SimpleDon writes:
Let me try to explain this the way that I understand it, from the post-Keynesian economic perspective.
When we are looking at the economy as a whole, what economists call the macroeconomy, there are winners and losers from any change. Money that goes to one sector has to come from another sector. It is simple cash flow accounting.
If you force wages up the money has to come from somewhere else in the economy. That somewhere else is profits. There is no other possibility.
Although this post seems to me to drift a little far afield from the OP, I find claims being made here that I just can't let go unchallenged. Of course, higher wages do not have to come from profits. They can, and do, come from other workers. The employer who is forced to pay higher wages can simply pass the cost on in the form of higher prices. Since his competitors are in the same position that he is in, he can be fairly confident that he will not lose market share because his competitors are forced to pay higher wages too. So they call all maintain their profit margins.
Of course, the money to pay the higher prices has to come from somewhere so that employer may find that he still sells less, not because of competition but because people simply don't have as much money to spend on his products. So he is now selling less and must lay off some of his employees. But it is also possible that the demand for his product is sufficiently inelastic that people will still buy his products, but they will buy less of something else. This simply puts those other businesses in his position. People get laid off because prices have risen across the board, but unless the government prints more money there is no additional money to pay the higher prices so less gets bought and less gets produced. The money to pay the higher wages comes from those people who used to get a paycheck but no longer do. Of course, some businesses may go out of business altogether because of this. Drug stores no longer have lunch counters for example, and the soda jerk is a long dead profession.
Yes, all of the things that conservatives say will happen if the minimum wage is raised probably will happen somewhere in the economy. But all of these effects, higher prices, loss of employment, will be balanced out against positive results from the increase. It is this balance that we are concerned with looking at the whole economy.
And the claim that that balance must necessarily be positive is a highly subjective claim. Personally, I do not think that higher wages for the employed is good when it leads to more people being unable to find work.
It doesn't help us to consider the extremes. Yes, it is bad if we raise wages so high that there are no profits. Yes, it is bad if we lower wages to zero and have money flowing only to profits and capital, what we call slavery. These extremes don't tell us anything. They are not at all instructive beyond the obvious, don't go to extremes.
So is $15 an hour an extreme? How about $20 and hour? Why were Congressional Democrats so stingy as to limit the minimum wage increase to a mere $10.10 and hour. In fact, they were stingier than that, because that wouldn't go into effect for 3 years. The initial increase was only something like $8 an hour with staged increases along the way. The reason for this, of course, is that $8 an hour is already the effective minimum wage. They weren't risking much of an increase with this bill because they expected that three years from now, due to inflation, most people would already be paying close to $10 an hour. So minimum wage increases are mostly window dressing. But they do have a negative side-effect because they prevent a young, untrained employee from trading his labor for on-the-job training.
In the macroeconomy supply and demand don't balance each other. Any automatic mechanism to balance the two that naturally exists in the economy is so weak and acts so slowly that it is reasonable to say that for all practical purposes it doesn't exist. The economy behaves exactly like we observe it to behave, it can remain imbalanced for decades. This is the most important point that Keynes taught us. To see the truth of it we have to look no further than our economy since the financial crisis of 2008 or the Japanese economy over the last two decades.
Keynes taught us
that? Are you saying that Keynes did not believe in the law of supply and demand? There is no price at which the market clears? That's news to me. I certainly never read of that in Keynes nor did I read it from Keynes' more modern interpreter, Paul Samuelson. I don't know what the Japanese policy makers have been using if it isn't some form of Post-Keynesianism. Certainly, they aren't, and haven't been, devoted to free market policies.
It is the fiscal policies of the government that determines the balance between supply and demand, between the capital share and the labor share and between profits and wages. In the broadest sense there are all different ways of saying the same thing.
You might have some sort of case here that that is at least the intent of government fiscal policy, but that would only be true if government fiscal policy sought to re-distribute income and/or wealth through it's tax and spend policies. But it is not true when the redistribution of funds is accomplished with borrowed money. The wealthy who contribute these borrowed funds come out the richer for it, and they do so at taxpayer expense and, until recently at least, with very little risk. Meanwhile, government spending does little to redistribute income as most government spending goes to the middle class or to the wealthy. The progressive income tax redistributes somewhat but raising those rates do not redistribute more because government has to maintain loopholes for capital investment or else there wouldn't be any capital investment.
It takes a huge logical disconnect for conservatives to argue that there is a natural mechanism in the economy that will balance supply and demand, that is that the free market exists, and then to argue that we should continue to have fiscal policies that increase supply, profits, at the cost of demand, wages. That we should double down and increase the efforts to increase supply by further lowering the taxes on the rich and increasing taxes on the poor and the middle class. And then to argue that increasing the minimum wage violates the so-called free market, that we can't increase demand or that we shouldn't increase demand. It is saying that the market only works in one direction, that only one form of interference in the operation of the market is justified.
There is no logical disconnect here. The logical disconnect is in believing that supply is a product or service and that demand is something else. The unspoken assumption is that "demand" is simply money, but that would obviously mean that you should increase demand by increasing the money supply, but everyone knows that that is simply a formula for inflation. So demand is somehow left hanging out there as an undefined abstraction. The problem is that abstractions do not exist in the real world. Only concrete things exist in the real world. The fact is that the difference between supply and demand is in the eye of the beholder. It is the point of view of the person in the transaction that makes something supply or demand. In all cases, what the purchaser and seller both desire in a transaction is to give up some good or service in exchange for another good or service. Both supply and demand are products or services. To confuse the medium of exchange for "demand" is a huge and fundamental error but Keynes tried his best to do that with his attack on what he termed, "Say's Law." The fact is that "supply-side" economics is mis-named. It should be called "supply and demand-side" economics because supply and demand are the same thing. The only difference is in the point of view of the people in the transaction. So if you want to increase
real demand you have to increase real supply. The real economy is about real stuff. It isn't about worthless pictures of dead presidents or accounting entries in cyber-space.
The only reason to continue policies that increase supply is that there is too much demand in the economy and not enough supply. After thirty years of intentionally boosting supply, with record profits and the huge glut of capital that has built a constant stream of asset bubbles and with effectively negative real interest rates I don't think that any objective observer can say that we are lacking supply, capital, in the economy and that we have too much demand.
I'm really having trouble making much sense of this. How on earth do you conclude that a housing bubble is the result of an over-supply of housing or that any asset bubble results from an oversupply? Didn't Keynes himself argue that an oversupply created depression, not bubbles? And if negative real interest wouldn't increase demand, what would? Don't governments all over the world, including the US, raise interest rates to fight inflation? And certainly inflation can hardly be attributed to over-supply.
Conservatives are arguing now that the supply side economic policies aren't the reason for the glut of capital, the income inequality and the lack of demand in the economy so that we must not only continue, what are according to them, these ineffective policies we should increase them. Logical disconnect.
Where is this "glut" of capital you are talking about? The US savings rate is close to zero. We have had to borrow from China just to finance our budget deficits. Now China isn't lending so the Fed has to create all this money and, in a really big logical disconnect, lend it to the banks so that they can buy bonds from the Treasury Department which the Fed then buys from the banks!
So the Fed buys bonds from the banks which increases the bank's reserves, but to keep the banks from lending money against these reserves which would be inflationary, the Fed pays interest on them! This sounds like chewing gum and baling wire economics to me, but surely there is no evidence here of any capital "glut."
