Capital in the Twenty-First Century

[Berkut]

I guess it also depends on how much proportion of the workforce is on minimum wage, and how much you are raising it.

However, the inflation aspect aside, the problem is, you can't raise the value of one's work by law. You can raise the minimum amount one must pay to get the benefit of someone's labour, and you may very well do that to such a limited degree that no significant amount of minimum-earners will lose their job, but you are with every increase, increase the barrier that's in front of unemployed people who can't enter the economy on account of them not being able to produce the value of their would-be salary.
And as subset of that, you just make it that much harder to enter the working world, period. You end up having to allow apprenticeships contracts and the like, and then get what you have in the UK, all the problems with that.

That is all very nice and in theory true to the extent that the world perfectly aligns with theory.

The reality, of course, is that theory and reality are related, but not tied so tightly that simple pronouncements from your 11th grade high school economics texts trumps actual observation of what is happening in the real world. And when that actual observation shows results that are badly mis-aligned from societal needs, a shrug and response of "Oh well, my high school econ book says the world should work this way!" doesn't really answer to the issue.

[Jacob]

An across-the-board minimum wage increase will not help anyone. On the short term it helps maybe those on minimum wage at the time, but nobody else. Then things would just start costing more and they would be back where they started, except small business would have a harder time to (legally) afford unskilled labour.

I know its not a valid example because it's just a bunch of unwashed untermensch, but in Hungary the minimum wage has been on a steady rise, with the occasional huge bumps up, since the mid 90s, and nowadays poverty is not declining, it's on the rise, due to a myriad of failed/malicious economic policies, yes, but the point is minimum wage did fuckall to counter that.


I think one of the problems here is that those who support minimum wage raises only see it from the end point of the people earning it. Which is noble, but that money is actually being paid by someone. And yes, big corporations would have no trouble paying a bit more. Except in those cases when you push it high enoug so they can just move operations to China/Mexico/Romania.

But the economy is not solely built of evil megacorporations hoarding vast amounts of wealths they do nothing with. The higher you raise the minimum wage, the more entry level jobs with small businesses you prevent/shut down, because the business owner would not be able to see as much value from the employee's work as he/she would cost.

My problem is that those who support minimum wage raises often sound like its some kind of magic wand that's once waved, economic troubles and poverty go away. This is a damaging and counterproductive stance.

I'm very happy to agree that raising the minimum wage is not a magic wand that will make economic troubles and poverty go away.

My question to you is, what approaches do you think will help reverse the increase in economic inequality? If it's not minimum wage increases by themselves (as I said, I'm happy to agree that that is not a silver bullet) what approach will work? Is it something else entirely, or is it a range of policies including increasing the minimum wage in some cases?

[LaCroix]

I wonder how the graphs would look if the groups that seem to wallow their whole lives in poverty stricken cesspools were omitted (white trash, etc.)

Why would you omit them?

to see how the average incomes look after you remove maybe 20% of the bottom 50%. certain groups seem like they're going to remain in abject poverty and have no interest rising above it or moving. at least the ghettos are a few blocks from wealth.

So you start with "for a bunch of them it's their own fault, so it's not a problem we should bother with" and wonder if we ignore them - which is reasonable because they only have themselves to blame - then we might find it's not so bad?

kinda. it's more, how would we fix the poor income locations that once relied upon an industry that just is not coming back? I don't think it helps much to lump all low-income earners together to try to find a solution. I think it's more helpful to examine the groups within the bottom 50%. first, to see whether some of the 50% are fine (e.g., maybe the top of the bottom are doing mostly OK and the overall number is weighed down by the bottom of the bottom 50%). second, to see whether more realistic solutions can be found to assist some of the groups (e.g., it's probably easier to help inner city ghettos than rural decayed towns)

as it stands, I don't think it's very helpful to start with a huge, broad number like "bottom 50%," unless the purpose is sensationalism

[Barrister]

I'm very happy to agree that raising the minimum wage is not a magic wand that will make economic troubles and poverty go away.

My question to you is, what approaches do you think will help reverse the increase in economic inequality? If it's not minimum wage increases by themselves (as I said, I'm happy to agree that that is not a silver bullet) what approach will work? Is it something else entirely, or is it a range of policies including increasing the minimum wage in some cases?

I know you didn't ask me...

I tend to be very anti-minimum wage because of all the possible distortions it can create.  I'd be much more comfortable with something like a guaranteed minimum income (which no less a conservative economist than Milton Friedman was in support of) to look after income inequality, with (and I'm just spitballing the actual #s here) each dollar of employment income reducing your guaranteed income by $0.50 or so.

[Jacob]

kinda. it's more, how would we fix the poor income locations that once relied upon an industry that just is not coming back? I don't think it helps much to lump all low-income earners together to try to find a solution. I think it's more helpful to examine the groups within the bottom 50%. first, to see whether some of the 50% are fine (e.g., maybe the top of the bottom are doing mostly OK and the overall number is weighed down by the bottom of the bottom 50%). second, to see whether more realistic solutions can be found to assist some of the groups (e.g., it's probably easier to help inner city ghettos than rural decayed towns)

as it stands, I don't think it's very helpful to start with a huge, broad number like "bottom 50%," unless the purpose is sensationalism

From the article in question they're looking at broad economic indicators to compare between countries and to track trends across decades, and they're looking at the bottom 50%, the middle 40%, and the top 10%. Certainly, when looking at how to target specific policies to help individual groups you'll want to look at more detailed and local stats - but when looking at structural trends across decades and differences between countries that approach seems to me to be perfectly servicable.

From the article:

From 1980 to 2014, average national income per adult grew by 61 percent in the United States, yet the average pre-tax income of the bottom 50 percent of individual income earners stagnated at about $16,000 per adult after adjusting for inflation.

Are you suggesting that the incomes of the bottom 20% decreased so significantly from the average $16k/year in 1980 as to obscure the otherwise substantial gains of the 21st to 50th bottom percentiles by 2014? That seems to me fairly unlikely, as there's not that much room for downward movement from a starting point of $16K/year.

[Eddie Teach]

as it stands, I don't think it's very helpful to start with a huge, broad number like "bottom 50%," unless the purpose is sensationalism

The reason for picking a number like that is so that you can compare what's happening over time. It's certainly more useful to see what "the bottom 50%" is doing than what "James Smith" is up to, or even "members of the Steelworkers Union".

[Jacob]

I'm very happy to agree that raising the minimum wage is not a magic wand that will make economic troubles and poverty go away.

My question to you is, what approaches do you think will help reverse the increase in economic inequality? If it's not minimum wage increases by themselves (as I said, I'm happy to agree that that is not a silver bullet) what approach will work? Is it something else entirely, or is it a range of policies including increasing the minimum wage in some cases?

I know you didn't ask me...

I tend to be very anti-minimum wage because of all the possible distortions it can create.  I'd be much more comfortable with something like a guaranteed minimum income (which no less a conservative economist than Milton Friedman was in support of) to look after income inequality, with (and I'm just spitballing the actual #s here) each dollar of employment income reducing your guaranteed income by $0.50 or so.

I have no particular objections to that

I mean, I'm certainly willing to listen to arguments why it may be a bad idea, but on the face of it it sounds eminently reasonable to me.

Ontario and PEI are experimenting with this presently, IIRC.

[Berkut]

I'm very happy to agree that raising the minimum wage is not a magic wand that will make economic troubles and poverty go away.

My question to you is, what approaches do you think will help reverse the increase in economic inequality? If it's not minimum wage increases by themselves (as I said, I'm happy to agree that that is not a silver bullet) what approach will work? Is it something else entirely, or is it a range of policies including increasing the minimum wage in some cases?

I know you didn't ask me...

I tend to be very anti-minimum wage because of all the possible distortions it can create.  I'd be much more comfortable with something like a guaranteed minimum income (which no less a conservative economist than Milton Friedman was in support of) to look after income inequality, with (and I'm just spitballing the actual #s here) each dollar of employment income reducing your guaranteed income by $0.50 or so.

I am ok with minimum wage as long as it is tied to actual economic indicators based on some objectively sustainable standard.

IE, some percentage of the CPI, or something like that, as opposed to some emotive measure like "ZOMG THIS MOM SHOULD BE ABLE TO SUPPORT HER CHILDREN!!!!"

[Barrister]

I'm very happy to agree that raising the minimum wage is not a magic wand that will make economic troubles and poverty go away.

My question to you is, what approaches do you think will help reverse the increase in economic inequality? If it's not minimum wage increases by themselves (as I said, I'm happy to agree that that is not a silver bullet) what approach will work? Is it something else entirely, or is it a range of policies including increasing the minimum wage in some cases?

I know you didn't ask me...

I tend to be very anti-minimum wage because of all the possible distortions it can create.  I'd be much more comfortable with something like a guaranteed minimum income (which no less a conservative economist than Milton Friedman was in support of) to look after income inequality, with (and I'm just spitballing the actual #s here) each dollar of employment income reducing your guaranteed income by $0.50 or so.

I have no particular objections to that

I mean, I'm certainly willing to listen to arguments why it may be a bad idea, but on the face of it it sounds eminently reasonable to me.

Ontario and PEI are experimenting with this presently, IIRC.

Yeah, I want to see the results of more serious experimentation.

It's going to have its drawbacks I'm sure.  There will be a small minority of people who are satisfied to subsist on a guaranteed minimum wage who might otherwise be working - but I suspect it's pretty small, and likely smaller than the costs of enforcing various requirements onto welfare programs.

[MadImmortalMan]

Currently, the biggest driver of income growth is asset appreciation. The p/e ratio of the S&P 500 is over 25 right now. The kind of profit growth a number like that implies is just not reasonable to expect. The top 50% are the people who own that stuff, and also property, which has ballooned back out of control. I wonder what the gap would be if all of these things actually had fair valuations.

[Berkut]

Yeah, I want to see the results of more serious experimentation.

It's going to have its drawbacks I'm sure.  There will be a small minority of people who are satisfied to subsist on a guaranteed minimum wage who might otherwise be working - but I suspect it's pretty small, and likely smaller than the costs of enforcing various requirements onto welfare programs.

I think a key concept that is going to take a serious cultural shift in thinking is getting away from the idea that "otherwise be working" has some kind of innate value. What we are talking about is the *fact* that the value of a huge portion of what we historically have considered "human" work is basically approaching zero, or close to it. In some cases, it is likely negative.

So why does there even need to be punitive requirements on welfare? In fact, the very term "welfare" needs to go.

Nor do I even agree with the idea that the amount of guranateed minimum income should be reduced by your own income. That pretty much says it is something else entirely - welfare.

Now, I think given some reasonable progressive tax rates, you would end up with effectively the same thing, but I think a key to the success of any kind of such program is to get away from the concept that this is welfare, or something like that.

The better way to think of it is that this is the share that all human participants in our society get from the production of that society that is based on the infrastructure and institutions, rather than labor and capital. IE, for some shipping company, their productive capacity is based on three things:

1. The capital investment. This should return profits to the investors/owners.
2. The necessary labor done. This should be returned to those doing the labor in the form of wages.
3. The existence and maintenance of infrastructure and a coherent, law abiding, and consuming society.  This share, previously ignored for the most part, is returned to society as a group in the form of taxes and a guaranteed income.

We live in a world where #3 is basically ignored (not entirely, in that it would currently be realized through taxes, presumably), and the need for #2 is declining consistently, which is resulting in the productive capacity of business going almost entirely to #1. Hence the ultra rich getting ultra richer.

If we stop calling #3 welfare, and instead just consider it what a productive business owes to the society which is a absolute necessity for it's success, then there is no particular stigma attached to it. Everyone gets their share, and if you choose to work harder to earn over and above that, bully for you.

[MadImmortalMan]

You guys don't have to come up with newfangled schemes, really. We didn't have a guaranteed income thingie back in the 60s. But you could buy a house for a years' wages then.

The property market crashing would put a big dent in inequality if you think about it.

Then there's this of course:

[alfred russel]

Currently, the biggest driver of income growth is asset appreciation. The p/e ratio of the S&P 500 is over 25 right now. The kind of profit growth a number like that implies is just not reasonable to expect. The top 50% are the people who own that stuff, and also property, which has ballooned back out of control. I wonder what the gap would be if all of these things actually had fair valuations.

The p/e ratio of the S&P 500 doesn't necessarily imply a ton of profit growth. It could alternatively reflect expectations of a a future with a low risk free rate of return and equity risk premium.

[crazy canuck]

I guess it also depends on how much proportion of the workforce is on minimum wage, and how much you are raising it.

However, the inflation aspect aside, the problem is, you can't raise the value of one's work by law. You can raise the minimum amount one must pay to get the benefit of someone's labour, and you may very well do that to such a limited degree that no significant amount of minimum-earners will lose their job, but you are with every increase, increase the barrier that's in front of unemployed people who can't enter the economy on account of them not being able to produce the value of their would-be salary.
And as subset of that, you just make it that much harder to enter the working world, period. You end up having to allow apprenticeships contracts and the like, and then get what you have in the UK, all the problems with that.

You are assuming that all employees are paid an amount equal to the value of their labour.  The reason minimum wage laws exist is because historically that is not true.  If all employees were paid according to the value of their labour you would not see the result Picketty has found.  That is the very reason he suggests strengthening the employee's ability to bargain for better wages and increasing minimum wages.

[crazy canuck]

You guys don't have to come up with newfangled schemes, really. We didn't have a guaranteed income thingie back in the 60s. But you could buy a house for a years' wages then.

The property market crashing would put a big dent in inequality if you think about it.

Then there's this of course:

If it was as simple as returning to those good old days of high taxes on high income earners, stronger regulation of the banking/investment industry; reasonable executive pay and, you are correct, much less expensive educational opportunities then I would agree with you that things like guaranteed income may not be necessary.  But I don't see those other things coming back any time soon.