Sorry, Folks, Rich People Don't Create The Jobs(businessinsider.com)
businessinsider.com
Sorry, Folks, Rich People Don't Create The Jobs
http://www.businessinsider.com/rich-people-dont-create-jobs-2014-6
22 comments
You missed a key qualifier: if you can create something that other people want and can afford.
They can afford it if they can create something of value that you're willing to accept in return. If they can't then that is the real problem. You have to ask why they can't create enough wealth to trade for the things they want / need.
They can't because there are huge factories in China that can produce widgets cheaper than they can, because there are farmers with million dollar combine harvesters that can produce food cheaper than they can, et cetera.
We live in an industrial economy. Most people can create more value for the economy by working for somebody else and/or don't have the safety net that allows them to take the risks necessary to start their own business.
We live in an industrial economy. Most people can create more value for the economy by working for somebody else and/or don't have the safety net that allows them to take the risks necessary to start their own business.
Software developers make $100+ an hour. The jobs are there for people willing to adapt to them. You can't just wait to be handed a job that matches your current abilities.
A few software developers make that kind of money. I certainly don't. There is not an infinite demand for high-paid programmers.
I doubt there is ANY employer demand for high-paid programmers.
The demand from an employer perspective is for highly-skilled programmers. If a proven highly-skilled programmer was willing to happily work for minimum wage employers would be lining up for miles to hire that person.
The highly-skilled workers are the ones demanding to be highly-paid.
If flipping burgers was more difficult then there would be a smaller supply of qualified workers, those workers could demand to be paid more, and the employers would have to pay up or risk getting crushed by their competition.
The demand from an employer perspective is for highly-skilled programmers. If a proven highly-skilled programmer was willing to happily work for minimum wage employers would be lining up for miles to hire that person.
The highly-skilled workers are the ones demanding to be highly-paid.
If flipping burgers was more difficult then there would be a smaller supply of qualified workers, those workers could demand to be paid more, and the employers would have to pay up or risk getting crushed by their competition.
Creativity often requires capital. Capital is often lacking for people who want to create value.
Sounds like you discovered an opportunity for a job ...
Or an economic choke point, depending on your point of view.
The market works best when there are more people making decisions -- it smooths the curve. If we have fewer and fewer people deciding where capital is allocated, it is going to be a big problem. Sure, people can, and are, making a very good living doling out capital in one way or another, but that is missing the point.
The market works best when there are more people making decisions -- it smooths the curve. If we have fewer and fewer people deciding where capital is allocated, it is going to be a big problem. Sure, people can, and are, making a very good living doling out capital in one way or another, but that is missing the point.
Everyone is making decisions about spending their capital every day so decisions are quite distributed.
I think you meant that it works better when capital is evenly distributed. I don't know if that is true but there seems to be lots of evidence that it doesn't work well when its distribution is largely determined by who can steal the most (as is the case with the current system).
I think you meant that it works better when capital is evenly distributed. I don't know if that is true but there seems to be lots of evidence that it doesn't work well when its distribution is largely determined by who can steal the most (as is the case with the current system).
>I don't know if that is true but there seems to be lots of evidence that it doesn't work well when its distribution is largely determined by who can steal the most (as is the case with the current system).
You are going to have to unpack that statement for me; you lost me there.
You are going to have to unpack that statement for me; you lost me there.
True, but almost to the point of nonsense. Consider, nobody created the job of iPad attachments. Yet, if it didn't exist those jobs wouldn't either.
It will be interesting to try to see what happens in Seattle after passing the $15 minimum wage. It will take years to fully implement, which will mask the cause/effect, unfortunately.
I do this thought experiment. If I write every person in America a check for one million dollars, who have I actually helped? In my thought experiment, the prices of everything will instantly rise to compensate for the increased wealth, and everybody will be exactly where they are now, just with more zeros on all their bills and paychecks.
I suspect that rent prices in Seattle, which are already high, will rise very rapidly, to relieve these workers of their extra income. That the wage increase will take place over a few years time is unfortunate, as this effect will be deniable by those who choose to deny it. But this is what my gut is telling me will happen. So, amusingly, it will be those evil 1% landlords, who will actually win, not the minimum wage workers, who will be exactly where they are now.
I do this thought experiment. If I write every person in America a check for one million dollars, who have I actually helped? In my thought experiment, the prices of everything will instantly rise to compensate for the increased wealth, and everybody will be exactly where they are now, just with more zeros on all their bills and paychecks.
I suspect that rent prices in Seattle, which are already high, will rise very rapidly, to relieve these workers of their extra income. That the wage increase will take place over a few years time is unfortunate, as this effect will be deniable by those who choose to deny it. But this is what my gut is telling me will happen. So, amusingly, it will be those evil 1% landlords, who will actually win, not the minimum wage workers, who will be exactly where they are now.
If you're going to do a thought experiment you need to think a little deeper. Most home owners would be able to pay off their mortgages and own their homes. All student debts would be easily paid off, and then some. Much inequality (outside the 1%) would vanish temporarily, since the difference between 1 million and 1 million and a small amount of savings isn't that much.
People would try to spend their money, resulting in much more demand, bottlenecks, and shortages. Of course this leads to inflation, but it also means the recession is over. Businesses would run out of everything and try to expand to try to meet supply, but their suppliers would raise prices too, maybe too high to make a profit. It would be a chaotic situation and people on fixed incomes would be screwed once the money runs out. It's hard to plan a business under these circumstances, but I'm sure some people would be smart enough to figure out a good plan.
So this is not "back where we started." It's a big reset that changes just about everything and probably a big disaster if it's sprung onto people without warning.
On the other hand, if properly planned and at a smaller scale, it could have some good effects. Giving an equal amount of money to everyone would work better than giving it to banks.
People would try to spend their money, resulting in much more demand, bottlenecks, and shortages. Of course this leads to inflation, but it also means the recession is over. Businesses would run out of everything and try to expand to try to meet supply, but their suppliers would raise prices too, maybe too high to make a profit. It would be a chaotic situation and people on fixed incomes would be screwed once the money runs out. It's hard to plan a business under these circumstances, but I'm sure some people would be smart enough to figure out a good plan.
So this is not "back where we started." It's a big reset that changes just about everything and probably a big disaster if it's sprung onto people without warning.
On the other hand, if properly planned and at a smaller scale, it could have some good effects. Giving an equal amount of money to everyone would work better than giving it to banks.
> In my thought experiment, the prices of everything will instantly rise to compensate for the increased wealth, and everybody will be exactly where they are now, just with more zeros on all their bills and paychecks.
Well that's true if America is a closed economy without connection to the rest of the world.
I could say that manufactured good prices shouldn't increase too drastically as they are made elsewhere, but that'd only be assuming that everyone in the US continues living their life as they already have.
But this is a revolutionary change, so it ought to have revolutionary outcomes.
Possibility #1: US loosens immigration controls as everyone is cash-rich. A flood of Mexican and Canadian immigrants enter the country to become the new middle and lower classes. Prices normalize rapidly after a brief spike.
Possibility #2: Seeing the writing on the wall, Americans flee their country en masse, taking up residence everywhere in the world from Europe to Africa to Asia. These cash-rich Americans take advantage of the fact that local prices elsewhere can't change to compensate for their newfound wealth. The US dies.
This is ofcourse all assuming that everyone can offload their cash into something valuable before the US economy goes into a slump, making American dollars less valuable.
Well that's true if America is a closed economy without connection to the rest of the world.
I could say that manufactured good prices shouldn't increase too drastically as they are made elsewhere, but that'd only be assuming that everyone in the US continues living their life as they already have.
But this is a revolutionary change, so it ought to have revolutionary outcomes.
Possibility #1: US loosens immigration controls as everyone is cash-rich. A flood of Mexican and Canadian immigrants enter the country to become the new middle and lower classes. Prices normalize rapidly after a brief spike.
Possibility #2: Seeing the writing on the wall, Americans flee their country en masse, taking up residence everywhere in the world from Europe to Africa to Asia. These cash-rich Americans take advantage of the fact that local prices elsewhere can't change to compensate for their newfound wealth. The US dies.
This is ofcourse all assuming that everyone can offload their cash into something valuable before the US economy goes into a slump, making American dollars less valuable.
If you write a check for 1M to every person in America, you help the poorest; if I have $0 I cannot afford anything; you give me 1M now I can get about 1/300M of the total of things.
I assume rents (and other things) will rise even more in Seattle, but not to take the whole increase; the 1% will always make lots of money, but hopefully the bottom 10% gets a slightly higher piece of the pie
I assume rents (and other things) will rise even more in Seattle, but not to take the whole increase; the 1% will always make lots of money, but hopefully the bottom 10% gets a slightly higher piece of the pie
The minimum wage hike, coupled with property tax increases for transit, bridge tolling, and lack of effective transportation options will result increased investment and growth in the Eastside of the Seattle Metro region.
Bellevue is already undergoing a economic boom, and thanks in no small part to the action of the Seattle city council and King county I don't think there is an end to that in sight.
Bellevue is already undergoing a economic boom, and thanks in no small part to the action of the Seattle city council and King county I don't think there is an end to that in sight.
I think you are wrong, because you assume that the ability of people to exert power (to influence prices, for example) is independent on income. But that's probably not true.
So for example, in your thought experiment, some of the people could start a business with that million of dollars (invest it), and become more independent. That would be competition (or substitute, depends how you look at it), and it would prevent from rising the real price to the original level. If you suddenly give everyone a big sum of money (which is resources), you actually equalize power.
So for example, in your thought experiment, some of the people could start a business with that million of dollars (invest it), and become more independent. That would be competition (or substitute, depends how you look at it), and it would prevent from rising the real price to the original level. If you suddenly give everyone a big sum of money (which is resources), you actually equalize power.
this is called trickle-up economics
For anyone interested in learning more about the growing inequality gap in America, I recommend watching the documentary "Inequality For All" (http://imdb.com/title/tt2215151/).
I have not seen the movie but it is laughable that almost without fail the voices for "equality" are those who are quite rich themselves. Just look at the cast for that movie.
And if they were poor, they'd just be people jealous of the success of others. Ad-hominems are an easy way to sidestep discussion.
Russell Brand: When I was poor and I complained about inequality people said I was bitter, now I'm rich and I complain about inequality they say I'm a hypocrite. I'm beginning to think they just don't want inequality on the agenda http://www.theguardian.com/commentisfree/2013/nov/05/russell...
The line of reasoning of this article can be applied to all things and by extrapolating out the logic it becomes evident how absurd the logic really is. Examples:
1) Mr. Gates did not create Microsoft... someone else built the garage he started in; OR his parents created him and therefore they created Microsoft (or an infinite number of other rationales)
2) The engine malfunctioning did not cause the airplane to crash, gravity caused the plane to crash
1) Mr. Gates did not create Microsoft... someone else built the garage he started in; OR his parents created him and therefore they created Microsoft (or an infinite number of other rationales)
2) The engine malfunctioning did not cause the airplane to crash, gravity caused the plane to crash
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No I don't think that's quite right. He very clearly is saying that the entrepreneur alone is not responsible for the success and growth of a company because they also need customers and employees and etc etc.
As for your plane crash analogy, http://en.wikipedia.org/wiki/Chain_of_events_(aeronautics).
As for your plane crash analogy, http://en.wikipedia.org/wiki/Chain_of_events_(aeronautics).
Me, I'm a wage slave, but I do have a friend who put up his savings, borrowed money from a bank and built and opened a car wash. He hired a dozen or so young men and women who staff it, while he is an owner/manager.
He has been successful -- he judged the demand for a car wash correctly. Probably not a %1'er, but as a local small business owner is able to live a comfortable middle class life.
Certainly without customers and without the bank he could not have succeeded, but I think it's ludicrous to say the 'economy' created the jobs. There are some agents within the economy who 1) recognize opportunities for profitable activity and 2) direct resources these opportunities. I think it's reasonable to describe these people as job creators.
He has been successful -- he judged the demand for a car wash correctly. Probably not a %1'er, but as a local small business owner is able to live a comfortable middle class life.
Certainly without customers and without the bank he could not have succeeded, but I think it's ludicrous to say the 'economy' created the jobs. There are some agents within the economy who 1) recognize opportunities for profitable activity and 2) direct resources these opportunities. I think it's reasonable to describe these people as job creators.
But it's certainly reasonable to assume most of his customers are middle class individuals with enough discretionary income to spend on occasional car washes. The articles point is not that your friend doesn't deserve credit in creating jobs, but the initial creation is only one part. Sustaining those jobs requires sustaining the customers and to do that they must maintain enough discretionary income to spend on car washes. With the income disparity ever increasing it's easy to see the middle class fading and as that happens so shall your friends car wash business.
This argument isn't about people starting small businesses, but rather about millionaires patting themselves on the back for being wealthy. Many of whom think of themselves as job creators because they have a maid and a gardener while getting richer by being clever on the stock market.
I think here there's some truth to both propositions (why are people so black or white in their thinking when the world is always shades of grey?)
Clearly without demand (consumers with money) you can't create jobs in the economy. Just as clearly, without entrepreneurs willing to take the risk and put in the effort, and the investors who fund them, you can't create those jobs either. So the truth of the matter is that economics is complex, and you need plucky entrepreneurs, wealthy investors, and consumers with lots of disposable income to create jobs, among a whole host of motivations, cultural and societal influences, international trade and agreements, infrastructure, even healthcare, and other human factors.
Clearly without demand (consumers with money) you can't create jobs in the economy. Just as clearly, without entrepreneurs willing to take the risk and put in the effort, and the investors who fund them, you can't create those jobs either. So the truth of the matter is that economics is complex, and you need plucky entrepreneurs, wealthy investors, and consumers with lots of disposable income to create jobs, among a whole host of motivations, cultural and societal influences, international trade and agreements, infrastructure, even healthcare, and other human factors.
The analogy the original article used was that of entrepreneurs and investors to seeds: a seed is a vital component to the growing of trees, but far from sufficient.
I wonder how many of these "Job Creators" really believes that the wealthy create jobs, or if they are fully aware it's BS?
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
― Upton Sinclair[1]
1) http://www.goodreads.com/quotes/21810-it-is-difficult-to-get...
― Upton Sinclair[1]
1) http://www.goodreads.com/quotes/21810-it-is-difficult-to-get...
As far as I am to understand, most of the 1%'ers wealth is tied up in investments.
And this is why they consider themselves the job creators. They invest in all sorts of companies and markets and without the initial investment to start a company, there wouldn't be anything for the middle-class to purchase with their middle class salary, not to say no one to pay that salary either.
If they just bought gold and hid it in a vault, then I expect them not to consider themselves job creators.
And this is why they consider themselves the job creators. They invest in all sorts of companies and markets and without the initial investment to start a company, there wouldn't be anything for the middle-class to purchase with their middle class salary, not to say no one to pay that salary either.
If they just bought gold and hid it in a vault, then I expect them not to consider themselves job creators.
As far as I am to understand, most of the 1%'ers wealth is tied up in investments.
And this is why they consider themselves the job creators.
But this is a very inefficient way of creating jobs; that's one of the main points of the article. Most of the 1%'ers wealth is in investments that they do not actively manage. That has to be the case, because a single person just doesn't scale. There's no way any single person can efficiently determine how best to spend billions of dollars. But if you spread the billions of dollars out among thousands (or even millions) of people, they'll find much better ways to spend it--where "better" means "creating more wealth in aggregate".
And this is why they consider themselves the job creators.
But this is a very inefficient way of creating jobs; that's one of the main points of the article. Most of the 1%'ers wealth is in investments that they do not actively manage. That has to be the case, because a single person just doesn't scale. There's no way any single person can efficiently determine how best to spend billions of dollars. But if you spread the billions of dollars out among thousands (or even millions) of people, they'll find much better ways to spend it--where "better" means "creating more wealth in aggregate".
It's precisely why high income taxes on the wealthy should exist. With high income tax, they have an incentive to invest more money than they keep (rather than hand it over to the government). With low taxation, they can take a small hit and hoard whatever amount they feel like they should. Not taxing the "job creators" stops making them "job creators". Furthermore, keeping wages low prevents regular workers from ever becoming "job creators".
The wealth disparity that is increasing is mostly due to investments and an extremely low capital gains tax. We can't just increase the income tax because the wealthiest 1% probably don't even have much of an income...they have capital gains from investments. Yes, the income tax needs to be increased (or actually more brackets need to be created) but we also need to raise the capital gains tax for higher amounts of capital gains.
I think you have something backwards. A high income tax on the rich would decrease the amount of money they get to invest, and also reduce their returns on that investment.
If that's the idea, then I guess the members of working class should start calling themselves "wealth creators", "return creators", or "investment opertunity creators."
The threshold for the 1% is "centi-millionaire," eh? I'm apparently substantially more baller than I realized.
I guess you, like me, initially read it as an SI prefix, and were a bit confused about someone with a net worth of $10,000 being touted as a one-percenter... I mentally rewrote it as hecto-millionnaire and it made more sense.
But I guess a centipede doesn't have a hundredth of a foot, and it's not like millionnaire/billionnaire follows an SI naming scheme in the first place. Maybe we should introduce a new scale:
megalonnaire
gigalonnaire
...
Successful tech entrepreneurs could rather aspire to becoming binary prefixed mebilonnaires or gibilonnaires.
But I guess a centipede doesn't have a hundredth of a foot, and it's not like millionnaire/billionnaire follows an SI naming scheme in the first place. Maybe we should introduce a new scale:
megalonnaire
gigalonnaire
...
Successful tech entrepreneurs could rather aspire to becoming binary prefixed mebilonnaires or gibilonnaires.
Hecto[1] would have been a better choice for a prefix.
[1] http://en.wikipedia.org/wiki/Hecto-
[1] http://en.wikipedia.org/wiki/Hecto-
> I'm apparently substantially more baller than I realized.
We all are. The poverty threshhold estimate for 2013 is $12,119/year for a single adult under 65.[1] 49 million people in the US are in 'food insecure households',[2], which means '“limited or uncertain availability of nutritionally adequate and safe foods or limited or uncertain ability to acquire acceptable foods in socially acceptable ways.” 16 million of those 49 are children.[3]
Furthermore, if you don't just look at poverty, but at 'the middle class', whatever that means, as of 2004, the median income for a _household_ was $44,389[4]. The 2011 WSJ "What Percent Are You" calculator says that for a $120,000 income, (which is anecdotally what you can expect as a Bay Area programmer, at least, according to my anecdata), you are in the top 16% of earners. Glassdoor says that it's $100,000,[6], which puts you in the top 19%.
Software development is a very lucrative profession.
1: https://www.census.gov/hhes/www/poverty/data/threshld/
2: http://en.wikipedia.org/wiki/Food_security#Food_Security_in_...
3: https://feedingamerica.org/hunger-in-america/hunger-studies/...
4: http://en.wikipedia.org/wiki/Household_income_in_the_United_...
5: http://blogs.wsj.com/economics/2011/10/19/what-percent-are-y...
6: http://www.glassdoor.com/Salaries/san-francisco-software-eng...
We all are. The poverty threshhold estimate for 2013 is $12,119/year for a single adult under 65.[1] 49 million people in the US are in 'food insecure households',[2], which means '“limited or uncertain availability of nutritionally adequate and safe foods or limited or uncertain ability to acquire acceptable foods in socially acceptable ways.” 16 million of those 49 are children.[3]
Furthermore, if you don't just look at poverty, but at 'the middle class', whatever that means, as of 2004, the median income for a _household_ was $44,389[4]. The 2011 WSJ "What Percent Are You" calculator says that for a $120,000 income, (which is anecdotally what you can expect as a Bay Area programmer, at least, according to my anecdata), you are in the top 16% of earners. Glassdoor says that it's $100,000,[6], which puts you in the top 19%.
Software development is a very lucrative profession.
1: https://www.census.gov/hhes/www/poverty/data/threshld/
2: http://en.wikipedia.org/wiki/Food_security#Food_Security_in_...
3: https://feedingamerica.org/hunger-in-america/hunger-studies/...
4: http://en.wikipedia.org/wiki/Household_income_in_the_United_...
5: http://blogs.wsj.com/economics/2011/10/19/what-percent-are-y...
6: http://www.glassdoor.com/Salaries/san-francisco-software-eng...
Poverty isn't a great measure as you can be out of poverty without a livable wage.
Hence the entire second part of my post.
Unlike Hanauer and other 1%-ers, middle class people spend almost every penny they make, and this spending becomes revenue for companies started and owned by people like Hanauer.
The same is true for the rich as well. Much of what they earn is consumed directly. But for anything that's not, it's surely not being hidden under a mattress (they didn't get to be rich by losing out to inflation). Instead, these people are investing it or saving it.
If they just save it in a bank account, then the bank is (less the fractional reserve portion) loaning it back out to somebody else, probably providing the means for a non-rich-person to finance a house or a car or a new business. That is, it's being spent by the person taking out the loan.
If they invest the money, then it's providing the capital for business, which is even better. That business might spend it (there it is again - spending) to buy new machinery, or they might expand operations and hire more workers, etc.
Any way you slice it, other than the part that's held back in fractional reserve, the large incomes of the rich do get spent. Either they spend directly, or they let someone else use it for their own spending.
The same is true for the rich as well. Much of what they earn is consumed directly. But for anything that's not, it's surely not being hidden under a mattress (they didn't get to be rich by losing out to inflation). Instead, these people are investing it or saving it.
If they just save it in a bank account, then the bank is (less the fractional reserve portion) loaning it back out to somebody else, probably providing the means for a non-rich-person to finance a house or a car or a new business. That is, it's being spent by the person taking out the loan.
If they invest the money, then it's providing the capital for business, which is even better. That business might spend it (there it is again - spending) to buy new machinery, or they might expand operations and hire more workers, etc.
Any way you slice it, other than the part that's held back in fractional reserve, the large incomes of the rich do get spent. Either they spend directly, or they let someone else use it for their own spending.
Depending on what you mean by "spending". I see spending as an irreversible process, where someone actually decides how to convert resources to products. You could say the more you do that, the bigger the economy.
However, rich people don't engage in this sort of spending as much. Lot of their "spending" is in reality just circulation of money through rent extraction. And it's important for them to do that, because that allows them to keep their power. For instance, if they loan it to a person, that person becomes dependent on them.
Your idea is based on flawed premise that one has only two rational options what to do with money - invest (in a narrow sense, to make actual decision how to convert one resource to another) or consume. In reality, there is a third option, which is similar to saving, that is investing money in power grabbing and rent extraction. While saving doesn't give you an advantage to other players, the rent extraction may.
This was already explained by Marx long time ago, when he described the capitalist as someone who wants to create more money from money he has through profit from investment. And more recently this was explained by Piketty, that you can have a situation in economy where rich people try to "invest" into rent extraction and not producing more goods or services.
However, rich people don't engage in this sort of spending as much. Lot of their "spending" is in reality just circulation of money through rent extraction. And it's important for them to do that, because that allows them to keep their power. For instance, if they loan it to a person, that person becomes dependent on them.
Your idea is based on flawed premise that one has only two rational options what to do with money - invest (in a narrow sense, to make actual decision how to convert one resource to another) or consume. In reality, there is a third option, which is similar to saving, that is investing money in power grabbing and rent extraction. While saving doesn't give you an advantage to other players, the rent extraction may.
This was already explained by Marx long time ago, when he described the capitalist as someone who wants to create more money from money he has through profit from investment. And more recently this was explained by Piketty, that you can have a situation in economy where rich people try to "invest" into rent extraction and not producing more goods or services.
Be that as it may, it's not the claim the article was making. The claim was that rich people don't lead to growth because much of their money sits idle, and thus cannot "trickle down" by being used in the economy.
The moral effects that you outline aside, you seem to agree that the portion of their money that the rich don't spend themselves, they're allowing to be spent by another person. Thus while you may dislike the moral implications, you seem to agree with my assessment that the claims of the article are incorrect.
The moral effects that you outline aside, you seem to agree that the portion of their money that the rich don't spend themselves, they're allowing to be spent by another person. Thus while you may dislike the moral implications, you seem to agree with my assessment that the claims of the article are incorrect.
> you seem to agree that the portion of their money that the rich don't spend themselves, they're allowing to be spent by another person
Not really. If I give you 1000$ it's a different thing than when I just lend you 1000$. In both cases you have discretion to spend it, but in the latter case, you have much less freedom, because you need to return it back (and more).
What I am saying is that economy as a whole can store a large portion of money in such contracts, not really producing much of anything (because of the constraints placed to the borrower). Still, it's a rational thing to do for rich people because it allows to keep them power. So in this sense, the money are "idling" - by circulating around in contracts that have to be honored.
Not really. If I give you 1000$ it's a different thing than when I just lend you 1000$. In both cases you have discretion to spend it, but in the latter case, you have much less freedom, because you need to return it back (and more).
What I am saying is that economy as a whole can store a large portion of money in such contracts, not really producing much of anything (because of the constraints placed to the borrower). Still, it's a rational thing to do for rich people because it allows to keep them power. So in this sense, the money are "idling" - by circulating around in contracts that have to be honored.
I think it's plenty arguable that rich people create jobs.
For example: if rich people don't create jobs, then how can it be their fault that there are not enough jobs? If jobs really come from the middle class, why hasn't the middle class created more of them? It would be in their self-interest to do so.
Arguing that wages for middle class jobs should go up raises the question of where that wage money should come from. The answer is capital, i.e. rich people.
Societies without rich people are also societies that struggle to create well-paying jobs. The USSR and China attempted to eliminate rich people by adopting a communist economy. What happened is that the people in the government were the only ones who got rich, and the government was the only source of jobs. That is not a coincidence.
Since the end of the 20th Century, both Russia and China have relaxed government control of capital, and the result has been an increase in both rich people and well-paying jobs in those countries.
Finally, consider technological innovation; a rich source of job creation. It is created by investment, sometimes seemingly far-fetched or speculative investment. Google and the iPhone are two examples of products that were not guaranteed success, and were even dismissed by some industry experts when released. Each has directly created thousands of jobs and indirectly enabled at least tens of thousands more in supporting or related fields.
But before there was Google or the iPhone, there were rich people writing checks to the people who envisioned them.
BTW this is NOT an argument against a higher minimum wage. In fact I think the questions of "where jobs come from" and "what is the ideal minimum wage" are only very loosely connected.
edits: spellings
For example: if rich people don't create jobs, then how can it be their fault that there are not enough jobs? If jobs really come from the middle class, why hasn't the middle class created more of them? It would be in their self-interest to do so.
Arguing that wages for middle class jobs should go up raises the question of where that wage money should come from. The answer is capital, i.e. rich people.
Societies without rich people are also societies that struggle to create well-paying jobs. The USSR and China attempted to eliminate rich people by adopting a communist economy. What happened is that the people in the government were the only ones who got rich, and the government was the only source of jobs. That is not a coincidence.
Since the end of the 20th Century, both Russia and China have relaxed government control of capital, and the result has been an increase in both rich people and well-paying jobs in those countries.
Finally, consider technological innovation; a rich source of job creation. It is created by investment, sometimes seemingly far-fetched or speculative investment. Google and the iPhone are two examples of products that were not guaranteed success, and were even dismissed by some industry experts when released. Each has directly created thousands of jobs and indirectly enabled at least tens of thousands more in supporting or related fields.
But before there was Google or the iPhone, there were rich people writing checks to the people who envisioned them.
BTW this is NOT an argument against a higher minimum wage. In fact I think the questions of "where jobs come from" and "what is the ideal minimum wage" are only very loosely connected.
edits: spellings
Holy smokes, where to begin...
> if rich people don't create jobs, then how can it be their fault that there are not enough jobs?
No one is blaming rich people. They are blaming the system (aspects of it, at least) that we have collectively created.
>If jobs really come from the middle class, why hasn't the middle class created more of them?
Much like fire needs heat, oxygen, and a fuel a successful business needs entrepreneurs, capital, and demand. If the middle class doesn't have disposable income that limits available capital and demand for creating and sustaining a business by middle class entrepreneurs.
>Arguing that wages for middle class jobs should go up raises the question of where that wage money should come from. The answer is capital, i.e. rich people.
Creating value creates money. That's how this whole thing works. It doesn't have to come from rich people, it comes, ultimately, from profit.
>The USSR and China attempted to eliminate rich people by adopting a communist economy.
You are jumping a bit far, there. I don't think anyone is advocating communism.
>But before there was Google or the iPhone, there were rich people writing checks to the people who envisioned them.
Capital doesn't have to come from rich people. Just as centralization of economic control is inefficient and ultimately harmful in communist systems you cite, it is just as destructive in a capitalist system.
> if rich people don't create jobs, then how can it be their fault that there are not enough jobs?
No one is blaming rich people. They are blaming the system (aspects of it, at least) that we have collectively created.
>If jobs really come from the middle class, why hasn't the middle class created more of them?
Much like fire needs heat, oxygen, and a fuel a successful business needs entrepreneurs, capital, and demand. If the middle class doesn't have disposable income that limits available capital and demand for creating and sustaining a business by middle class entrepreneurs.
>Arguing that wages for middle class jobs should go up raises the question of where that wage money should come from. The answer is capital, i.e. rich people.
Creating value creates money. That's how this whole thing works. It doesn't have to come from rich people, it comes, ultimately, from profit.
>The USSR and China attempted to eliminate rich people by adopting a communist economy.
You are jumping a bit far, there. I don't think anyone is advocating communism.
>But before there was Google or the iPhone, there were rich people writing checks to the people who envisioned them.
Capital doesn't have to come from rich people. Just as centralization of economic control is inefficient and ultimately harmful in communist systems you cite, it is just as destructive in a capitalist system.
The terminology makes it very difficult to have a productive discussion. "Rich people" are not rich the way that Asian people are Asian. A rich person is simply a person who has the legal right to direct large amounts of wealth.
Conversely, every piece of wealth has at least one person who has the legal right to direct it.
So when you make a statement like "It doesn't have to come from rich people, it comes, ultimately, from profit," it's a somewhat meaningless distinction because every piece of profit is controlled by a person somewhere. A rich person is just a person who has the legal right to direct large amounts of profit (i.e. wealth). Therefore their decisions will have larger effects on job creation.
Ultimately it doesn't matter that jobs are created by rich people. What matters is what policy steps we can take to improve job creation, wages, and opportunity for U.S. citizens. Unfortunately actual policy discussions are too frequently railroaded by framing arguments like "do rich people create jobs."
Conversely, every piece of wealth has at least one person who has the legal right to direct it.
So when you make a statement like "It doesn't have to come from rich people, it comes, ultimately, from profit," it's a somewhat meaningless distinction because every piece of profit is controlled by a person somewhere. A rich person is just a person who has the legal right to direct large amounts of profit (i.e. wealth). Therefore their decisions will have larger effects on job creation.
Ultimately it doesn't matter that jobs are created by rich people. What matters is what policy steps we can take to improve job creation, wages, and opportunity for U.S. citizens. Unfortunately actual policy discussions are too frequently railroaded by framing arguments like "do rich people create jobs."
>So when you make a statement like "It doesn't have to come from rich people, it comes, ultimately, from profit," it's a somewhat meaningless distinction because every piece of profit is controlled by a person somewhere.
It is not meaningless at all. Rich people are individuals that control large amounts of wealth. This is opposed to groups of people who collectively control large amounts of wealth. A superintendent of a large school district can control a billion dollars of wealth but that doesn't make him or her rich (though they make a good salary I'd still classify them, personally, as solidly middle class).
And it certainly does matter if we rely increasingly on fewer and fewer individuals (due to increasing inequality) to make economic decisions for everyone. It is inherently inefficient. What we are talking about is identifying this trend as a problem and implementing policies to counteract it before it becomes intractable.
It is not meaningless at all. Rich people are individuals that control large amounts of wealth. This is opposed to groups of people who collectively control large amounts of wealth. A superintendent of a large school district can control a billion dollars of wealth but that doesn't make him or her rich (though they make a good salary I'd still classify them, personally, as solidly middle class).
And it certainly does matter if we rely increasingly on fewer and fewer individuals (due to increasing inequality) to make economic decisions for everyone. It is inherently inefficient. What we are talking about is identifying this trend as a problem and implementing policies to counteract it before it becomes intractable.
School districts don't make a profit, they are funded from profits. Before a school district can have a billion dollars to spend, that wealth has to be generated somehow.
> And it certainly does matter if we rely increasingly on fewer and fewer individuals (due to increasing inequality) to make economic decisions for everyone.
I agree with this, but it doesn't disagree with the idea that rich people create jobs.
> And it certainly does matter if we rely increasingly on fewer and fewer individuals (due to increasing inequality) to make economic decisions for everyone.
I agree with this, but it doesn't disagree with the idea that rich people create jobs.
School districts don't make a profit but they do create value, but that is a digression.
>I agree with this, but it doesn't disagree with the idea that rich people create jobs.
Rich people can create jobs, but we shouldn't over-rely on that mechanism. They aren't the only ones creating jobs is my point.
>I agree with this, but it doesn't disagree with the idea that rich people create jobs.
Rich people can create jobs, but we shouldn't over-rely on that mechanism. They aren't the only ones creating jobs is my point.
This is all "chicken and egg" stuff; does the demand for goods create jobs, or do the jobs create demand for goods? I think it's both.
Regardless, the premise is flawed. Rich people don't create jobs, smart and ambitious people do. There just happens to be some overlap between those groups.
Regardless, the premise is flawed. Rich people don't create jobs, smart and ambitious people do. There just happens to be some overlap between those groups.
There seems to be a lot of people equating investment (often by the rich or owners of business) with people returning all/most of their wage income back to the economy (the poor or middle class that spend their paychecks directly).
If these activities are the same, I assume you would agree that they should also be taxed the same? If so, we should really get rid of "capital gains" taxes and tax those profits as regular income. Otherwise there would be a severe bias introduced into the economy from the uneven application of taxes.
/or, maybe there is something different about investments after all...
If these activities are the same, I assume you would agree that they should also be taxed the same? If so, we should really get rid of "capital gains" taxes and tax those profits as regular income. Otherwise there would be a severe bias introduced into the economy from the uneven application of taxes.
/or, maybe there is something different about investments after all...
I understand the concept that a business such as Wal-Mart can easily afford a sudden rise in minimum wage as that's almost always the example used. That, or another similarly large and successful company.
But what about that mom and pop store on the corner? Am I to understand that they could afford the new employment costs if suddenly it were to be doubled, or close to it? How long does it take for the new economic benefits of the store paying out more money per week to employees to offset the new costs? Can they last that long? Some places are on tough times and on tight margins. Any increase in expenses is potential disaster. Do they raise prices at first because that new positive economic impact doesn't happen immediately, which may actually prevent the positive impact if other local stores have to do the same? Will the customers with more money to spend in their store offset the new higher costs of employing people or will it be a wash?
(If anyone has a source of the economic impact on small businesses, and not the large chains, of doubling the minimum wage I would be highly interested in reading it.)
Because this isn't just about increasing minimum wage, it would increase wages for a great number of people who are not making minimum wage. Would the manager of a pizza shop be happy that his drivers suddenly make more per hour then he does? Of course not, that would mean all wages at the place would need to be adjusted according to seniority and responsibilities. Many wages are structured based on the current minimum wage level.
Plus, it would seem that it would be in the best interest of Wal-Mart to push for doubling the minimum wage. As been shown numerous times, they can afford it. Much of their competition could not.
Not that I disagree with the sentiment, something definitely needs to be done because the current mantra clearly doesn't work. But the issue is far more complicated, as the original essay mentioned points out, then just simply raising the minimum wage. I think raising the minimum wage would, in the end, be a good thing; but I believe there would be a wave of negative consequences, and there are many, that would have to be survived. Many people who are against raising the minimum wage point out those negative consequences, but cannot see beyond them. That doesn't mean they should be ignored.
But what about that mom and pop store on the corner? Am I to understand that they could afford the new employment costs if suddenly it were to be doubled, or close to it? How long does it take for the new economic benefits of the store paying out more money per week to employees to offset the new costs? Can they last that long? Some places are on tough times and on tight margins. Any increase in expenses is potential disaster. Do they raise prices at first because that new positive economic impact doesn't happen immediately, which may actually prevent the positive impact if other local stores have to do the same? Will the customers with more money to spend in their store offset the new higher costs of employing people or will it be a wash?
(If anyone has a source of the economic impact on small businesses, and not the large chains, of doubling the minimum wage I would be highly interested in reading it.)
Because this isn't just about increasing minimum wage, it would increase wages for a great number of people who are not making minimum wage. Would the manager of a pizza shop be happy that his drivers suddenly make more per hour then he does? Of course not, that would mean all wages at the place would need to be adjusted according to seniority and responsibilities. Many wages are structured based on the current minimum wage level.
Plus, it would seem that it would be in the best interest of Wal-Mart to push for doubling the minimum wage. As been shown numerous times, they can afford it. Much of their competition could not.
Not that I disagree with the sentiment, something definitely needs to be done because the current mantra clearly doesn't work. But the issue is far more complicated, as the original essay mentioned points out, then just simply raising the minimum wage. I think raising the minimum wage would, in the end, be a good thing; but I believe there would be a wave of negative consequences, and there are many, that would have to be survived. Many people who are against raising the minimum wage point out those negative consequences, but cannot see beyond them. That doesn't mean they should be ignored.
First off, most of what follows is anecdotal.
I've worked at a couple of mom-and-pop businesses. Most of our customers at a couple of the places were people working at or just above minimum wage.
Were our customers to have their income doubled it would be great for the business. More customers with much more disposable income? That sounds fantastic. And in turn the cost of higher wages for the employees is smaller than the reward from a more prosperous customer base. On a $2 cup of coffee for instance, the wage cost is somewhere between $0.15 and $0.50.
A customer making $8/hour would balk at a $3 cup of coffee, but a customer making $16/hour would have no issue with it. Even accounting for a 15% to 25% increase in cost all the way down our supply chain, we would still come out the better for it. As would most businesses.
Even businesses were wages are the majority of the expenses wouldn't be hurt. If the cost of a service is 75% labor wages, and that cost doubles, you need to raise the price of that service by 35%, right? But your lowest income customers have a 100% increase in income. Probably a multi-times increase in disposable income. That's good for business.
The problem with competing with walmart has little to nothing to do with labor and wage costs. It has to do with Walmart's highly optimized supply chain and one-stop-shopping at very low prices. Doubling of wages would have very little impact on the dynamic between Walmart and smaller businesses.
Though smaller businesses may benefit from a consumer base with more disposable income having to be less price conscious and not having to shop at walmart out of economic necessity.
I've worked at a couple of mom-and-pop businesses. Most of our customers at a couple of the places were people working at or just above minimum wage.
Were our customers to have their income doubled it would be great for the business. More customers with much more disposable income? That sounds fantastic. And in turn the cost of higher wages for the employees is smaller than the reward from a more prosperous customer base. On a $2 cup of coffee for instance, the wage cost is somewhere between $0.15 and $0.50.
A customer making $8/hour would balk at a $3 cup of coffee, but a customer making $16/hour would have no issue with it. Even accounting for a 15% to 25% increase in cost all the way down our supply chain, we would still come out the better for it. As would most businesses.
Even businesses were wages are the majority of the expenses wouldn't be hurt. If the cost of a service is 75% labor wages, and that cost doubles, you need to raise the price of that service by 35%, right? But your lowest income customers have a 100% increase in income. Probably a multi-times increase in disposable income. That's good for business.
The problem with competing with walmart has little to nothing to do with labor and wage costs. It has to do with Walmart's highly optimized supply chain and one-stop-shopping at very low prices. Doubling of wages would have very little impact on the dynamic between Walmart and smaller businesses.
Though smaller businesses may benefit from a consumer base with more disposable income having to be less price conscious and not having to shop at walmart out of economic necessity.
Well, it seems many people's logic about small businesses disagrees with your example about customers at or slightly above minimum wage. With the "if Wal-Mart raised their prices then small shops could compete better" kind of thing. Not that I'm saying your wrong or anything, just pointing out obvious problems with such examples. My own included.
How do you know there would be a 15% to 25% increase in costs in the supply chain? Could it be more? Could it be less? Would it be possible that with a minimum wage hike that the individual costs for some parts of the supply chain the rise in costs could be much higher? Depends on the businesses involved. Meaning, what's good for one business is not necessarily good for every business.
What if a store has to raise their prices not by 35%, but more like 60% because of increased costs from their supply chain. That figure seems to only assume the prices are raised only to cover increased wage costs, and not considering new costs across the board. But hey, they still come out ahead right? What about taxes? Anybody getting this new increase in pay going to get hit with more taxes? I never see any of these articles discuss that aspect of it at all.
I'm sorry, but your logic seems overly simplified because it would seem to support the notion that since raising the minimum wage is good for everybody then why not just raise it to $50 an hour or $100 an hour? The original essay argues against that because it's a complicated issue.
How do you know there would be a 15% to 25% increase in costs in the supply chain? Could it be more? Could it be less? Would it be possible that with a minimum wage hike that the individual costs for some parts of the supply chain the rise in costs could be much higher? Depends on the businesses involved. Meaning, what's good for one business is not necessarily good for every business.
What if a store has to raise their prices not by 35%, but more like 60% because of increased costs from their supply chain. That figure seems to only assume the prices are raised only to cover increased wage costs, and not considering new costs across the board. But hey, they still come out ahead right? What about taxes? Anybody getting this new increase in pay going to get hit with more taxes? I never see any of these articles discuss that aspect of it at all.
I'm sorry, but your logic seems overly simplified because it would seem to support the notion that since raising the minimum wage is good for everybody then why not just raise it to $50 an hour or $100 an hour? The original essay argues against that because it's a complicated issue.
Speaking for myself and my wife. We debated for years whether to get a house cleaner. Finally, we have made the leap and have somebody come over once every two weeks to clean. However, if that house cleaning company were to raise their rates 35% to compensate for increased wages, we would go back to cleaning our own house, without question.
I suspect that kind of thing could quickly make some businesses that had been viable, no longer viable.
I suspect that kind of thing could quickly make some businesses that had been viable, no longer viable.
Many of their potential customers would also benefit from increased wages as well though, so while you may have to drop the services, there are potentially many others who are now willing to purchase it.
For many small businesses, increasing the minimum wage would increase the cost of their employees but not increase the income of their customers. These businesses would see an increase in expenses but none of the benefits of a consumer base with more disposable income.
Walmart wants a higher minimum wage because their consumer base includes minimum wage employees.
Walmart wants a higher minimum wage because their consumer base includes minimum wage employees.
54% of the US workers make less than $30,000 a year [1]. at a $14.50 minimum wage, the income floor for a full time employee becomes $30,000. You're telling me that a substantial income increase for >50% of the US working population would be bad for small businesses?
[1] http://www.census.gov/hhes/www/cpstables/032011/perinc/new01...
[1] http://www.census.gov/hhes/www/cpstables/032011/perinc/new01...
Not saying it "would" be bad, saying it "could" be bad.
Most of these articles rarely speak of potential negative consequences but only of potential positive results. That's the point of my first post.
It's not a bad idea to openly discuss potential negative consequences which most proponents of a minimum wage hike seem to do their best to avoid.
For instance, you are assuming that such an increase would only involve that 50% of the country. I'm assuming that such an increase would affect nearly everybody across the board, something more like 80%. That's not necessarily a good thing. But it could be a good thing, it's just that it's rare for a discussion to take place.
Most of these articles rarely speak of potential negative consequences but only of potential positive results. That's the point of my first post.
It's not a bad idea to openly discuss potential negative consequences which most proponents of a minimum wage hike seem to do their best to avoid.
For instance, you are assuming that such an increase would only involve that 50% of the country. I'm assuming that such an increase would affect nearly everybody across the board, something more like 80%. That's not necessarily a good thing. But it could be a good thing, it's just that it's rare for a discussion to take place.
It would be bad for small businesses who have a significant cost of labor, and who's customers are larger businesses.
The article notes that minimum wage increases are supported by many small business associations.
That's because, in most cases, it's the Mom & Pop stores that can afford minimum wage increases more than the big corporations can.
Many of the hours worked in a Mom & Pop store are worked by Mom & Pop. That salary won't change no matter what happens.
Mom & Pop stores are also more likely to be already paying above minimum wage.
As for ability to pay, Wal-Mart does not have the ability to significantly increase pay unilaterally.[1] A minimum wage hike would require them to raise prices. This would allow Mom & Pops to compete with Wal-Mart better.
1: http://ipeatunc.blogspot.ca/2013/07/walmart-workers-cant-be-...
That's because, in most cases, it's the Mom & Pop stores that can afford minimum wage increases more than the big corporations can.
Many of the hours worked in a Mom & Pop store are worked by Mom & Pop. That salary won't change no matter what happens.
Mom & Pop stores are also more likely to be already paying above minimum wage.
As for ability to pay, Wal-Mart does not have the ability to significantly increase pay unilaterally.[1] A minimum wage hike would require them to raise prices. This would allow Mom & Pops to compete with Wal-Mart better.
1: http://ipeatunc.blogspot.ca/2013/07/walmart-workers-cant-be-...
If the owners of the small business don't change their own wages after a minimum wage hike then something is likely to a problem for them. We cannot assume that their cost of living will not increase in some way after the hike.
They may indeed be already paying above minimum wage. But I pointed out that it's likely that many people who are not making minimum wage will see an increase in pay or will demand it. Let's say our small shop has two employees who make $10 an hour. They both now make $15 an hour, good for them. But that extra cost could have been a third employee. Let's say they hire that third employee anyway. Now the original two want a raise because it isn't right that a new hire makes the same as the experienced two.
Granted, very simplified example that's rife with potential issues.
So, if Wal-Mart's costs go up they raise prices. You are assuming that the small business won't have to do the same? Plus, if prices rise to counter the increased employment costs doesn't that eventually put us back where we started?
They may indeed be already paying above minimum wage. But I pointed out that it's likely that many people who are not making minimum wage will see an increase in pay or will demand it. Let's say our small shop has two employees who make $10 an hour. They both now make $15 an hour, good for them. But that extra cost could have been a third employee. Let's say they hire that third employee anyway. Now the original two want a raise because it isn't right that a new hire makes the same as the experienced two.
Granted, very simplified example that's rife with potential issues.
So, if Wal-Mart's costs go up they raise prices. You are assuming that the small business won't have to do the same? Plus, if prices rise to counter the increased employment costs doesn't that eventually put us back where we started?
We cannot assume that their cost of living will not increase in some way after the hike.
That's true, but they'll make it up in the profit of the store, not in wages. Of course they will increase prices.
That's true, but they'll make it up in the profit of the store, not in wages. Of course they will increase prices.
Regarding your mom and pop store example: some businesses should fail. If they cannot afford to keep full time workers out of poverty, they cannot afford to run a business that hires workers.
You seem to be assuming that it is the decision of the business to keep the employees in poverty.
They might be able to afford to run a business that employees fewer workers, which is the opposite of the intent.
It's one thing for a business to fail due to market forces or poor choices by management/owners. It's another for a business to pushed into closing, thus employees losing their jobs, by a government mandate that attempted to make the employees' lives better.
That's the initial wave of negative consequences that I said would have to be survived before the positive results would come to fruition.
They might be able to afford to run a business that employees fewer workers, which is the opposite of the intent.
It's one thing for a business to fail due to market forces or poor choices by management/owners. It's another for a business to pushed into closing, thus employees losing their jobs, by a government mandate that attempted to make the employees' lives better.
That's the initial wave of negative consequences that I said would have to be survived before the positive results would come to fruition.
>full time workers
What if somebody doesn't want/need a full time job, or to hire a full time worker? That's one of the things that bothers me about boosting the minimum wage. Force all businesses to pay enough to raise a family of 4 for every job, and people who don't have a family and don't need the money will now have a harder time finding jobs that meet their needs, because nobody can create a job unless they can afford to pay somebody much more than they need.
What if somebody doesn't want/need a full time job, or to hire a full time worker? That's one of the things that bothers me about boosting the minimum wage. Force all businesses to pay enough to raise a family of 4 for every job, and people who don't have a family and don't need the money will now have a harder time finding jobs that meet their needs, because nobody can create a job unless they can afford to pay somebody much more than they need.
But when that happens, we have both the owners of the stores and their employees joining the unemployment pool. Then what?
my parents own a small time pizza shop. They have already talked about it they would do. stop offering delivery. A good chunk of costs in pizza are to subsidize delivery and early and late hours. maybe shut down on sundays or lunch. only keep the profitable hours.
Which means that their competitors who still offer delivery would start making more money, and could afford to hire the drivers that your parents let go...
If their competitors could still afford delivery as well. Seems like most of this debate is anecdotal evidence and conjecture. Which is not a bad place to start from, but we need data.
Since many of their customers will be earning more money, have they considered charging more?
The academic term for this area of economic study is Marginal Propensity to Consume[1]. It's defined as:
[1] http://en.wikipedia.org/wiki/Marginal_propensity_to_consume
"The proportion of an aggregate raise in pay that a
consumer spends on the consumption of goods and
services, as opposed to saving it."
[1] http://en.wikipedia.org/wiki/Marginal_propensity_to_consume
What constrains landlords rent prices?
If you increase the minimum wage won't the landlords just subsequently increase rent?
So essentially increasing minimum wage is just funneling money to landowners?
If you increase the minimum wage won't the landlords just subsequently increase rent?
So essentially increasing minimum wage is just funneling money to landowners?
> What constrains landlords rent prices?
Competition.
> If you increase the minimum wage won't the landlords just subsequently increase rent?
Yes, they will -- as will people selling other goods that are in demand by the people receiving more income. Under any reasonable assumptions about supply and demand elasticity, those receiving more income as a result of the minimum wage increase will still be better off after considering the specific inflation in the price of certain goods and services resulting from the greater income received by them as a group, but not by as much as a pre-increase analysis that ignored the market-specific inflation would suggest.
> So essentially increasing minimum wage is just funneling money to landowners?
One effect of increasing minimum wage will be funnelling some money to landlords and others selling goods and services to the people receiving increases, while funnelling some money away from those selling goods and services to the people and corporatiosn paying the increases. (Often times, those will be the same people, though different specific goods and services.)
Competition.
> If you increase the minimum wage won't the landlords just subsequently increase rent?
Yes, they will -- as will people selling other goods that are in demand by the people receiving more income. Under any reasonable assumptions about supply and demand elasticity, those receiving more income as a result of the minimum wage increase will still be better off after considering the specific inflation in the price of certain goods and services resulting from the greater income received by them as a group, but not by as much as a pre-increase analysis that ignored the market-specific inflation would suggest.
> So essentially increasing minimum wage is just funneling money to landowners?
One effect of increasing minimum wage will be funnelling some money to landlords and others selling goods and services to the people receiving increases, while funnelling some money away from those selling goods and services to the people and corporatiosn paying the increases. (Often times, those will be the same people, though different specific goods and services.)
So if the billionaires are putting their wealth in savings, isn't it because they are getting good returns on it, implying that there is demand for capital in the form of loans? What is to say that this isn't what the economy needs?
Wow, a business article saying money sitting in a bank account does nothing? Are they that clueless? It is leveraged many times over and invested and used by the bank. Putting a dollar in the bank lets the bank pretend they have forty.
We were taught in school that a bank takes deposits and lends them out as loans but that's not how it really works.
When a bank makes a house loan for example, the house is added to their balance sheet and it becomes an asset that they can lend again, minus a fraction.
> Had he been born in Africa, Hanauer points out — where the potential customers for his entrepreneurial efforts would have barely enough money to survive — Hanauer would likely be selling fruit by the side of the road
Africa in not a country. It's a continent with 50 plus countries, some with a middle class with decent spending power. So there's a high probability that Hanauer would in fact not be likely to be selling fruit by the side of the road growing up in a middle class family (as he did in the US) in an African country.
Africa in not a country. It's a continent with 50 plus countries, some with a middle class with decent spending power. So there's a high probability that Hanauer would in fact not be likely to be selling fruit by the side of the road growing up in a middle class family (as he did in the US) in an African country.
Unless it's been revised, the actual article (not the business insider summary) says "Somalia or Congo", not Africa. See page 3 of the link below.
http://www.politico.com/magazine/story/2014/06/the-pitchfork...
http://www.politico.com/magazine/story/2014/06/the-pitchfork...
In the article he wrote "had I been born in Somalia or the Congo," where I don't believe there is much middle class or societal structure at all.
What is the probability of growing up in a middle-class family in Africa? There is nothing fallacious or incorrect about what Hanauer points out.
>To anyone reared on the political orthodoxy of the moment... "higher wages cause higher unemployment,"
This is not political orthodoxy at all this is economic law. Anyone who understands the basic principle of supply and demand knows that higher price lowers demand. http://www.economicpolicyjournal.com/2014/06/asian-community...
This is not political orthodoxy at all this is economic law. Anyone who understands the basic principle of supply and demand knows that higher price lowers demand. http://www.economicpolicyjournal.com/2014/06/asian-community...
Yes, but better wages don't necessarily equate to higher prices.
During the domestic auto bankruptcies it was a bit grating to hear people ramble on about the "high" wages of union workers being at-fault for the domestic's inability to compete.
Considering domestic vehicles are already generally less expensive than imports, just how much more less expensive do they need to be to get people to buy them? If union labor represents $1,000 of every Malibu sold, and union wages were cut in half across the board, and that savings was passed onto the consumer with a $500 lower MSRP, would that move significantly more vehicles?
I'd like to think common sense would say "of course not". The price is already (generally) very competitive.
It's like basic reasoning skills go out the window in these discussions.
To make the argument higher blue-collar wages are a problem, first you (you'd think obviously) need to quantify the impact of those wages. Is it 2% of the cost? 5%? 10%? 20%? Would killing the retirement benefit, and cutting the base salary in half drop that ~$60 total compensation package to $35? If labor compensation is 10% of the cost of a $30,000 vehicle, you can now theoretically (if the savings aren't simply reinvested elsewhere, or disappear in management bonuses) drop the price of the car to $28,750.
All of those "savings passed onto the consumer" assumptions seem real unlikely to me. But even then, is that $1,250 savings going to move more product?
Probably not. While there are always exceptions, most people who aren't already considering a domestic vehicle aren't making their decision on price alone. Price isn't even the primary concern for someone who purchases a Camry over a Malibu (obviously; and there's nothing wrong with that).
So yeah... I don't think increased wages for the average worker have a whole heck of a lot to do with higher unemployment. And there are a lot of business advantages to being an employer who takes care of their people IME. Especially when applied to software development (you'd think here of all places that would be glaringly obvious).
I think your comment is needlessly snarky. You could as easily suggest that "Anyone who understands basic economics knows that higher wages increase purchasing power" (in the short-term at least). Furthermore that the people in the lowest pay brackets are the ones most likely to spend it in ways that benefit the overall economy. Which is why (as distasteful as feels sometimes) extending unemployment insurance is one of the most economically beneficial and stimulating things you can do in times of recession. Those dollars are going to get spent, and they'll get spent where they'll be most effective at creating new jobs.
During the domestic auto bankruptcies it was a bit grating to hear people ramble on about the "high" wages of union workers being at-fault for the domestic's inability to compete.
Considering domestic vehicles are already generally less expensive than imports, just how much more less expensive do they need to be to get people to buy them? If union labor represents $1,000 of every Malibu sold, and union wages were cut in half across the board, and that savings was passed onto the consumer with a $500 lower MSRP, would that move significantly more vehicles?
I'd like to think common sense would say "of course not". The price is already (generally) very competitive.
It's like basic reasoning skills go out the window in these discussions.
To make the argument higher blue-collar wages are a problem, first you (you'd think obviously) need to quantify the impact of those wages. Is it 2% of the cost? 5%? 10%? 20%? Would killing the retirement benefit, and cutting the base salary in half drop that ~$60 total compensation package to $35? If labor compensation is 10% of the cost of a $30,000 vehicle, you can now theoretically (if the savings aren't simply reinvested elsewhere, or disappear in management bonuses) drop the price of the car to $28,750.
All of those "savings passed onto the consumer" assumptions seem real unlikely to me. But even then, is that $1,250 savings going to move more product?
Probably not. While there are always exceptions, most people who aren't already considering a domestic vehicle aren't making their decision on price alone. Price isn't even the primary concern for someone who purchases a Camry over a Malibu (obviously; and there's nothing wrong with that).
So yeah... I don't think increased wages for the average worker have a whole heck of a lot to do with higher unemployment. And there are a lot of business advantages to being an employer who takes care of their people IME. Especially when applied to software development (you'd think here of all places that would be glaringly obvious).
I think your comment is needlessly snarky. You could as easily suggest that "Anyone who understands basic economics knows that higher wages increase purchasing power" (in the short-term at least). Furthermore that the people in the lowest pay brackets are the ones most likely to spend it in ways that benefit the overall economy. Which is why (as distasteful as feels sometimes) extending unemployment insurance is one of the most economically beneficial and stimulating things you can do in times of recession. Those dollars are going to get spent, and they'll get spent where they'll be most effective at creating new jobs.
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I think he's talking about the labor market here. Conventional microeconomics would suggest that increasing the price of labor by setting or increasing a minimum wage would reduce the demand by employers for the product, human labor.
That may be true in the limited case, but the argument is clouded by questions like whether increasing income of all of the employers' customers would allow the employer to do more business or raise prices, thus potentially increasing their demand for labor to compensate.
I can't see any doubt that this would happen, but the extent is hard to determine. How much will the average consumer's wages actually increase, and how much of that will be taken up by increased prices in other goods they buy? If they end up with more money, what will they do with it - save more, buy higher-quality goods, buy luxuries? So the overall effect on any particular business is unknown.
That may be true in the limited case, but the argument is clouded by questions like whether increasing income of all of the employers' customers would allow the employer to do more business or raise prices, thus potentially increasing their demand for labor to compensate.
I can't see any doubt that this would happen, but the extent is hard to determine. How much will the average consumer's wages actually increase, and how much of that will be taken up by increased prices in other goods they buy? If they end up with more money, what will they do with it - save more, buy higher-quality goods, buy luxuries? So the overall effect on any particular business is unknown.
When we're talking about minimum wage however (other comments he made), that's just patently untrue though. Even if a service job could get by with fewer labor hours without impacting their sales negatively, there are always plenty of other businesses who couldn't.
I mean, I worked those jobs when minimum wage was like $4.25. I haven't noticed a drop in employment at the franchise or small business level. Have you? From a practical standpoint, these places aren't just spreading around labor hours willy-nilly today. If they find some "fat" to trim, they do so, so the management can take home a larger slice of the pie.
I mean, I worked those jobs when minimum wage was like $4.25. I haven't noticed a drop in employment at the franchise or small business level. Have you? From a practical standpoint, these places aren't just spreading around labor hours willy-nilly today. If they find some "fat" to trim, they do so, so the management can take home a larger slice of the pie.
If you actually cared about understanding supply and demand you would know:
“supply and demand" is really a theorem about microeconomics and you’re on shaky ground when you start trying to apply it to macro phenomena. People do it all the time, but that doesn’t make it valid, because…
“supply and demand” requires that everything else in the market is held constant; you can’t make that assumption for macro phenomena, and you especially can’t do so when discussing wages.
“supply and demand” as commonly quoted is a theorem that depends on certain assumptions about the demand curves of the goods in question, and it’s at least not obvious that the demand curves for labor satisfy those assumptions.
Looking at your other comments, you don’t really seem to be interested in understanding anything, however, so I’ll let you resume your regularly scheduled trolling now.
“supply and demand" is really a theorem about microeconomics and you’re on shaky ground when you start trying to apply it to macro phenomena. People do it all the time, but that doesn’t make it valid, because…
“supply and demand” requires that everything else in the market is held constant; you can’t make that assumption for macro phenomena, and you especially can’t do so when discussing wages.
“supply and demand” as commonly quoted is a theorem that depends on certain assumptions about the demand curves of the goods in question, and it’s at least not obvious that the demand curves for labor satisfy those assumptions.
Looking at your other comments, you don’t really seem to be interested in understanding anything, however, so I’ll let you resume your regularly scheduled trolling now.
Well said, thanks. It's galling because the commenter is both very certain, and wrong, to make such claims without taking the macro situation into account. It's not just one independent variable.
The fact that minimum wage increases unemployment is clearly demonstrated at a micro economic level. Reading the link I previously posted an actual case study of small business owners who, in their own microeconomic sphere, will have to fire workers due to increases in minimum wage.
>Looking at your other comments, you don’t really seem to be interested in understanding anything, however, so I’ll let you resume your regularly scheduled trolling now.
In other words, "My logic cannot counter, so I will resort to insults."
>Looking at your other comments, you don’t really seem to be interested in understanding anything, however, so I’ll let you resume your regularly scheduled trolling now.
In other words, "My logic cannot counter, so I will resort to insults."
You can't take one owner saying he will fire an employee to mean that unemployment as a whole will increase. What about another owner who suggests he will hire more people, since all his customers now have more money to spend and will increase his business? You're demonstrating exactly why microeconomics != macroeconomics: you can't just eliminate the vast number of other factors involved when trying to extrapolate a micro result to the macro sphere.
The link is self-reported statements of people who have a vested interest in suppressing wages.
The fundamental, persistent flaw in your argument is that you're not distinguishing between observed effects of changes to the minimum wage vs. what people believe about changes to the minimum wage. You're not even bothering to acknowledge the distinction.
There's also the assumption implicit in your argument that reduced employment is bad, which is also plainly wrong. It's better for society to have 400 hours of labor at $15/hour than 500 hours of labor at $14/hour. Everything we know about productivity says reduced hours are good, and we should be structuring wages to penalize companies for overworking employees. Not just because it's better for employees, but because it's better for business.
The fundamental, persistent flaw in your argument is that you're not distinguishing between observed effects of changes to the minimum wage vs. what people believe about changes to the minimum wage. You're not even bothering to acknowledge the distinction.
There's also the assumption implicit in your argument that reduced employment is bad, which is also plainly wrong. It's better for society to have 400 hours of labor at $15/hour than 500 hours of labor at $14/hour. Everything we know about productivity says reduced hours are good, and we should be structuring wages to penalize companies for overworking employees. Not just because it's better for employees, but because it's better for business.
>you're not distinguishing between observed effects of changes to the minimum wage vs. what people believe about changes to the minimum wage
The observations are plainly evident. Those who a minimum wage affect are largely the unskilled, which over proportionally includes young people and minorities. The rate of unemployment in black teenagers is currently somewhere around 30%. http://www.creators.com/opinion/walter-williams/minimum-wage...
The observations are plainly evident. Those who a minimum wage affect are largely the unskilled, which over proportionally includes young people and minorities. The rate of unemployment in black teenagers is currently somewhere around 30%. http://www.creators.com/opinion/walter-williams/minimum-wage...
This simplistic brand of economics is killing us. It is infecting otherwise intelligent people and causing wholesale policy mistakes that is hurting everyone.
It is the equivalent of taking a physiology course and diagnosing your friends' medical conditions -- it is not that simple.
There is a whole system that needs to be taken into account and simple models, while useful in a limited sense, do not even come close to creating an accurate picture of reality.
It is the equivalent of taking a physiology course and diagnosing your friends' medical conditions -- it is not that simple.
There is a whole system that needs to be taken into account and simple models, while useful in a limited sense, do not even come close to creating an accurate picture of reality.
or does lower demand raise prices? And you focus on the fact that demand falls but ignore that supply increases. All economic 'law' says is that price and quantity for supply and demand are correlated - all other things being equal. But when other things change, they move the supply and demand curves and the equilibrium price will move. It's possible to have things change in the marketplace which cause the demand or supply curves to shift in a way which increases both the price of labor AND the quantity of labor exchanged in a market at the same time - meaning that wages would go up and unemployment down.
The open question for politicians is whether it's possible for them to enact policies which cause that. And the open question for economists is whether that would actually be a good thing.
The open question for politicians is whether it's possible for them to enact policies which cause that. And the open question for economists is whether that would actually be a good thing.
>or does lower demand raise prices?
No. Draw a supply and demand curve. Shift the demand curve to the left (representing lower demand). Clearly the lower demand causes lower prices.
>But when other things change, they move the supply and demand curves and the equilibrium price will move.
And that is exactly the problem. Raising the minimum wage does not cause "other things [to] change." It is changing a single variable. With just a rudimentary understanding of economics the result is lower demand for labor (unemployment).
No. Draw a supply and demand curve. Shift the demand curve to the left (representing lower demand). Clearly the lower demand causes lower prices.
>But when other things change, they move the supply and demand curves and the equilibrium price will move.
And that is exactly the problem. Raising the minimum wage does not cause "other things [to] change." It is changing a single variable. With just a rudimentary understanding of economics the result is lower demand for labor (unemployment).
It's a weird assumption you seem to be making that businesses (especially small businesses paying minimum wage) are keeping more employees around as they actually need.
Maybe you've never worked for minimum wage. When I was pushing carts around at a grocery store, or delivering pizzas, and later leading shifts, labor costs are the number one concern at all times. If it gets slow and you don't need five drivers, you tell three of them to go home. Period.
They aren't (anywhere I've ever experienced) unnecessarily kept on the clock.
That's the reality of a minimum wage job. Increasing the minimum wage isn't going to free up the shift supervisors to be able to cut back further. They won't have a choice. So instead of a $2,000 nightly close for that pizza joint, it's going to be $1,800. And the franchisee pockets a bit less.
That's all that's going to happen. They'll still attempt to open up as many profitable franchises as they can. Close down the unprofitable ones just as aggressively, and still count every hour spent on labor.
Maybe you've never worked for minimum wage. When I was pushing carts around at a grocery store, or delivering pizzas, and later leading shifts, labor costs are the number one concern at all times. If it gets slow and you don't need five drivers, you tell three of them to go home. Period.
They aren't (anywhere I've ever experienced) unnecessarily kept on the clock.
That's the reality of a minimum wage job. Increasing the minimum wage isn't going to free up the shift supervisors to be able to cut back further. They won't have a choice. So instead of a $2,000 nightly close for that pizza joint, it's going to be $1,800. And the franchisee pockets a bit less.
That's all that's going to happen. They'll still attempt to open up as many profitable franchises as they can. Close down the unprofitable ones just as aggressively, and still count every hour spent on labor.
Consider for a moment that the poor spend every dollar they make(and often every dollar they can borrow as well). If we raise their incomes by N. Some factor of N dollars of demand is created in the economy by this action as they spend their increased income. Depending on the state in the rest of the economy that results in a net shift of the demand curve one way or the other. If that factor is < 1, perhaps layoffs, or increased saving, we have lower demand. But if that factor is > 1; People who spend every dollar they make are suddenly spending a few more dollars at their local WalMart every month, and so they need a few more hours of cashier each month to meet the demand, who probably spends all they make from those extra hours(in addition to the hourly raise for hours they were possibly already working). Then we will find that overall more demand has been created.
Demand side arguments being made today are doing some simple reasoning and realizing that 'job creators' cannot demand labor, unless the products of that labor are demanded. We could raise the demand for the products of labor by making more income available to people who will spend it immediately. What if we raise the minimum wage(where almost all $ is spent immediately) to raise that demand at the lowest level? They're betting that the factor of created demand is near 1, and probably greater than 1.
Is the idea really that complicated?
Demand side arguments being made today are doing some simple reasoning and realizing that 'job creators' cannot demand labor, unless the products of that labor are demanded. We could raise the demand for the products of labor by making more income available to people who will spend it immediately. What if we raise the minimum wage(where almost all $ is spent immediately) to raise that demand at the lowest level? They're betting that the factor of created demand is near 1, and probably greater than 1.
Is the idea really that complicated?
Who said anything about minimum wage? The contention is just that "higher wages cause unemployment", which you characterized as "higher prices cause lower demand".
A supply/demand curve diagram says nothing about what happens if you move the price, it says what happens to the price if supply or demand move. To argue that "higher wages cause unemployment" you have to find a way to move the equilibrium point for labor up the P axis and to the left on the Q axis - which you do by moving the supply curve to the left and leaving the demand curve still. So higher wages and unemployment are a consequence of decreased labor supply, not of higher wages.
Raising the minimum wage changes the shape of the supply curve, and yes, if the demand curve crosses the supply curve at the minimum wage line, then raising it will decrease the amount of labor exchanged - increasing unemployment.
But higher average wages (forget about minimum wage) increase consumption which increases demand across the board, which decreases unemployment, and... increases wages. This is what happens during an economic boom.
A supply/demand curve diagram says nothing about what happens if you move the price, it says what happens to the price if supply or demand move. To argue that "higher wages cause unemployment" you have to find a way to move the equilibrium point for labor up the P axis and to the left on the Q axis - which you do by moving the supply curve to the left and leaving the demand curve still. So higher wages and unemployment are a consequence of decreased labor supply, not of higher wages.
Raising the minimum wage changes the shape of the supply curve, and yes, if the demand curve crosses the supply curve at the minimum wage line, then raising it will decrease the amount of labor exchanged - increasing unemployment.
But higher average wages (forget about minimum wage) increase consumption which increases demand across the board, which decreases unemployment, and... increases wages. This is what happens during an economic boom.
It's pointless to create more jobs by lowering the minimum wage (or eliminating it) if no one could possibly live off of the wages of the jobs this created. So the answer is to only have jobs that could support someone without government having to feed them (minimum wage), this in my mind eliminates jobs that really shouldn't exist, and stops employers from having government subsidize their workers.
It's pointless to create more jobs by lowering the minimum wage (or eliminating it) if no one could possibly live off of the wages of the jobs this created.
Not everybody who has a job has to live on the wages. When I worked temp jobs while I was in school, I didn't need the money to live on; ROTC was paying my tuition and my parents were paying my room & board. My wages were just extra spending money.
The big problem with raising the minimum wage across the board is that it doesn't differentiate between people who have to live on the wages they earn and people who don't, like me when I was in school. If there were an exception for people who were dependents on someone else's tax return, for example, I think it would make a big difference.
Not everybody who has a job has to live on the wages. When I worked temp jobs while I was in school, I didn't need the money to live on; ROTC was paying my tuition and my parents were paying my room & board. My wages were just extra spending money.
The big problem with raising the minimum wage across the board is that it doesn't differentiate between people who have to live on the wages they earn and people who don't, like me when I was in school. If there were an exception for people who were dependents on someone else's tax return, for example, I think it would make a big difference.
> And that is exactly the problem. Raising the minimum wage does not cause "other things [to] change." It is changing a single variable.
It will increase the income of people paid minimum wage, allowing them to buy more things, therefore increasing demand for some products.
It will increase the income of people paid minimum wage, allowing them to buy more things, therefore increasing demand for some products.
There are many cases where higher prices raise demand.
But how much will demand go up for products and services in the area? How much of the owners profits goes to taxes and investments that will now get spent on things like restaurants.
It's like saying: you didn't earn that PhD, since we all pay tuition that fund the school, we all earned it for you.
it seems it's cool these days to never give the "rich" any credit. When hey leave, and take many of the jobs with them, will we still be parroting this nonsense that they don't create jobs?
it seems it's cool these days to never give the "rich" any credit. When hey leave, and take many of the jobs with them, will we still be parroting this nonsense that they don't create jobs?
That's not really analagous to Hanauer's thesis. His point is that believing the rich, on their own, to be the job creators is absurd. That it's the entire economic system that enables job creation, and the wealthy are only one component. And given his attitude in the original essay [1], he doesn't deny them their credit, he just thinks "Job Creators" is a loftier title than they deserve.
[1] http://www.politico.com/magazine/story/2014/06/the-pitchfork...
[1] http://www.politico.com/magazine/story/2014/06/the-pitchfork...
What about clickbait sites selling demand-side economy story as some sort of revelation despite being heavily represented in the field of economics and government policy for the last hundred years? Do they create jobs? Or just confusion?
While it's true that Americans take less money home, it's not true that compensation has fallen. In fact, "total compensation reflects growth in productivity."[1]
BTW What actually allows trees to grow is the CO2 from the air. That's what they're made of. Partial credit for mentioning water.
[1] http://www.nber.org/digest/oct08/w13953.html
While it's true that Americans take less money home, it's not true that compensation has fallen. In fact, "total compensation reflects growth in productivity."[1]
BTW What actually allows trees to grow is the CO2 from the air. That's what they're made of. Partial credit for mentioning water.
[1] http://www.nber.org/digest/oct08/w13953.html
> BTW What actually allows trees to grow is the CO2 from the air. That's what they're made of. Partial credit for mentioning water.
But what actually grows and sustains trees is the combination
of the DNA in the seed and the soil, sunshine, water,
atmosphere, nutrients, and other factors in the environment
that nurture them.
People want things. If you can create something that other people want and they can create something that you want, you both have a job.