So...progressives never know when to quit when pushing the outside of the envelope. I could almost respect them, if they didn't make themselves look increasingly unrealistic and detached from reality in the process. A common talking point these days is that $15 is no longer the right amount for the minimum wage, now they want $20, or even $25. It never ends. Eventually, they'll get up to conservative strawman "what about $100 an hour?" I would respect the push for higher wages, but eventually, you are going to just get...tons of inflation. A lot of people worry about unemployment with min wage increases, but I see very little data when cross referencing minimum wage increases with the unemployment rate over time, suggesting little real world correlation. Most years where the min wage jumped seemed to have other stuff going on like recessions, where GDP contraction seems to be the biggest predictor in increased unemployment, not necessarily the minimum wage itself (evidenced by years of increasing the wage combined with a stagnation or reduction in unemployment). Instead, the big problem seems to be inflation, with many of the years associated with a minimum wage increase often having a blip of inflation happening. As I said before discussing UBI and inflation, I don't think some inflation is a bad thing. Simply giving people more money to spend is going to cause SOME inflation. The real key is how much is too much, and I would argue "too much" is what would lead to a wage price spiral with sustained inflationary jumps as workers pursue more money, which drives the costs of goods up, which causes workers to want more money, which drives costs up. Inflation happens even when the minimum wage isn't raised. And the small blips for a few months to a year that are associated with increases aren't the end of the world quite frankly. But there does come a time when increasing the minimum wage no longer leads to higher living standards, but simply more and more inflation with diminishing returns. A mild min wage increase might cause inflation to spike 3-4% for some time, but if you're talking a situation where you're seeing 5%+ constantly, yeah, that's too much. Right now is kind of potentially an example of this happening. Part of it is the supply lines being screwed, but the so called worker shortage might be driving inflation up too. it remains to be seen how much this is the case, as it involves decoupling the various factors working together in the economy driving inflation and seeing the impacts of each (some have argued the worker shortage isn't real and companies are being greedy).
Either way, let's look at a history of the minimum wage here and see if we can learn anything from the past. The minimum wage was implemented in 1938 by FDR. The original amount was only 25 cents, but it amounted to $4.45 in real dollars, so not a lot by today's standards. A little more than half the current wage. That year saw a spike of inflation, but also an economic contraction with actual deflation, suggesting that it had a recession that year. It was raised in 1940 and 1945, with no notable effects on inflation or unemployment. The economy started growing rapidly due to WWII with massive growth and accompanying inflation. THen when people came back in 1946 we saw a recession along with inflation as the economy switched from war time to peace time and tons of soldiers came back home and looked for work. Take note of how I say shocks to the economy cause the biggest changes. This was a monumental shock. You get off of this war time economy, with tons of people coming home, and yeah, it just shook everything up. In 1950 the minimum wage went up to $0.75, which was equivalent of $7.81 in 2020 dollars or slightly higher than our minimum wage. Unemployment went down, but there was massive GDP growth and inflation, although the Korean war could've played a part in this since it continued the next year. The minimum wage went up through the 1950s, with it going up to $8.48 in modern dollars in 1960. Unemployment stayed the same in 1956, with a small spike of inflation as the minimum wage was raised. In 1961, there was neither a spike of unemployment or inflation despite a minimum wage increase. It went up through the 1960s, reaching a peak value of $11.90 an hour in 1968. And it wasn't until that point that we saw significant inflation. Things stagnated throughout the 1970s due to stagflation, with a wage price spiral happening in part due to an oil shortage stagnating the economy. Keep in mind, it WAS NOT necessarily high wages or bargaining power that did this, it was the oil shocks of the time. But then as we entered the 1980s, the minimum wage declined back to around $7 an hour. The funny thing is we start seeing the minimum wage become decoupled from both unemployment and inflation at this rate, with both happening pretty well through Reagan's economic expansion, but everyone just accepted it as "morning in America" for some reason? You can argue small inflationary and unemployment spikes happened, but not a huge deal, and for the most part in the 90s and 2000s minimum wage became quite decoupled from unemployment and inflation, although it was much lower. I mean I doubt anyone is going to point to the minimum wage rising to $6.55 in 2008 or $7.25 in 2009 and blame the minimum wage for the great recession right? And then it's been stagnated ever since, not raising since 2009.
So what can we draw from this? Basically, the minimum wage being under $8 likely doesn't have a major effect on the economy, although I'd argue that it rising up to $12+ would likely start having more effects on the economy, particularly in terms of inflation. I know in the Obama years, obama wanted to raise it to $10.10 which was, at the time, the highest amount ever, compared to the $1968 peak at the time. This led to HRC proposing $12 in 2015, and Bernie supporting $15. And of course, $15 sounds good on paper, who doesn't want more money? But if $15 is almost 50% higher than the highest wage ever, isn't that...too high? How much inflation WOULD that cause? And is it worth it? Quite frankly, we don't know. I mean, $1.60 in 1968 is equal to $11.90 in 2020 dollars, or $12.93 today.
Then you have to take into consideration that a minimum wage increase would be implemented over 5 years or so. So a minimum wage passed now would be worth worth less by the time it's implemented. For reference, in 2016, Hillary's $12 proposal would be worth $10.29 today in 2016 dollars. Bernie's $15 proposal would be $12.85. So Hillary's $12 proposal ended up being quite conservative and would end up being worth less than Obama's proposal at the time. And Bernie's proposal would be worth as much as Hillary's. If we took the current $15 proposal and applied another 6 years of inflation to it at a similar rate, we would need a minimum wage of $17.57 to equal $15 today. And that was worth $12.90 back in 2016. So, I guess if you passed a $15 minimum wage now, it would be worth around $13 in 5 years. if you passed one around $17.50, it would be worth $15 in 5 years. So I guess $15 is a little conservative these days.
Still, it would arguably be in line with what the highest minimum wage ever implemented was at the time, adjusted for real dollars in the future. And something like $17-18 would be a little more "futureproof". Still, it seems like those who want $20-25? We've never tested anything like that before. And that isn't a reasonable wage in the near future at all. Then again these guys are progressives and their logic was they pushed for $15 like 10 years ago or more. Which was ridiculous. $15 was high in 2016, but just about right now. If implemented 5 years from now, it would be low, but somewhat acceptable. Really if you want to be ambitious, $17-18 is the right spot in my opinion. Any higher is just pushing into uncharted territory and could cause issues. And of course when those issues arose they'd do what they're doing now with high inflation saying "if you dont get at least a 7% raise you're getting a pay cut". Like, bruh, that's how you get wage price spirals going. If the economy can't support that high of a wage, inflation will accelerate. Its acceleration is the market attempting to correct itself. Trying to then raise wages more just causes more problems.
That said I support up to $15 for now. I support up to $18 for 5 years from now. I supported $12 back in 2016...for 2016. That's pushing the box, but not too much where we don't know what is going to happen. I'm trying to minimize a long term inflation risk here, since wage price spirals are the best way to kill left wing politics for the next generation. Please let's not repeat the 1970s, or we'll have another conservative counter revolution dooming us all, thanks.
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