Pin the tail on the jackass

By on November 20, 2003

Nine jackasses and only one tail, I have to admit that it is a tough choice. So maybe this term is a bit harsh, but I at least have Ted Kennedy to point my finger and switch the blame on if you choose to care.

Today I just really wanted to get into Dick Gephardt’s glowing economic plan for this new millennium.

Two key phrases that everybody loves to hear: one, raising taxes and two, higher minimum wage. While the tax cuts have more than proved their effectiveness, this whole minimum wage deal makes my stomach turn. So how much did he say he wants to raise it? He thinks an appropriate minimum wage is about 9 bucks an hour from the 6 and change it is now.

When the liberals are done talking about this garbage and getting their cheers from the idiotic portion of the public, they are going to have to deal with the economic messes that it causes. An increase in minimum wage is basically just an increase in the money demand of our country. So what does this increase in money demand do? It raises interest rates and leads to a real appreciation of the dollar in the short run. So yes in the short run these low income earners will feel a little relief, but you have to look at the costs associated with this relief.

Once employers have to pay this higher wage their profitability weakens and they look to cut costs, now can you guess how they cut costs? Now these companies also have to deal with higher interest rates. So the expansion plans that they once had with the current low financing rates, now become too expensive and they decide just not to do it, and not to hire any more people that would have worked in this expansion. Better yet they decide to get out of the US for their business production needs. This is directly linked with an appreciation of the dollar. Basically what this means is that foreign goods now become relatively cheaper until the invisible hand puts these prices back into place, and even then you are left with the same problem that you had before.

Now some quick thinkers will argue that the percentage of the expense increase will only fall on that of the low income workers and low income labor products, thus opening up the argument that the humanitarian efforts can be worth the cost. So costs of producing widgets that have wages of $20 an hour won’t be affected. This is wrong and an increase of 2.5-3 bucks will have a huge effect on the prices of products in a very wide labor unit range. This is going to happen by an exponential decay function that determines exactly how high the wage level of these affected products can get.

Basically this is saying that the person who is currently making $9 an hour is going to ask for a wage increase, or work at a less stressful job that is now available for $9 an hour. So now this guy negotiates with his boss for say $11.50, then the guy that is making $11.50 is saying he wants a raise or move to the less stressful job, so he gets a raise too. Because all of these raises will not be exactly the original $3 raise and will probably decrease as income increases, is the reason for the exponential decay factor.

You can only imagine the additional costs to all of the products with a labor unit cost that would be affected by this. Now many of you are probably wondering about Clinton’s wage raises, and if they are so bad why would we ever do these? At some points we have to raise the minimum wage to keep it up with inflation.

When this is done, it has to be done in smaller increments that will effect a small amount of people and prices (minimizing the decay factor).

Raising the minimum wage builds up some of the lower class at the expense of the other half of the lower class and the degree to which depends on the policy.

This is a great anti-cyclical policy to protect your economy from over inflating, but it is better not to do in this still recovering economy, and never to the tune of a circa 40 percent increase.


About Matt Laconte