Cost of living drops, so does the Minimum Wage.

Wow, while it is only a small drop, it is going below the National minimum wage.

I don't think they're allowed to. They will pay the Fed guideline wage, but not over it like they had been doing.

State rights issue?

more signs of the Deflationary recession, the whole idea of a Minimum wage is absurd to begin with, scientifically speaking that is.

(10-14-2009 11:35 AM)GGniner Wrote:  State rights issue?

Absolutely.

Are we heading towards a deflationary spiral?

From Wikipedia...

Quote:Deflationary spiral

A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.[7] Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. The Great Depression was regarded by some as a deflationary spiral. Whether deflationary spirals can actually occur is controversial.

A deflationary spiral is the modern macroeconomic version of the general glut controversy of the 19th century. Another related idea is Irving Fisher's theory that excess debt can cause a continuing deflation.

the big debate right now is, Deflation vs. Inflation

evidence exist for both sides at the moment.

the perpetual Hyper-Inflation camp(see Peter Schiff) were caught completely off guard last year when Deflation set in.

(10-14-2009 11:41 AM)GGniner Wrote:  the big debate right now is, Deflation vs. Inflation

evidence exist for both sides at the moment.

the perpetual Hyper-Inflation camp(see Peter Schiff) were caught completely off guard last year when Deflation set in.

Shouldn't have been. Deflation (and a subsequent depression) are classic when there's overproduction. We've had lots of overproduction, from imports (electronics, toys, etc) to cars (remember 3 year leases?) to houses.

But the real killer has been the move of US employees away from the productive to the unproductive. You can only shuffle papers and litigate for so long.

Now the Fed understands the deflation, and its causes. So it's trying to prop up the economy by releasing money: bailouts, TARP, stimulus, etc. That will lead to inflation, but the feds are hoping that goes unnoticed as it competes w/ the deflation.

While physics says those two vectors may cancel each other in a broad sense (no acceleration in either direction), the fact is that when two strong forces are applied to a single, given object (our economy) it's likely to have a destructive effect. (Crushing or tearing apart. Either metaphor is apt.)

But, the main reason the fed's approach won't work is that we aren't productive. You can only print money, and use it to buy cheap goods made from Asia, for so long. There's a point where even they don't want it. Ultimately that currency needs to have something behind it. Some goods or services to back it up. We're off the gold standard so take goods away. We don't do anything useful, so take services away.

And then inflation will take over. Add to that scarcity, as products do wear out (cars, unattended foreclosed homes) and it adds to the inflation.

The scale will rock back and forth a bit. As unemployment stays high and goes higher w/ stimulus money running out, people will be more broke. That will put pressure to keep prices down (think gas prices). But then producers will go out of business, or sell in better markets, and that will drive prices up.

In the end (and by that I mean over the next 3 years) we'll get past deflation and have devastating inflation, w/ high unemployment.

I figured deflation to last for about 1 more year. That may be best seen w/ high price goods (cars, houses) but I'm already seeing inflationary trends on daily products. If that's true, and both forces are currently in play, then things could get worse even faster.

(10-14-2009 11:59 AM)DrTorch Wrote:  

(10-14-2009 11:41 AM)GGniner Wrote:  the big debate right now is, Deflation vs. Inflation
evidence exist for both sides at the moment.
the perpetual Hyper-Inflation camp(see Peter Schiff) were caught completely off guard last year when Deflation set in.

Shouldn't have been. Deflation (and a subsequent depression) are classic when there's overproduction. We've had lots of overproduction, from imports (electronics, toys, etc) to cars (remember 3 year leases?) to houses.
But the real killer has been the move of US employees away from the productive to the unproductive. You can only shuffle papers and litigate for so long.
Now the Fed understands the deflation, and its causes. So it's trying to prop up the economy by releasing money: bailouts, TARP, stimulus, etc. That will lead to inflation, but the feds are hoping that goes unnoticed as it competes w/ the deflation.
While physics says those two vectors may cancel each other in a broad sense (no acceleration in either direction), the fact is that when two strong forces are applied to a single, given object (our economy) it's likely to have a destructive effect. (Crushing or tearing apart. Either metaphor is apt.)
But, the main reason the fed's approach won't work is that we aren't productive. You can only print money, and use it to buy cheap goods made from Asia, for so long. There's a point where even they don't want it. Ultimately that currency needs to have something behind it. Some goods or services to back it up. We're off the gold standard so take goods away. We don't do anything useful, so take services away.
And then inflation will take over. Add to that scarcity, as products do wear out (cars, unattended foreclosed homes) and it adds to the inflation.
The scale will rock back and forth a bit. As unemployment stays high and goes higher w/ stimulus money running out, people will be more broke. That will put pressure to keep prices down (think gas prices). But then producers will go out of business, or sell in better markets, and that will drive prices up.
In the end (and by that I mean over the next 3 years) we'll get past deflation and have devastating inflation, w/ high unemployment.
I figured deflation to last for about 1 more year. That may be best seen w/ high price goods (cars, houses) but I'm already seeing inflationary trends on daily products. If that's true, and both forces are currently in play, then things could get worse even faster.

Agree 100%.

We have two powerful forces--the collapse of our productive economy arguing for deflation, and the likely collapse of our currency arguing for inflation. They are so closely matched that it's hard right now to tell which one will win. I have my portfolio set up 50% for assets that will do well in recession/depression and 50% for assets that will do well under hyperinflation. What concerns me is the difficulty of keeping two pwerful forces balanced over time. When one of them wins out (as I think is inevitable), the impact could be overwhelming.

The only strategy that I think would provide long-term relief would be:
1. Balance the federal budget (most state budgets are balanced necessarily due to constitutional limits) and keep it balanced (prefereably in ways that minimize the harm to us on points 2 and 3)
2. Decrease our imports (most bang for the buck is to cut imports of foreign oil, preferably by some method other than a decline in demand due to economic collapse)
3. Increase our exports (probably the best answer here is to revise our tax and regulatory policies to make us more attractive, rather than less attractive, to value-added industries)

Unfortunately, none of those long-term strategies will come without short-term pain (just ask the guy who loses his federal subsidy to balance the budget). Equally unfortunately, in the current political climate no politician is going to support that.

We're dangerously close to "stick a fork in us" time, and I don't see anybody, particularly not anyone with a D or R after there name, who even has a clue.

The very concept of a minimum wage is pure nonsense to begin with. Prices are determined through supply and demand and at equilibrium they are equal. The same would kick in for wages. There is a supply of workers and a demand for employees. Through competition a price (wage) would be set.

By having the government artifically set wages through "minimum wage" inflation occurs. There is a reason your grandma's can say, "I use to be able to get my pepsi for a nickel" while we now pay $1.50. Inflation rises with minimum wage increases.

Inflation rises, and employment drops. Inevitable consequences.

I'm not wild about David Frum for political reasons, however I thought what he says in his book review of "Gold Fetters" is interesting. Plus quoting Chesterton in the opening paragraph is a good way to get my attention.

http://www.newmajority.com/golden-fetters

Quote:Some background first.

Although human beings have used gold as a store of value for hundreds if not thousands of years, the “gold standard” – meaning the use of gold as money – was a relatively modern development. Until comparatively recently, not enough gold existed above ground. The coins that liquefied commerce in ancient Rome and pre-Civil War America were silver, not gold.

The shift to gold began in Britain, and it began by accident, in the course of a 1695 currency reform intended to improve the state of Britain’s silver-coinage. The reform slightly under-priced silver and slightly over-priced gold. The result was an ironic working of Gresham’s law, whereby the bad (gold) money drove out the good (silver) money. Intended to improve silver coinage, Britain found itself with only gold. To cope, the Mint began to use copper for lower-value coins, especially the money of the poor, the penny. The rich used paper money backed by the gold backs accumulated in lieu of the silver they could no longer get. Britain stumbled along through the 18th century on this informal gold standard. The role of gold was at last formalized with the return of peace after the Napoleonic wars: the Coinage Act of 1816 fixed the pound’s value in terms of gold. Nicholas Mayhew’s Sterling: The Rise and Fall of a Currency is a lively and entertaining history of British monetary developments.)

From 1816 until 1914, the Bank of England stood ready to redeem paper money for the equivalent in gold coin.

But through the larger part of the period, no other bank on earth would do the same. Gold coins existed of course everywhere. But if you took paper money to the bank in the America of the 1830s, you’d expect it to be redeemed in silver dollars. In Berlin, you’d get silver marks from the Prussian authorities. Not until the 1870s did the world’s leading economic powers join Britain in defining their money as a certain weight of gold: The United States did not formally do so until 1900, although the demonetization of silver in 1873 made the US a gold standard country in all but time.

This “classical” gold standard lasted barely more than a generation. Eichengreen’s book opens by debunking some of the myths surrounding gold’s operations.

Theoretically, the gold standard was self-balancing – this is much of its appeal to modern libertarians. If business accelerated in any gold-standard country to a point that seemed to threaten inflation, gold would begin to withdraw from circulation. If any country ran a persistent trade deficit, gold would have to be exported to rectify the balance. The country would go into recession or slump until monetary values were restored and gold returned.

In practice, it did not work that way. The gold standard was maintained by a system of international cooperation, coordinated by a Bank of England that held surprisingly little gold in its own vaults but that could mobilize resources from other banks – especially France’s and Germany’s – who shared the British commitment to the stability of the system. This coordination succeeded in large part because of the weakness of democratic processes in the three countries: Everybody understood that the central bankers would accept very high levels of unemployment to protect the gold value of money – and there was not much short of revolution that voters could do to change their minds.

The United States did not fully participate in this system. Before 1913, the U.S. lacked a central bank. It was private American bankers, and most famously J.P. Morgan, who worked with the European central banks. Being the most democratic country, America’s commitment to gold was also least credible. The result was that the U.S. financial system was uniquely susceptible to panics and the risk of being forced off gold, as nearly happened in 1893 and again in 1907.

It’s super hilariously ironic that modern monetary cranks of the Ron Paul variety now combine enthusiasm for gold with opposition both to an American central bank and hatred of international monetary cooperation – the two ingredients absolutely essential to sustaining the ancient currency regime for which they claim to yearn.

International monetary cooperation broke down during the First World War and could not be restored thereafter. Here lay the origin of all the financial and economic woes of Europe after 1919. Eichengreen describes and analyzes these minutely and intelligently, his section on the German and other inflations most especially thought-provoking. I want to skip over that to address the sections of his book most immediately challenging.

1) When we today look back on the Depression era, we see decisions so catastrophically bad that we wonder how anybody could have made them. Yet it’s not that they were so stupid and that we are so smart. They were trapped by the imperative – or the perceived imperative – to defend the gold standard. Why did President Hoover raise taxes in 1932? He had known enough to cut them in 1930. But by 1932, he was facing deficits so colossal as to raise doubts about the credibility of the US commitment to gold. We know now that recovery began as soon as a country quit gold: Britain in 1931, the US in 1933, Germany tragically too late to avert the Nazi seizure of power. Seventy years ago, decision-makers did not know that, and their peoples suffered badly for it. It’s humbling to consider that we too may be suffering because of our inability to transcend the limits of our knowledge and imagination.

2) One reason that policymakers clung so fiercely to gold was their terrible recent memories of inflation, not only in Germany, but also in France, Austria, Italy and other continental countries. In 1932 as today, our most recent experiences have disproportionate sway over our thinking.

3) Even after decision-makers took the steps that enabled recovery, they continued to pair good decisions with lethal errors. President Roosevelt counter-acted his bank and financial measures of March 1933 with his disastrous price-fixing National Recovery Act. He stimulated employment with his WPA and PWA jobs programs, then depressed employment with the Wagner Act changes to labor law. The Social Security Act of 1935 was a welcome innovation, introduced at the wrong time – the new taxes to finance pushed the economy back into another steep decline in 1937.

The Roosevelt administration was acting in the spirit of Rahm Emanuel’s famous warning against allowing a crisis to go to waste. They used the Depression to achieve other cherished projects – and in so doing, often aggravated the crisis that gave them their opportunity. Will the Obama administration succumb to similar temptation? The question echoes ominously.

whole thing is interesting, Milton Friedman explained some of that here:



Though the points Frum claims that book made explaining why the Govt. made so many Insane policy moves in the early 30's, stating their hand was essentially forced, is interesting.

(10-14-2009 12:22 PM)forumhorizon Wrote:  The very concept of a minimum wage is pure nonsense to begin with. Prices are determined through supply and demand and at equilibrium they are equal. The same would kick in for wages. There is a supply of workers and a demand for employees. Through competition a price (wage) would be set.

You seem to understand fundamental economic principles, yet you're an Obama supporter. I'm confused.

forumhorizon Wrote:By having the government artifically set wages through "minimum wage" inflation occurs. There is a reason your grandma's can say, "I use to be able to get my pepsi for a nickel" while we now pay $1.50. Inflation rises with minimum wage increases.

Not to mention, unemployment.

When politicians, many of whom democrat especially, are lowering the Minimum Wage you know things are in desperate mode.

Colorado has a Democrat Governor, right?

I have to ask. What would happen if the minimum wage was totally repealed. Would prices instantly go down?

(10-14-2009 12:22 PM)forumhorizon Wrote:  The very concept of a minimum wage is pure nonsense to begin with. Prices are determined through supply and demand and at equilibrium they are equal. The same would kick in for wages. There is a supply of workers and a demand for employees. Through competition a price (wage) would be set.

By having the government artifically set wages through "minimum wage" inflation occurs. There is a reason your grandma's can say, "I use to be able to get my pepsi for a nickel" while we now pay $1.50. Inflation rises with minimum wage increases.

Great! THen if we lower wages to about .50/hour, you will be able to get your damn nickel Pepsi again. Of course, many other things will become impossible for those people to buy(cars, house) so the economy which is highly based on the consumer plummets because nothing is being bought. But on the bright side we could then compete with China then!

(10-14-2009 11:51 PM)nomad2u2001 Wrote:  I have to ask. What would happen if the minimum wage was totally repealed. Would prices instantly go down?

No, but they definitely should, eventually. But certain areas would be hit by a massive "out-flux" (I know that isn't a word) of labor. But eventually, the economy would correct itself. But, the shift would impact countless businesses and other entities. My hometown would definitely be affected. Greenville, a university town of close to 80,000, with a student population of over 27,000 would definitely be hit.

With an over-abundance of labor (over 20,000 kids looking for minimum-wage jobs in an 80,000 population city) an elimination of the minimum wage would result in many of those kids not being able to find enough paying jobs to keep them in school.

The situation would correct itself, and enrollment and student population (and cheap labor) would decrease.

But the college-graduate population of Eastern NC would definitely decrease.

I'm definitely not qualified to prognosticate on the long term impact of this kind of situation. And, honestly, I hate these kinds of socio-economic arguments. But, from an Eastern NC partisan standpoint, it doesn't look good.

(10-14-2009 11:51 PM)nomad2u2001 Wrote:  I have to ask. What would happen if the minimum wage was totally repealed. Would prices instantly go down?

lower end jobs would increase. Minimum Wage Laws made things like Full Service Pumps at the Gas Station obsolete. The employees that did that job made below wage, many of them retirees just looking to burn some time and hang out at the gas stations.

Many think the huge decline in Jobs for Teens the last couple yrs is directly tied to the Increase in Minimum Wage starting in 2007.


Ask yourself this, If the Govt. has the power to set wages, then why are they only setting the Wage at $7 or whatever it is??? Why not $100/hr?? Do they hate the 'poor' so much that they think they are only worth $7/hr?

(10-15-2009 02:01 AM)RobertN Wrote:  

(10-14-2009 12:22 PM)forumhorizon Wrote:  The very concept of a minimum wage is pure nonsense to begin with. Prices are determined through supply and demand and at equilibrium they are equal. The same would kick in for wages. There is a supply of workers and a demand for employees. Through competition a price (wage) would be set.

By having the government artifically set wages through "minimum wage" inflation occurs. There is a reason your grandma's can say, "I use to be able to get my pepsi for a nickel" while we now pay $1.50. Inflation rises with minimum wage increases.

Great! THen if we lower wages to about .50/hour, you will be able to get your damn nickel Pepsi again. Of course, many other things will become impossible for those people to buy(cars, house) so the economy which is highly based on the consumer plummets because nothing is being bought. But on the bright side we could then compete with China then!

That would be perfect for Democrats. That way, they could force banks to lower their lending standards even more, then when the "homeowners" fall into foreclosure, they could demonize the banks some more, and pass another fofillion dollar "stimulus" package to buy their votes.

The other thing that gets missed in National Minumum Wage laws, is the lack of a Cost of Living Index to set them to. Its really insane.

Take San Francisco, nobody there makes the current Minimum Wage anyway, the true Market Minimum Wage in that City is around $10 I beleive. So when Pelosi makes laws like this, it doesn't negatively affect her city, just small towns all over the US where the Cost of Living is much lower, where the True Market Minimum Wage could be below what they Arbitrarly set.


The Minimum Wage Laws are Meaningless/pointless IF what they set the Amount at, is below the actual Market Based Wage. It has adverse Economic Effects when they set it above that amount, and as I state above that affect is worse in Lower Cost of Living States/cities/towns around the country.

What Colorado is doing is an admission of that fact, and a sign of desperation because the whole issue was purely Political to begin with.

(10-14-2009 12:22 PM)forumhorizon Wrote:  The very concept of a minimum wage is pure nonsense to begin with. Prices are determined through supply and demand and at equilibrium they are equal. The same would kick in for wages. There is a supply of workers and a demand for employees. Through competition a price (wage) would be set.

By having the government artifically set wages through "minimum wage" inflation occurs. There is a reason your grandma's can say, "I use to be able to get my pepsi for a nickel" while we now pay $1.50. Inflation rises with minimum wage increases.

Oh man, don't even get me started on what I used to be able to buy with a Quarter or a 50 Cent Piece.

They used to let us go off campus at lunch time to go the local store just down the street and with .50 cents, I could walk out with a 5 Pound Bag of all kinds of goodies including a hot sandwich.

Pay a Dime for a 12oz Coke, take the bottle back for your 5 cent deposit and you only paid 5 cents for the drink.

The school even ran a small store where the Cokes and such were just a nickle and you could still take the bottle to any store for the deposit so you basically got the drink for free on the Drink Companies dime, not tax payers subsidies.

LOL, 5 Cents for a Snickers Bar that weighed a pound, now you pay over a Dollar for something you can't even feel in your hands. It is a shame.

Showing my age here, but I remember those days all too well.

.