How is something so arbitrary as the minimum wage derived? Did you ever think about that? What is the minimum wage? Do you know? Well, it’s zero. Any moron ought to know that. But not so for the politician. For him, it’s an arbitrary number drawn from an entirely different science than economics; which is political science. I also know that the daily exchange of resources, which is the economy, will respond to that number in an entirely different and un-arbitrary way than the politician envisions.
But it does raise a question that deserves an answer. If politicians can arbitrary legislate what ever income they think one ought to have, why is it so low? As the mantra goes, “who can survive on minimum wage?”. So who is the real devil here? Is it the politician who legislates sub-poverty wages, or the greedy business owner who is forced to pay them?
The answer to the question depends on the perspective. Politicians survive off votes, businesses off profits. Therefore, politicians are motivated by votes, and business owners profits. If politicians, who have their own image problem, hadn’t made “profits” such a dirty word, this whole thing really wouldn’t be that difficult to understand. Still, while neither of these motivations have the worker’s best interest at heart, only one of them “profits” by fooling the moron worker into thinking that he is actually the main concern. Care you guess which one does that: the politician or the business owner?
So the bottom line is this: if high wages actually can be simply legislated, then being a man of compassion, I vote that the minimum wage be raised 1000%, and let’s be done with this poverty thing once and for all.
The laws of economics are much like the laws of gravity. If you drop a space shuttle, gravity will have the same effect on it as it does a pebble. With that in mind many times I attempt to simplify economics by thinking of it in smaller terms. So you guessed it, I reduce things down to an island with only a few inhabitants.
On this island let’s say that there is no currency, only bartering. Let’s also say that you are a maker of furniture. Now, desiring fruit, you go to the farmer and begin negotiating the purchase of some apples. So it must be determined how many apples, say, one chair, is worth. A factor that will arise quickly in this negotiation is the farmer’s lack of need of furniture. This would reduce the “demand” the farmer has for your chair and as such will reduce the number of apples he may be willing to exchange. But, he may need a new plow. So perhaps you could go to the blacksmith and trade your chair for a plow and ultimately get more apples for your chair.
It’s easy to see that the absence of a currency is awkward. Furthermore, all the extra time spent trading takes time away from the thing that you do best: build furniture. This results in less furniture for the island to enjoy. Now while that may be a good thing for you on the short term—less furniture means higher prices for furniture—the islanders as a whole have to live with less furniture and so have a lower standard of living.
There’s another factor that will also change the dynamics of your situation considerably. That factor is competition. This comes into play if you’re not the only person on the island that makes furniture. But for now I must honor my post limits. (300ish words)
Money is a mind game. You get these little pieces of paper and other people give you neat stuff in exchange for it. But it’s not about the paper but the resources that it represents, and we’d all do well to remember that. Here’s one example, a person could buy a comfortable house in 1960 for $10,000. You can’t do that today. So what happened? Did houses (a) get more valuable? Even though modern construction techniques and innovations have made them much easier to build? Or, (b) did the money loose its value?
If you answered “b” you are correct! So how does this happen? There are many factors that govern the amount of dollar bills you must fork over to get neat stuff… like houses, but in this case the major culprit is a printing press. Let me explain:
Key to understanding economics is the word “scarce”. (see header for economics defined) No one is going to trade you anything for air because air is not scarce, much to Algore’s chagrin. If we colonize the moon then that would be a great place to set up an air store. On the same token, the more money that’s printed the less scarce it becomes, and so the less value it maintains. The real winners in this scheme are the printers. These guys get to spend the dollar bills before the poor slubs that are taking it in exchange for their stuff have had a chance to figure out that it’s not worth as much anymore.
Now keep in mind that there’s more than one way to increase the supply of dollar bills, and it’s not always wrong to increase them. But since I promised myself to keep these posts to less than 250 words thereabouts, I’ll have to talk about that later.