I mentioned shortly about people screaming for inflation becuse it lowerd real wages. A good example of that can be seen in this article by Kevin Drum of Mother Jones Magazine titled Why High Inflation is Good in a Recession.
The basic claim is that in a recession the biggest obstacle to recovery is the phenomena is sticky wages which is caused by employers who for some reason are not wanting to cut wages.
His entire plan to unstick wages- is to go print out a bunch of money to devalue wages as employers are refusing to do it.
My understanding of economics states that no matter how bad the ecconomy is- that the only reason that an employer would be reluctant to cut your pay is because there is still demand for the goods and services that the company is providing. Now Kevin Drum is arguing for a higher minimum wage.
If Kevin Drum or anyone else advocating inflation to solve the "problem of sticky wages" honestly believes the biggest problem facing the ecconomy is that wages are not adjusting then they should advocate repealing the minimum wage and if he has honest concerns about the standard of living for the poor then he should have advocated letting deflation run it's course.
The primary argument that people will bring up against repealing the minimum wage is the fear it doing so will hurt the poor by lowering real wages across the board. However if someone were to turn around and sight sticky wages as an argument for inflation which is common among Keynesian economists then they can not use this argument as they are expecting that inflation will decrease real wages across the board.
If there was no minimum wage- companies will try to cut pay the concept of sticky wages states that they will be reluctant to cut a good employees wages especially if they are making money. There is a chance that wages might fall with out prices falling- and there are two reasons that this might happen. The first is the ecconomy quickly starts to recover and people prefer to pay a few bucks over standing in line so companies hire more people for example starting pay might fall from $9 to $6 so a company might hire 3 people instead of two so it is now easier to get a job and at some point prices will settle with close to 0% unemployment.
On the other hand if you simply allow inflation to run it's course a Keynesian would argue that the higher real wages would lead to more unemployment as employers are reluctant to hire new people and would automate and off shore jobs that consumers would prefer to have done by a person in the US.
The problem with this argument is that they will make the claim that increasing the minimum wage will lead to higher real wages because employers for some miraculous don't automate or move jobs off shore or raise their prices to accommodate the higher costs.
Letting deflation happen may result in jobs getting moved off shore and automated but as prices are going down consumers will have more purchasing power which means they might have the money to hire people to do other jobs and you might have some jobs come open as people decide to retire.
In either of the two situations the way to reduce the possible bad side effects would be if it was easier to start and grow a business which takes us back to tax tort and regulatory reform. People who object to the idea of having a minimum wage- will inevitably support tax, tort, regulatory and monetary reform and ending subsidies as they expect it to reduce the cost of running a business which in turn will mean higher real wages due to a mixture of lower prices and unemployment depending on consumer preferences.
My next post will be the last on the subject
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