Cities advance their fight against rising inequality

[mhays]

Xelebes, a business that doesn't need to hire at wages is at an advantage (many mom & pops). Those that need to pay wages are at a disadvantage. If I read you correctly, you're backwards.

10023, your restaurant figure shows the problem. That's about in-house labor, and doesn't count their suppliers. If the suppliers average 20%, and their suppliers average 20%, and the farmer averages sweat equity, and their supplier averages 20%...pretty soon you're talking about the whole cost of anything.

[10023]

Originally Posted by mhays

10023, your restaurant figure shows the problem. That's about in-house labor, and doesn't count their suppliers. If the suppliers average 20%, and their suppliers average 20%, and the farmer averages sweat equity, and their supplier averages 20%...pretty soon you're talking about the whole cost of anything.

Only if you're not very good at math.

[Xelebes]

Originally Posted by mhays

Xelebes, a business that doesn't need to hire at wages is at an advantage (many mom & pops). Those that need to pay wages are at a disadvantage. If I read you correctly, you're backwards.

Here is the problem: mom and pops are inefficient. That means that there is a lot more opportunity for people to start their own business and make a living off of it. When there is greater monopolisation, it is harder to enter the industry and thus must make a living by living on a wage or a salary. Being an owner and running your business is still a job.

[Jelly Roll]

Originally Posted by 10023

Company managers and boards of directors have an obligation to do what they can to deliver an acceptable return. If not the board of directors will be voted out of their seats by the shareholders, and replaced with people who will do better. This is how corporate governance works (at least in theory). As in politics, the shareholders (like voters) have the power to "throw the bums out".

Equity investors still expect a certain return over time, in fact one that is higher than debt investors to compensate for additional volatility and risk. You might have negative returns over a given period of time, but in the long run, one expects a certain return.

If you plan to save money to invest in an IRA or 401K for your retirement, you are dependent upon this longstanding principle of capitalism.

Some suggested reading if you're interested:

http://www.amazon.com/Company-Histor...ds=the+company

http://www.amazon.com/Valuation-Meas...ation+mckinsey

http://www.amazon.com/Intelligent-In...igent+investor

I have read all three of those books and I have a decent understanding of economics. Everything that you are saying is right but I have a problem with this comment "There is no free lunch here, which is why voters don't unanimously support an increase in the minimum wage. Every dollar that goes into a minimum wage worker's pocket is a dollar that comes out of everyone else's pocket." The whole point of raising the minimum wage is to redistribute the wealth to the poor. In the US economy wealth redistribution by government policy is already a major factor. The problem is that currently the system is rigged in favor of those who are already rich. To imply that it is not is disingenuous and while it is the corporation's job to try to make the most profit that it can it is the government’s job to protect the people. Currently government is failing at doing it's job. On the flip side if the government does not want to raise the minimum wage then it should dramatically raise corporate tax rates to pay for the services for those making under a living wage.

[mhays]

Originally Posted by 10023

Only if you're not very good at math.

Or if you get the concept of supply chains!

[dc_denizen]

I think it's also factual and testable by drawing the appropriate demand and supply curves, that when you have (1) a perfectly competitive labor market and (2) a monopolistic goods market (eg corporations earning access profits by increasing prices above market), minimum wage increases don't cause inflation as some here have claimed.

[mhays]

Originally Posted by Xelebes

Here is the problem: mom and pops are inefficient. That means that there is a lot more opportunity for people to start their own business and make a living off of it. When there is greater monopolisation, it is harder to enter the industry and thus must make a living by living on a wage or a salary. Being an owner and running your business is still a job.

Of course all that's true. My point was that these businesses aren't as affected by minimum wages. In many cases I bet the owner family averages far less than minimum, particularly kids.

[10023]

Originally Posted by Jelly Roll

I have read all three of those books and I have a decent understanding of economics. Everything that you are saying is right but I have a problem with this comment "There is no free lunch here, which is why voters don't unanimously support an increase in the minimum wage. Every dollar that goes into a minimum wage worker's pocket is a dollar that comes out of everyone else's pocket." The whole point of raising the minimum wage is to redistribute the wealth to the poor. In the US economy wealth redistribution by government policy is already a major factor. The problem is that currently the system is rigged in favor of those who are already rich. To imply that it is not is disingenuous and while it is the corporation's job to try to make the most profit that it can it is the government’s job to protect the people. Currently government is failing at doing it's job. On the flip side if the government does not want to raise the minimum wage then it should dramatically raise corporate tax rates to pay for the services for those making under a living wage.

I agree that minimum wage laws are about wealth redistribution, and that's the point. It is, of course, exactly what I was getting at with the statement that you quoted above.

Everything you've said is factually correct up until where you say that "the government's job is to protect the people". The government's job is to reflect the will of the people. Whether or not it does that is up for debate, but it's a different debate.

The fact is that a lot of voters don't want more wealth to be redistributed from their own pockets to those of minimum wage workers. Because only a few million American workers are on the minimum wage, popular support for increasing the minimum wage requires that a lot of people who will not personally benefit also support an increase. You are clearly one of those people. Others are not, or disagree about the extent of an increase. So like I said, there are arguments for and against and no unanimous support among voters (whom government theoretically works for) for an increase in the minimum wage.

[10023]

Originally Posted by mhays

Or if you get the concept of supply chains!

I get what you're saying.

If GM's cost to produce a light truck is 10% labor and 90% other stuff, but that other stuff includes things like parts produced by other companies, electricity produced by utilities, and other inputs with a labor component, then the actual labor component of the cost is greater than 10%.

But if each of the suppliers' costs are also ~10% labor, then the math isn't 10% + 10% + 10% (and so on), it's 10% + (10% * 90%)... or about 19%. You never get to 100%, obviously, because things like oil and aluminum and real estate and so on cost money too.

[10023]

Originally Posted by dc_denizen

I think it's also factual and testable by drawing the appropriate demand and supply curves, that when you have (1) a perfectly competitive labor market and (2) a monopolistic goods market (eg corporations earning access profits by increasing prices above market), minimum wage increases don't cause inflation as some here have claimed.

And in which industries do you think corporations are earning excess profits by charging prices "above market"?

I think that's true of fewer sectors that depend upon minimum wage labor than you think. Even McDonald's is not earning excess profits when it competes with at least a dozen other national QSR chains.

[mhays]

Originally Posted by 10023

I get what you're saying.

If GM's cost to produce a light truck is 10% labor and 90% other stuff, but that other stuff includes things like parts produced by other companies, electricity produced by utilities, and other inputs with a labor component, then the actual labor component of the cost is greater than 10%.

But if each of the suppliers' costs are also ~10% labor, then the math isn't 10% + 10% + 10% (and so on), it's 10% + (10% * 90%)... or about 19%. You never get to 100%, obviously, because things like oil and aluminum and real estate and so on cost money too.

Of course. But even oil comes down to someone's wages or wealth in the supply chain.

[LouisVanDerWright]

Originally Posted by Jelly Roll

I have read all three of those books and I have a decent understanding of economics. Everything that you are saying is right but I have a problem with this comment "There is no free lunch here, which is why voters don't unanimously support an increase in the minimum wage. Every dollar that goes into a minimum wage worker's pocket is a dollar that comes out of everyone else's pocket." The whole point of raising the minimum wage is to redistribute the wealth to the poor. In the US economy wealth redistribution by government policy is already a major factor. The problem is that currently the system is rigged in favor of those who are already rich. To imply that it is not is disingenuous and while it is the corporation's job to try to make the most profit that it can it is the government’s job to protect the people. Currently government is failing at doing it's job. On the flip side if the government does not want to raise the minimum wage then it should dramatically raise corporate tax rates to pay for the services for those making under a living wage.

The problem you have here is that everything you said is completely false. The Federal Government was set up to redistribute wealth to the poor. That's why we have a progressive tax scale. The problem is that we keep making government bigger and bigger and adding regulation after tax after law after regulation to it and making it impossible for anyone but the most sophisticated Americans to create their own business and generate their own equity.

I'm not joking, we literally have laws banning people who have less than $1 million to invest from investing in most new businesses and startups. That's right, unless you are a millionaire, you may not participate in the founding of most new companies. We've literally banned the middle and lower classes from reaping the rewards of capitalism.

Now you may say "see! proof the government is on the side of the rich", but what you are ignoring is that all these bullshit tax loopholes, investment regulations, etc. are all a sign of TOO MUCH government. The "qualified investor laws" are there to "protect people from being duped into investments they don't understand", but there is nothing in the law that measures investor's understanding, only a clause that measures their net worth. If anything Mom and Pop Main Street America has been wiped out by the explosion of cumbersome government regulations that make it impossible to compete because Mom and Pop don't have the sophistication to navigate the massive rats nest of regulation that is the Federal Government.

Every time a new industry takes root with many entrepreneurs, the government regulatory machine immediately moves in to squash it. Just look at how the retarded FDA is now attempting to order microbreweries to stop selling their waste grains (the byproduct of FOOD GRADE production of beer) to farms as feed for livestock unless they run the waste through an extensive sterilization process first. Incredibly fucking stupid because the grains were just used to make drinks for human and are apparently somehow not yet clean enough to feed to cows. So you tell me why it has been so hard for the average man to generate equity (i.e. own and control capital) in America when we have a government that literally adds hundreds of pages of regulations and laws a week that are impossible to interpret unless you are a $100 billion company with 750 lawyers on retainer.

Raising corporate taxes won't do shit because the government has already grown so absurdly massive that there are a million holes the big corporations will sneak through and use to continue paying 5-10% a year in taxes even though we already have the highest corporate tax rate in the world. All that raising that corporate tax rate will do is further crush the smaller companies who do not have the resources to find hoops to jump through by forcing them to pay higher taxes while the big guys continue to hide their profits.

TLDR: The US government only favors the wealthy because the government itself is growing so cumbersome that it is impossible for anyone but huge corporations and really rich people to wade through the regulatory and tax code bullshit.

[10023]

Originally Posted by mhays

Of course. But even oil comes down to someone's wages or wealth in the supply chain.

Not really. It comes down to the price of a barrel of oil, which is only partly, extraction costs, and those are not even primarily labor.

[mhays]

Extraction is part labor and part supplies/fuel/remediation/etc. Every one of those things includes a lot of labor. The remaining components of those come down to labor, and other components which also contain labor.

This is a tough thing to visualize I know!

[10023]

I can "visualize" it fine. I'm telling you that value accrues to both labor and capital (which represents a number of things that are not labor). At most, the portion of the cost of an average product that comes from labor, at all stages of the supply chain, is equivalent to aggregate wages and salaries as a percentage of GDP (currently about 42%). For many goods it is of course less than that, for others more (eg, pay a maid to clean your house and that cost is basically all labor).

In no way is it anywhere near 100%.

[mhays]

Depends how deep you go. Notice I've also included wealth transfer. It all comes down to people trading money.

[dc_denizen]

Originally Posted by 10023

And in which industries do you think corporations are earning excess profits by charging prices "above market"?

I think that's true of fewer sectors that depend upon minimum wage labor than you think. Even McDonald's is not earning excess profits when it competes with at least a dozen other national QSR chains.

You're right that prices in many sectors are quite low: TV, computers, processed food, clothes, cars, gasoline. But real wages have not kept up with the price level despite low prices on some goods.

Really, the discussion should be not centered on minimum wage labor, but on the reduced incomes of the median worker that comes about as imports are substituted for domestic production, and as the share of lower-value-added work takes place in the US compared to in decades past.

Say IBM or Delphi decides to lay off their entire US workforce (not just assembly line workers but factory managers, designers, engineers, etc) and hire Indians, realizing profits that are captured in these companies' market caps (benefiting the portfolios of asset holders).

How to maintain labor's position in this event? Well, if the market were perfectly competitive, new entrants would come and compete away IBM and Delphi's profits, offering lower prices. Or if we barred this type of behavior by law through local content laws, the decline in the workforces' real wages could be arrested.

Unfortunately, markets are not competitive (see corporate profits, buybacks/dividends, and market caps as evidence), nor does government policy exist to favor local production. Changing the legal wage on sections of the economy not exposed to globalized competition seems like a second-best response.

I wish strict capitalists would just own up to their comfort with what is simply a globalization-catalyzed wealth transfer from labor to asset-owners. No need to dress up arguments against redistribution with claims about inflation or inefficiency.

[Shawn]

I have nothing to contribute to this thread beyond thanking mhays, 10023, DC, Xelebes and everyone else with more macro understanding than myself for some great reading. I think these days I get more out of these types of threads on SSP than 99% of what I read online.

[Chase Unperson]

Originally Posted by fflint

How would tax money 'raise the wages' of people employed by private businesses?


Not at all from hard work or intelligence? What a disingenuous way to introduce a straw man argument here. It's a deliberately flimsy and obviously false argument nobody has advanced.

The rest of your post is equally disingenuous and is equally divorced from reality. There are real critiques of our current economic stratification out there--no need to make up fake ones.

Money from taxes could be given to private businesses to raise wages.

Next, the children of the 1% and upper middle class always believe that they are JDs, MDs or successful Financiers and mbas because they worked hard and earned it. But that is not the truth at all. The system is rigged for those people to succeed and achieve those positions. It is their birthright. It is my birthright. I'm and md earning a solid 1%er salary. It has nothing to do with me being smart or working hard. All I had to decide to so is to pursue it. It was a lay-up not a desperate half court shot as I felt it was when I was going through it.

The fact that you are a JD and more affluent than almost every single person in Africa, central and South America and SE Asia, has nothing to with you thinking you worked harder and are smarter than those billions of people. It is because the whole economic system is rigged so that you are a global point one percenter and they are improvised just like as a microcosm the wealth in the us is distributed as it is. The only true meritocracy in the us is professional sports and maybe to an extent professional entertainers.

[Doug]

The biggest challenge with raising minimum wages is that it will increase unemployment. Whether the benefits conferred to minimum wage workers exceed the cost of higher unemployment is anyone's guess.