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Memories of the 28th Century

Fight For a Dollar That's Worth Something

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I have noticed a couple of mentions of people trying to get the minimum wage raised to $15 per hour. They are fighting for the wrong thing. What they want are jobs that pay a reasonable amount. Raising the minimum wage that much would just make the dollar lose a lot of value very quickly, so that in a few years the fifteen dollar an hour wage would be worth less that whatever the minimum wage is now. The moves that would achieve their goals more readily would be to eliminate the minimum wage and to have the Fed deflate the dollar. And even more importantly they would have to change the way they think about any job.

The idea that someone, anyone, should get a job from someone else and make a living from that is primitive, and it contains unrealistic assumptions about economic systems. Even if you take a job for a wage, you should regard it as a freelance assignment for which you will be paid for a period of time. It isn't permanent, and it doesn't entitle you to anymore than the pay offered and accepted. As soon as one has a job for a wage one should start looking for the next job, which one hopes will be a better job and pay more, but it will not be permanent.

If you want something permanent, then start your own business and keep yourself on forever. And you should continue to work for yourself even when you are collecting a paycheck. How one understands money and value should be at least as important as one's attitude toward employment. Dollars, Euros, pounds, rubles, etc. are counters that have no fixed value. The value of currency is determined by what it can buy. (This is a gross simplification, but most people find theories of value boring.)

Over time money usually loses value; sometimes by accident and sometimes intentionally. The U.S. Dollar has lost an average of a little over three percent a year over the last nearly two hundred years. The loss of value has varied greatly with the value having been steady for some periods. While some of the loss in value was due to inflation during wars and to some changes in the economic system, most of the loss was to save debtors, especially the government, money. If one borrows as the Federal government does by selling bonds with a face value of $1000 and a coupon rate of four and a fraction percent (let's call it 6%) and a term of thirty years and the inflation rate is three percent. The total payments of interest in constant dollar terms will be $790.56, and the constant dollar value of the terminal payment of the bond will be $424.25. With no inflation the total interest payments would be $1160, and the bond would continue to be worth $1000. Obviously the seller of the bonds saves money if there is inflation, and that has been a tactic of the U. S. government through time. Commercial bond sellers have similar advantages, but people who work for wages don't get a similar benefit. Someone getting $165 per hour in pay at the beginning of that same period would only be getting $6.37 (constant dollar equivalent) per hour at the end of the period.

Some people might think that increasing pay rates at the inflation rate would eliminate the problem. It doesn't. That has been tried, and it leads to runaway inflation with rates many times as high. Italy tried it from the post war era until 1992, scala mobile (moving scale), and it simply led to more inflation, and the adjustments made to pays and prices were percents that were related to the inflation rate. Adjusting that way tends to increase the spread of the inequality between the wealthier and the poorer people in the economy. In 1992 the scala mobile was ended. and the Italian inflation rate plumetted, and the economy began to improve. There probably are people who would like to return to automatic increases, but it got to the point where adjustments were being made as often as every week. (For some reason there is no article that summarizes the matter, but there may be one somewhere on economist.com)

Some people like to lie to themselves about the real value of money; they look at the numbers without relating those to prices. There is no perfect way to measure inflation, but using purchasing power is one measure, and it is an effective way to relate wages with the cost of living. Just as a few examples, candy bars that cost $0.99 to $1.20 now cost $0.10 about fifty years ago (that rate of inflation has been quite typical), when the minimum wage was $1.00 per hour. As a general matter wages have not increased as much as goods in the last 60 years, so it probably would be reasonable for the minimum to $10.00 per hour, if we make the mistake of keeping a mandatory minimum wage. People who have low wage jobs donít usually sell bonds to finance their activities, so they donít gain any advantage from inflation, unless they bought a house the value of which has increased. People who are in low wage jobs would gain from deflation or from stable prices. Most countries would benefit from stable prices. The U.S.A. is an exception, because it has sold many bonds.

Rather than having a statutory minimum wage, workers should have employers bid for their labor. Even in times of low unemployment no rational person would accept a job for less than $8.00 per hour, and few rational people would accept less than $10 per hour. It would take some time for employers and workers to balance things, but a negotiable market price for labor would evolve. There are two problems to getting it to would unpaid "internships", which I think should be regarded as slavery, and illegal workers who will work for anything or almost nothing. The internships could be legislated out of existence, but the illegals have been increasing, and the government has done little about the problem.


Minimum wage laws do very little to help anyone, and they have been found to slow job creation or even cause the elimination of jobs.



http://www.britannica.com/EBchecked/...0/scala-mobile
http://www.nytimes.com/1982/06/03/wo...-is-ended.html
http://www.economist.com/sites/defau...s/13808951.pdf
http://www.economist.com/node/105137

Nor are there many books about scala mobile. These are two that I found in one catalogue. There must be more.
Italian politics: ending the First Republic
Author: Carol Mershon; Gianfranco Pasquino
Publisher: Boulder: Westview Press, 1995.

L'indice del costo della vita valevole ai fini dell'applicazione della scala mobile delle retribuzioni : dalle origini alla cessazione (1945-97)
Author: Paola Piacentini, statistico.; ISTAT.; Sistema statistico nazionale.
Publisher: Roma : ISTAT, 2000.

Updated 04-25-2017 at 07:50 AM by PeterL

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Comments

  1. Pike Bishop's Avatar
    It is illogical and inhumane to expect people to work for others for less than a living wage solely for the benefit of the employer. People did that years ago; it was called "slavery." We are a civilized country, and civilized countries do not allow people to enter into indentured servitude by legalizing wages low enough to enable it. And it is simply callous and illogical to tell people to start a business--which few have the money to do--if they can't find a job providing a living wage.

    Secondly, none of your claims about inflation and the minimum wage are based in fact or sound economic theory, and none of your irrelevant links back them up either. Accepted economic theory shows that the poor-upper middle class form the greatest group of spenders whose spending supports the economy and creates new jobs and stabilizes old ones. They are the ones who spend at the mega-stores (e.g. Wal-Mart and Target) and other major businesses who provide a substantial number of jobs to Americans. So, making them work for less than a living wage is not only unethical, it is economically unsound.


    Finally, your focus on mistakenly keeping our minimum wage down and eradicating minimum wage laws is fascination. This country irrationally gives subsidies to oil companies making millions in profits, spends unnecessary billions on "defense," and gives unneeded tax cuts to the obscenely wealthy. If you want to help our country economically, then you might also speak out against those; the minimum wage laws are small potatoes in comparison.
    Updated 04-27-2015 at 01:49 PM by PeterL
  2. PeterL's Avatar
    Quote Originally Posted by Pike Bishop
    It is illogical and inhumane to expect people to work for others for less than a living wage solely for the benefit of the employer. People did that years ago; it was called "slavery." We are a civilized country, and civilized countries do not allow people to enter into indentured servitude by legalizing wages low enough to enable it. And it is simply callous and illogical to tell people to start a business--which few have the money to do--if they can't find a job providing a living wage.
    What is a "living wage"? Jn the absebse of a good definition that paragraph is meaningless.

    Secondly, none of your claims about inflation and the minimum wage are based in fact or sound economic theory, and none of your irrelevant links back them up either. Accepted economic theory shows that the poor-upper middle class form the greatest group of spenders whose spending supports the economy and creates new jobs and stabilizes old ones. They are the ones who spend at the mega-stores (e.g. Wal-Mart and Target) and other major businesses who provide a substantial number of jobs to Americans. So, making them work for less than a living wage is not only unethical, it is economically unsound.
    Apparently you haven't followed my blog long enough to have read my posts on enflation, wages, and comparative value. This post is based on actual facts not opinions

    Finally, your focus on mistakenly keeping our minimum wage down and eradicating minimum wage laws is fascination. This country irrationally gives subsidies to oil companies making millions in profits, spends unnecessary billions on "defense," and gives unneeded tax cuts to the obscenely wealthy. If you want to help our country economically, then you might also speak out against those; the minimum wage laws are small potatoes in comparison.
    Make me emperor, and I''l straighten those things out. Otherwise this paragraph if irrelevant.
    Updated 04-27-2015 at 01:48 PM by PeterL