Friday, April 5, 2013

Chained CPI ought to be called cascading CPI [the "Black Hole" theory of the minimum wage]

Chained CPI ought to be called cascading CPI because when we give people less money because they have substituted cheaper goods in their purchases (altering the basket of measured goods) -- then -- they substitute EVEN cheaper goods -- then -- we give them EVEN less money -- then -- they substitute EVEN cheaper goods, etc., etc.
* * * * * * * * * *
Reminds me of the Republican plan -- "hedonics"; should have been called "headonics" -- to give Social Security retirees less money to eat because they were getting a better deal every year on computers and such -- same overall value in their stipend (also same hidden value in the taxpayers' left over money, so no real unfairness).
 * * * * * * * * *
Want to get more money flowing into Social Security?  Get the labor market straightened out.

Double the minimum wage for starters -- instant flood of funding.  Doubling the minimum would boost half the paychecks -- doubling the minimum reaches today's median pay.

Realistic?  Actually we would have to *triple* today's minimum to catch up to *doubling* of productivity since 1968.  (Today's minimum is $1.25/.hr below 1956's minimum!) 
>Elizabeth Warren: Minimum Wage Would Be $22 An Hour If It Had Kept Up With Productivity 

Only 3.6% inflation from doubling the minimum: $70 million employees X $8,000 average raise = $560 billion.  Divide that by $15.8 trillion = 3.6%.

If we instead cut all wages from the median down in half would that help McDonald's and Wal-Mart?  No; and it is my contention that that is what we have effectively done just that by inaction (both minimum wage and lost unions) -- so doubling would only repair the damage to Mac and Wal.

Realistic?  Yes; because worker/consumers will buy a lot more fast food and retail goods at $30,000 then at $15,000 -- but not a lot more at $40,000 then $30,000 so no claim the boom to Mac and Wal-Mart will go up forever with increases in the minimum wage.  In the first round though employees (consumers) of half the country will get raises disproportionate to what their employers will have to raise prices to pass through. 

[Note: thought of this since I posted: I am going to call the above the "Black Hole" theory of the minimum wage -- where the wage has fallen so low that the normal rules of economics no longer apply -- where the higher you raise the minimum wage the more money minimum wage paying employers profit.  The edge of the "Black Hole" would seem to be between $30,000/yr and $40,000/yr -- between the two raising prices may leave profits more or less the same -- above that level the normal rules kick back in: keep raising wages and prices and you will lose business.  Pretty cool; no?  :-) ]

Also, no more gangs because people will be able to make an honest living.  Half of Chicago's gang age minority males (100,000) are in gangs because they wont work for jobs that have been effectively outsourced to Mexico and beyond.

Also, ghetto schools will begin to work -- schools don't work now because students (and teachers!) literally expect nothing sufficiently remunerative waiting for them in America's labor "sinkhole" when they graduate -- as reported by Berkley professor Martin Sanchez Jankowski who spent nine years on the ground in five poor New York and Los Angeles neighborhood (and previously spent ten years studying gangs).
Islands in the street: Gangs and American Urban Society
Cracks in the Pavement: Social Change and Resilience in Poor Neighborhoods

Even pulling half of us out of the pay and benefits sinkhole will not restore normal bargaining power and political muscle. Even those above 90 percentile -- whose pay has kept up with productivity -- lack political punch.  Only re-unionizing will accomplish that -- and the only stable, fair and balanced labor setup, tested beginning in continental Europe and then around the world is legally mandated, sector-wide labor agreements.  Be nice if our economic doctors would ever even discuss out loud the only fundamental cure for 140 million American patients.

Productivity doubles every two generations -- twice as fast as population -- so why any problem funding Social Security?  In the instant case it is because wages haven't nearly kept up: the (American) median stagnated over the last two generations (!), by early  2007 the minimum was almost cut in half.


No comments: