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The Therapy Sessions
Friday, July 25, 2003

Minimum Wage, Cont’d

The debate with Shared Thought continues:

First of all, inflation is not a problem in the current economy. In case Therapy Sessions hasn't been paying attention, deflation happens to be the bigger concern at the moment.

Shared Thought continues to try to prove that the minimum wage should be increased annually, with increases tied to the rate of inflation.

This is terrible policy.

It is akin to turning on the heat, and setting the thermostat to turn UP the heat when the house starts to get warm.

In advocating this policy, he has made the mistake of confusing “deflation” with “disinflation”.

He believes (wrongly) that inflation (a loss in productivity per dollar) is a cure for deflation (lower commodity prices). Deflation mixed with a loss in productivity would be disastrous for workers.

In a deflationary environment, there should not be wage increases at all.

And Shared Thought has said nothing about the other undesireable side effect of wage increases: unemployment.
Nobody opposes the annual cost of living increase for Social Security on the basis that it has an inflationary effect on the economy

No, it has an inflationary effect on government spending. I DO oppose that.
If minimum wages account for a substantially smaller portion of the national economy (less than $125 billion annually), why worry about the inflationary effect of a cost of living adjustment?

Simply because wages cascade up. You have already admitted that this is a risk in the previous post: "I personally don't have a problem with increasing the wages of somebody at the bottom of the economic ladder, even if that leads to an upward pressure on all wages. In fact I think an increase in wage-earned income might actually be a good thing for the economy."

No, it would be bad. Inflation is a cure for nothing.
Contrary to what Therapy Sessions implies, minimum wage jobs aren't going to go to cheap-labor foreign countries if the wage-rate increases. Minimum wage jobs are predominately service oriented jobs that cannot be exported in the way manufacturing jobs have been.

You make a good point about service jobs, but if service jobs are more costly, doesn't it stand to reason that there will be fewer of them? Or does money grow on trees?

And you admit that manufacturing jobs have been exported.

Why is that? What incentive do poor, politically unstable third world countries give companies to move their manufacturing operations out of the US?

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