Here is an email I just sent to David Leonhardt at the Times:
The consumer bust may never end as long as the US labor market remains a permanent pay squeeze market. It is more than plausible the US minimum wage could have risen to $15/hr from $10/hr (adjusted) as per capita income doubled since 1968. That means that half today's workforce may plausibly be earning less than what the minimum wage should be -- today's median wage being $15/hr. If we could somehow have foretold this to Americans of 1968 they would not have labeled it as wan "inequality." What "disaster": small nuclear exchange, plagues, comet strike?
Any OECD labor market that works for the average person (and empowers same politically too) uses legally mandated, sector-wide labor agreements. All that do not work so nicely (e.g., Japan, Australia) do not avail themselves of this seemingly perfect labor market balancer -- instituted to prevent a wage race to the top in postwar Europe.
Supermarket workers and airline workers would kill for sector-wide bargaining -- easy political place to start. Never happen if no one ever informs 2011 Americans of what I fantasized informing 1968 Americans of.
New way to look at (literally) appraising the minimum wage: add one line within a line to ye ole 101 supply/demand chart always invoked against raising the minimum: show the labor component of the supply price. If the price of labor doubles -- but is only 10% of the total cost of output -- and demand consequently dropped only 10%: that sounds great for labor. Justice: simply explain that a market is only efficient (and fair) when all parties to a bargain are able to extract the maximum the other parties are really willing to pay.
PS. Isn't inflation -- I'm thinking labor market inflation -- the classic way to diminish all debt (our grandchildren paying New Gingrich's grandchildren because Newtie and friends these days lend the government money at interest instead of paying taxes) -- and -- doesn't lowering real prices through inflation the classing cure for a housing bust?
From Wikipedia:"Fuchs et al. (1998) polled labor economists at the top 40 research universities in the United States on a variety of questions in the summer of 1996. Their 65 respondents split exactly 50-50 when asked if the minimum wage should be increased. They argued that the different policy views were not related to views on whether raising the minimum wage would reduce teen employment (the median economist said there would be a reduction of 1%), but on value differences such as income redistribution."Most of the public is opposed to inflation, was opposed to raising the debt ceiling, and is opposed to government spending to create jobs; even if most economists probably support all of those things.All that is needed for employment to rise is for people to understand and agree on the solution; the roughly 100% who want the US to be a land of opportunity again outnumber the roughly 0% who don't.
Other useful links, symptom of "low consumer demand": Apple's profits increased by 125% in the recent quarter, many of the public is feeling overworked, and despite the significant revision of GDP downward for the last few years, corporate profits were revised up by ~10% for 2009 and 2010.
yet-another-comment: there are quite a few economists thinking about inequality these days, but most of them are inconsistent in their approach. "Higher productivity and more innovation" is certainly not the correct answer to growing inequality, even if both those things might otherwise be beneficial.In the long run, the main benefit of the financial crisis may be that people realized that economists were fallible.Was going to link to the post on that blog titled "Blame Leonhardt", but it turned out to be the wrong post for that flawed argument. Do note that while the Leonhardt NYT article ironically links to a previous article entitled "Even for Cashiers, College Pays Off", more education is not the answer to the unemployment problem as over 50% of young B.A. holders have a job that doesn't require a college degree; much of the wage increase is just from signalling.
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