MD: Here at Money Delusions, we know the only “proper” value for inflation of money itself is zero. Any argument for it to be non-zero is to support manipulation of the economy to the advantage of some traders, and disadvantage of others.
With zero inflation guaranteed, the issue of minimum wage never comes up. A person delivering a constant amount of value will be continuously paid the same amount for delivering that value … regardless of their skills.
But when you have an improper MOE process that strives for a 2% leak and delivers a 4% leak, well, every thirteen years things are going to get out of wack by a factor of two. The economic mechanisms are sticky. Wages don’t rise smoothly as governments smoothly counterfeit money … nor do prices. So, from time to time, an epoch is reached … we have lots of hand ringing … and whammo … a leap in wages (increase of minimum wage and ratcheting up of all other wages to maintain the spread) … and usually an immediate leap in prices as everyone uses the wage step increase to justify their price step increase..
Right after these epochs, the traders see an opportunity that didn’t exist just before. Every job is continually being crowded by automation. But automation is a form of retooling. The costs of retooling must be justified by the cost reductions and/or product improvements it delivers. When you make a minimum wage change, you immediately release automation initiatives that weren’t viable the day before. And that automation removes jobs that will never return. Without these epochs, automation would have a more difficult job getting a foothold and crowding out labor. Believe it or not, automation is the single biggest long term threat to our way of life. With nothing left for any of us to do we no longer have a means of keeping score.
Keeping in mind the zero inflation attribute of a “proper” MOE process, let’s see what delusions we can discover in this scholarly article.
We study the effect of minimum wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers from whom such substitution may be spurred by minimum wage increases.
MD: If we had a “proper” MOE process, those engaged in conducting these studies would be out of work. Thus, we probably can’t expect them to be supportive of a proper MOE process … and zero inflation … can we!
Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed.
MD: Those who are engaged in compiling CPS data and pondering it would be out of work with a zero inflation proper MOE process. Increasing the minimum wage does not decrease the share of automatable employment … it increases it (but that’s really what he meant to say). Instituting a “proper” MOE process will eliminate a huge number of government jobs … and financial and economics jobs in industry as well. Rather than automating away what they do (which computers continuously do), it eliminates the necessity of their work all together. When inflation is guaranteed to be zero, what is a CPS analyst to do? (1+i)^n is perpetually 1.00000. In that case, it’s not about replacement, it’s about wasted counterproductive effort in the first place. But then what are the scholars of articles like this … who haven’t been able to “get it” in the face of the “obvious” … what are they going to do?
The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing.
MD: Automation has in fact helped “older” low skilled workers. Where they would normally become physically incapable of doing the work, they can continue to do it with hydraulic and electrical assistance … just by pushing buttons. Without the automation, they would have “taken themselves” out of the game earlier. Automation is really a boon for older unskilled … and skilled … workers. But that’s really what he meant to say … right?
The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.
MD: Well duh!
That’s the abstract of a new paper by Grace Lordan and David Neumark, titled “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs.” (emphasis added)
Reality is not optional and the law of demand holds for low-skilled labor no less than it holds for kumquats, for yoga instruction, and for high-quality jewelry.
MD: But the mechanism is sticky and has a dead band. Eliminate the relative motion (i.e. inflation) and then the effects of the coefficient of static friction and deadband don’t come into play at all. The static forces remain constant … they don’t build up to a point of violent release!
Indeed, the law of demand is universal. Therefore, government diktats requiring all workers to insist on being paid at least some minimum hourly wage from employers will cause the quantities of any given kind of low-skilled labor demanded by employers to be fewer than these quantities would be in the absence of such diktats.
MD: Government cannot survive with zero inflation. That “is” what sustains all government. And that inflation is also what lets the money changers maintain their illusion of the “time value of money” and thus their demand for tribute (for their claim of being the creators of the money). With zero inflation, both money changers and the governments they institute are “high, dry, and looking for a ball player” … i.e. they’re out of business.
Minimum-wage proponents fancy themselves to be champions of the poor, but these fancies are belied by the reality that minimum wages reduce the employment prospects of the very people that well-meaning minimum-wage proponents intend to help.
MD: But when you have a 4% leak in the money, how in the world are you going to keep from grinding the unskilled labor right into the dirt? Remember, we were all unskilled labor at one point in our lives.
(HT Frank Stephenson)