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Stop Lying

February 18th, 2013
On Bill Maher this weekend, Jamie Weinstein of the Daily Caller made the outright claim that raising the minimum wage would increase unemployment. As you can see, the others recognize this as outright absurdity, but Weinstein maintains his assertion—despite the fact that it has been thoroughly disproven as a concept. Higher minimum wages pump money right back into an economy; the money does not disappear, it goes out and comes right back in. Unlike giving more money to rich people—which conservatives claim is a job-creating act. Precisely the opposite also of what is true. Tax cuts for the rich are the least stimulative thing you can do. In contrast, food stamps—another thing conservatives hate (because feeding poor people is so Communist)—is one of the most economically stimulative things you can do. It's as if conservatives set out to find all the things that help the economy most and destroy them, and then find the things that are worst for the economy and embrace them. Of course, it was deliberate, but not for those reasons. Instead, it is simply, purely self-interest at work. Greed. Screw the nation, screw the people. I'm getting mine, and you can go to hell. Or, in other words, American Exceptionalism!

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  1. Troy
    February 19th, 2013 at 03:20 | #1

    Higher minimum wages pump money right back into an economy; the money does not disappear, it goes out and comes right back in.

    Except for the higher rents the landlords rake from everyone’s paychecks.

    http://research.stlouisfed.org/fred2/graph/?g=fH9

    blue is hourly wages
    red is CPI for rent, 1970=100

    The correlation is striking!

    But it is true of course that the core problem in the economy is the 5% extracting rents from the 95%.

    The 99% movement really never found the plot with that understanding AFAICT, and that’s the way the rent-takers want it.

    Churchill was making arguments 100 years ago how higher wages result in higher rents. It’s a curious dynamic, obvious to me but really absent from any discussion of economics.

    As for the poor corporations forced to pay higher wages:

    http://research.stlouisfed.org/fred2/series/CP/

  2. Tim
    February 20th, 2013 at 00:30 | #2

    If higher pay results in greater unemployment, then lower rents should result in lesser unemployment – right?

    If my local McDonalds has 30 employees at $7.25 an hour, would they have 60 employees at $3.12 an hour. Would they then have 600 employees at $0.31 an hour?

    I think not. Employment, like everything else in a MARKET (ie. demand) economy is demand driven.

    Troy:

    Do landlords increase their % that they take when wages go up? Say they take 10% of aggregate wages. If aggregate pay were to go up 20% – would they take all of that 20%? Would the level of competition between landlords have an effect? Just asking.

  3. Troy
    February 20th, 2013 at 05:25 | #3

    @Tim

    >Do landlords increase their % that they take when wages go up?

    the graph says wages and rents are tightly coupled. Wages go up 10%, rents go up 10%.

    This stands to reason, since renters compete with each other in setting the rent, the landlord is just a price taker of who’s willing to pay the most for the space.

    Note that this treadmill effect also applies to tax cuts, too! Landlords largely pocketed the 2011-2012 payroll tax cut by raising their rents in response.

    This is called the ‘all-devouring rent’ in Georgist circles, and I fail to see how anyone could dispute it.

    >Would the level of competition between landlords have an effect?

    yes, the only mitigator to rising rents is vacancy factor. If there is no 2nd bidder for the apartment, then the current renter is sitting pretty, especially if other alternatives are also vacant and looking for tenants.

    However, giving basic physics — no two things can occupy the same space at the same time –supply of real estate is limited, and the high capital costs of new housing, zoning restrictions, lead times required in building the units on-site, and the fact that housing is rather immobile all also restrict new supply coming onto the market.

    This results in every real estate market being really a collection of local monopolies.

    As population rises, those who desire to live with a roof over their heads find themselves forced to bid up the cost of the limited housing supply.

    I am hopeful though that Japans rather pronounced depopulation trend will reverse this rather ugly trend, and soon.

    http://i.imgur.com/xoadEx7.png

    is a graph I made comparing US and Japan population trends.

  4. Troy
    February 20th, 2013 at 06:42 | #4

    man, maybe a third of the matches on Google of ‘all-devouring rent’ are me bloviating on it over the past 5+ years!

    Weird that such a fundamental dynamic of human existence is so . . . obscured!

  5. Tim
    February 21st, 2013 at 01:00 | #5

    @ Troy:

    So let’s say a miracle occurs and pay goes from 7.25 an hour to $14.50 an hour. My take home pay was roughly $1250 a month. Let’s say my rent was $250 (slumish in St. Louis, but not impossible). That leaves me with $1000 in available money (okay, lets say I’m not paying taxes to keep the numbers simple).

    My pay gets doubled to $14.50 an hour. Now I have $2500 a month. So if my rent is doubled to $500 a month, then I still have $2000 a month in available money. No, I don’t like paying more for the same thing when it comes to rent, but how am I worse off for having the extra $1000 in available money (I’m tempted to say disposable money, but at that level, no money is disposable).

    Here’s the thing. I believe the economy would, could and should have a minimum wage of $15 an hour. The minimum wage was $10.51 an hour back in 1969. Productivity has more than doubled. Wages should go up with productivity and when they do they, theoretically do not cause inflation.

    Here’s the thing: if the minimum wage was increased lots of pseudo-middle class wages would have to be increased as well. The starting wage at GM for an assembly line worker now is $14.50 an hour (of course they get insurance and other benefits).

    This article on Australia

    (http://truth-out.org/opinion/item/5601#13612009661561&action=collapse_widget&id=2312322)

    says that the minimum wage there is $15 an hour, but the more effective minimum wage is $17 an hour, and the minimum wage for part time help is over $20 an hour.

    I might point out that Australia has not been effected by the Great Recession like other nations, and they managed to implement an healthy stimulus too. Also, their currency is near parity with our own for comparison purposes.

  6. Troy
    February 21st, 2013 at 05:17 | #6

    So if my rent is doubled to $500 a month, then I still have $2000 a month in available money.

    Problem is you’re proposing a discontinuity from the past, an instant doubling, while the historical data has been an incremental process of wage gains, cost inflation in food and other consumables, and the typical incremental rent increases that landlords slipstream in, so I don’t think the past correlation is entirely applicable.

    I believe the economy would, could and should have a minimum wage of $15 an hour.

    I do too, but I think without housing-sector reforms the landlords will take every penny of the rise eventually.

    I might point out that Australia has not been effected by the Great Recession like other nations

    Australia has the natural wealth of a continent to divide among a population smaller than Pennsylvania + Ohio, and great customers in China and Japan to sell to.

    Rents are skyrocketing in Australia, btw:

    http://www.peachhomeloans.com.au/mortgage-news/2012/10/rental-prices-in-australias-state-capitals-escalate/

    as I would expect. (I have infinite faith in this ‘All-Devouring Rent’ thesis, LOL)

    As are land values in general, but that is Another Topic.

  7. Troy
    February 21st, 2013 at 05:29 | #7

    On a per-capita basis, Oz’s exports are almost twice that of the US’s.

    That’s ~$7000/yr per capita of additional wealth accretion over the US’s export figures.

    Gneiss!

  8. Troy
    February 21st, 2013 at 08:11 | #8

    another point I’d like to make is that we wouldn’t need $15/hr if housing rents and other life necessities didn’t have so much profit embedded in them.

    The same apartment my parents rented for $300 in the mid-1970s is now renting for $1500. This is $250 more than the rate of inflation even, but it’s the same apartment building in the same location, so why should it have inflated *at all*?

    Same thing with medical expenses, they’ve risen even faster than housing:

    http://research.stlouisfed.org/fred2/graph/?g=fLr

    blue is housing index, red is health care index (1997=100)

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