages in Williston, ND

Where is the so called "race to the bottom" in Williston, ND?

Apparently those nice Waltons are worth around $160 billion between them, they may have found some spare cash in a shoe box for a few workers.

 

[fromderinside]

No government forced Wal-Mart to offer these wages in Williston, ND

Where is the so called "race to the bottom" in Williston, ND?

Apparently those nice Waltons are worth around $160 billion between them, they may have found some spare cash in a shoe box for a few workers.

Or, it may be that competition for labor is so severe that Walmart has to pay that much to find someone who can actually stand up for an hour.

 

[SimpleDon]

The less workers are paid the less they spend in the economy to create more jobs in shops and businesses where the money is spent. The last paragraph is perfectly correct.

I never understood this rationale. The money would be spent anyway, just by someone else and for other things.

The 99% have a propensity to spend their money. They spend about 85% of their incomes. The 1% on the other hand have a propensity to invest their money. They invest about 80% of their incomes.

Investing in the paper economy of say stocks and derivatives doesn't get out into the real economy of people working to make products for consumption. The capital gains, that so many investors want because of their privileged tax treatments, come not from the company but from the person who buys your stock at a higher price than you paid for it. Hence the comparison to zero sum gambling. Your gain comes at someone else's loss. Your loss is someone else's gain.

The only way that the whole market can increase in value is from new money buying into it. Like a Ponzi scheme. The new money comes in from mainly the 80% of the income of the 1%. This is why Wall Street was so concerned about the end of the various QEs of the Fed. This was touted to inject new money created out of thin air into the economy. But the money was going not into the real economy that most people depend on for food, shelter, etc. Instead the money went into the paper economy. It boosted the stock market and not much else.

The important point is that investing in the stock market is not investing in the real economy. They are separate.

Corporations no longer depend on the stock market for capital for expansion say. The corporation will retain part of their earnings to use for this purpose, or they will borrow the money. Issuing stock to raise capital is virtually never done. It is like an infinite interest only loan that will never be paid off, unless the company buys their own stock on the open market. If the company did issue stock to raise capital it would be either an IPO for a new company (an initial public offering) or a dilutive SEO for an established company (dilutive because it reduces the value of the other outstanding stock and either secondary or supplemental, I have seen both used for the "S", equity offering).

All of the stock in the US is valued at about 18.7 trillion dollars, according to the world bank in 2012. I couldn't find any numbers for dilutive SEOs, but roughly ten times the amount of IPOs are issued than dilutive and non-dilutive (companies selling their own stock that wasn't on the market.) In 2012 it was less than 50 billion dollars for all of the IPOs and SEOs issued in the country*. Compared to nearly 19 trillion dollars in the total valuation of stocks in the country it is much less than a drop in the bucket, about 0.3%.

This is more than balanced by stock buybacks which have the opposite effect that IPOs and SEOs have. Goldman estimates that there will be over one trillion dollars in stock buybacks this year.


* (2014 was a much bigger year for IPOs, there were nearly $90 billion of them. I don't have a reference on hand, these are numbers that I remember. I suggest that you google something like "IPO value US").

 

[SimpleDon]

Not necessarily. Richer people tend to save more.

Saving money doesn't mean it won't get spent if that savings is loaned out or invested.

No, saving money means that it is not circulating in the economy. Money that is in the bank or in a mattress is money being held out of the economy. Investments in stocks for example is money that is not circulating in the economy.

Also, the rich not spending and saving would put downward pressure on prices by sellers since there is less quantity demanded (compared to a scenario where someone else has the money and will spend it instead of saving it).

Yes, you are right.

But be careful, money saved or "invested" in the paper economy of stocks, derivatives, etc. is money that doesn't create demand for products in the real economy. The money that impacts the economy is the money circulating in the economy, money paying wages and money paying for products to be consumed.

Income to wages creates demand for products in the real economy because the 99% wage earners spend most of their income. This will drive prices up, creating inflation.

When you direct more of the nation's income to the wealthy they have the propensity to invest. Although it is not in the real economy usually, it goes into the paper economy.

Lower prices tend to induce others spend when they otherwise wouldn't have if the price were higher.

I am not sure of this, it ignores effective demand, the idea that not only does someone have to want to buy something, they also have to have the money to buy the something that they want.

Prices will have to drop pretty far to induce someone to borrow money to buy. Of course, that is what a credit card is, it allows us to avoid deferring fulfilling our wants and needs. So yes, I am on board with you.

I just got word that my grandson was born today at 11:30 pm, twenty minutes ago.

 

[Loren Pechtel]

Saving money doesn't mean it won't get spent if that savings is loaned out or invested.

No, saving money means that it is not circulating in the economy. Money that is in the bank or in a mattress is money being held out of the economy. Investments in stocks for example is money that is not circulating in the economy.

The only case here that you are right about is the mattress.

Money in the bank does circulate because the bank loans it out.

Money in stocks circulates because the recipient of the money does something with it.