Who Needs Economics: Double Everyone’s Wages by Paying 17 Cents More! That’s what this ridiculous graphic tells us ........... Answer: these people are all talk. They’d love to help everyone in the world, as long as someone else pays the price. These critics pay McDonald’s employees zero, but they are upset at McDonald’s, which gives them a paycheck. (Once again, I remind readers that the merits of fast food are not the issue here.) A week or so ago I posted about how utterly wrongheaded the force-wages-up-by-wishful-thinking crowd is, and I explained how in fact wages rise. Click here for that post. Let me add a few more thoughts to what I wrote at that link. Once wages are raised to $10 or $15 an hour, why would the critics stop? Isn’t it also tough to live on $10 or $15 an hour? Can’t we wish $50/hr wages into existence? And if we can do that, why not $100/hr? The kind of thinking reflected in the graphic is that wage rates are really just arbitrary things, and that they can be increased without any real inconvenience to anyone. Plus, they say, it will help the economy (by stimulating consumption) if people get paid more, etc. To give a sense of the problem with this latter claim, let’s be sports and set aside the disemployment effects of the wage increase. Let’s consider just the claim that spending more on consumer goods is what an economy needs. (So to be clear, we’re leaving out the point that higher wages don’t necessarily increase the overall spending of workers if fewer workers have jobs in the first place because the higher wages threw them out of work.) So consider: if it’s “good for the economy” for unskilled labor to be given an arbitrary, coercively levied wage increase, would it also be good for the economy if employers quit shopping around for low prices for steel and just paid more for steel, so the steel manufacturers would have more money to spend on consumption? Would it be even better if they went out of their way to pay more for lumber than the going price? Then the lumber people would have more to spend. Would it be still better if employers paid extra for lumber, steel, labor — and everything else they needed? If it’s “good for the economy” for business firms to pay artificially high wages, why not demand that they pay artificially high prices for everything? Then the economy would be super! You see the problem. The firm becomes less and less profitable, and less able to support employment, the more it needs to pay for inputs. And the more it pays for some inputs, the less it has on hand to pay for others. Extra money paid in wages over here means less spent on intermediate goods — and thus lower wages for other workers — over there. And the firm is less able to invest in capital equipment, which is what makes all of society wealthier. A word, too, on the misplaced emphasis on consumption, as if that’s all an economy was about. If all we did was consume, and no one saved and productively expended any resources, the entire structure of production would grind to a halt. Just to maintain the structure of production involves saving enough to support the existing capital structure: all the stages and production processes from raw materials down to the finished product that constitute the intermediate stages of production that are left out of GDP. (For more on this, see my resource page on GDP.) tomwoods/blog/who-needs-economics-double-everyones-wages-by-paying-17-cents-more/
Posted on: Tue, 20 Aug 2013 20:14:10 +0000
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