Thursday, January 30, 2014

The magic of minimum wage and inflation hocus pocus

Amazing. After 6 years of non-recovery recovery the answer on how to "save the economy" has been stumbled upon by a senior business journalist: raise the minimum wage. How did nobody think of that?!

Of course, I'm being sarcastic. Raising the minimum wage isn't going to save the economy at all - but wait, hear me out before you close this post -  however the article does provide an excellent example on everything that's wrong with modern economics, economists and financial journalists but even more so with the paradigm we all find ourselves in.

Michael C. Ruppert says that "a paradigm is what you think about something before you think about it" and I must ask that you all think about the paradigm you find yourselves in and maybe, just maybe, save yourselves from the "economy" as a result. We simply can not fix a broken system using the logic of that broken system especially when the system's ultimate goal is a mathematical impossibility.

This article I linked on saving the economy with the minimum wage is an awful patchwork of logic and views that at the end seem to rule each other out. The author both advocates for "the poor" and shits all over them at the same time. It's really amazing. I had to read it 3 times (including two pieces on "inflation" he links to within) before I could begin to untangle his web of circular logic of which I am going to share the results with you now.

However, before we begin, I'm just going to state explicitly my position on minimum wage now before you think that is what I'm objecting to, it's not. It is his claims that it will "save the economy" as he then goes on to describe how broken and fucked it really is (but with a very bad understanding of what it is exactly he is describing to you).

First, as always, you must watch Mike Maloney's videos on the history of money and how modern currency works or you're going to be really lost in what I'm talking about here. In all honesty so should the author of the article in question. It is the information in those videos which adds context to everything the author is talking about (as we'll get to). As you'll see he treats inflation and deflation as forces of nature with no explanation behind them. Actually, it's more like religious forces of nature; at one point he even calls deflation "evil". No joke.

Six paragraphs and we haven't even gotten into his content yet but I tell you I'm fired up and we have a lot of content to cover. I'm going to cover his main article, and also his two articles on inflation as he relies heavily on his belief system of inflation to justify his current article and it is this inflation belief system he's developed which seems to be the root cause of the bad analysis. In short, if you want to know why mainstream economists just can't seem to forecast anything accurately this article provides one of the best examples of the psychology behind it that I've ever seen.

Final thing. Just for the record I am not an economist. Modern economics is a lot closer to a religion then it is a science. I am a programmer that historically has analyzed patterns and so consider my analysis of economics a port of said religion to a strictly logical system of thought (you'll notice my more analytical posts often follow an if-then-else like format) through the process of which we weed out logical fallacies.

Let's go. We'll be addressing his 3 posts in the order he wrote them. This first one was written just after the dust had settled from the financial collapse of 2008 in November.

A plague of falling prices: deflation and how to stop it [2008]
Deflation psychology has arrived in Canada. I saw it in my own home and only realized it later.

I might not have realized it at all but for a U.S. Labor Department announcement that only a few months ago would have sounded like good news. No inflation. For a change, the price of a hypothetical basket of normal household goods, called the consumer price index (CPI), was not getting more and more expensive.
In normal times, prices rise nearly every month. And generally that's nothing to worry about, so long as prices don't rise too much. High inflation is admittedly painful for people on fixed incomes. And hyperinflation like Zimbabwe's destroys an economy. But for most people, low inflation — of two to five per cent, say —  doesn't hurt at all. That's because wages and prices tend to go up together. When prices go up about three per cent, your paycheque goes up about three per cent. Even investors are OK if they have the right investments. Stocks, property and Canada Pension Plan benefits also tend to rise with inflation.
Alright, these paragraphs are extremely important because they basically debunk everything he says following and in all of the other articles too. First of all notice that he doesn't explain why prices "rise every month" they just do apparently. It may seem a trivial detail but without keeping it in mind it's easy to lose touch with reality. Mike Maloney explains why in his video but I will summarize it here for completion's sake: prices rise every month because the currency system expands. There are supply and demand constraints too, but the price fluctuations he's referring to are inflationary pressures and those come from currency expansion.

However, it isn't so much that the value of the products themselves is rising from inflationary pressure it is that the value of the currency is decreasing. This is a very important distinction as many equate an increased price with an increase in value which is not usually the case at all. It is not just recently that our currency has been losing value, it has been losing value constantly since we went off a gold standard but since we compare it's price against the price of the USD which is itself constantly losing value we don't notice and in some cases even believe our currency got "stronger". In reality, even when it's price is "stronger" it's overall value is weaker.

Jesus, this single paragraph contains so many errors I could write a whole post just on that simplistic statement. Anyway, we now hit one of the major deficiencies of the Ponzi-conomy: fixed incomes. The author says they are "admittedly painful for people on fixed incomes". Well, here's my question for the author: If our system is designed to be healthy when prices are rising "every month" then why would we have designed "fixed incomes" in the first place? Should these not be "indexed incomes"? Why would a type of income be created that is destined to leave a person poorer and poorer over time purely through the "normal" operation of the system that governs it as a supposed support system?

I won't get into hyperinflation outside of saying it is an extension not of inflation but actually deflation. Hyper-inflationary episodes always derive from periods of deflation where the credit system collapses and new base currency needs to be added to cover debts.

Oh boy, now we've gotten to my favorite sentences in this entire paragraph: "But for most people, low inflation — of two to five per cent, say — doesn't hurt at all. That's because wages and prices tend to go up together. When prices go up about three per cent, your paycheque goes up about three per cent".

Now, that seems somewhat ironic to be saying when based on this same logic you write an article saying that "raising the minimum wage could save the economy", don't you think? I thought wages rise with inflation? If that was the case then shouldn't all of those minimum wage makers no longer be making minimum wage since it's been frozen for 4 years in Ontario and while we've had "low inflation" we haven't had "no inflation"? But his statement also implicitly says two other things: 1) That a raise is not really a raise, thus there is no social mobility purely due to time served but you instead must get a promotion that comes with a raise above the rate of inflation. 2) If you fail to get a raise that year you're making less money through no fault of your own. I don't think I really need to say anymore on his logic there especially at a time where "pay freezes", "cost cutting", "austerity", "temporary foreign workers", etc are standard topics of the day.

Now we get to his point on stocks, property, and the CPP. He's right, these things do go up with inflation. Yet his recent article is on how minimum wage increases can save the economy by pushing up inflation (we'll get to it). But wait! Stocks continue to hit almost new daily highs. Housing in Canada is extremely overvalued. Pensions are just a sub-Ponzi of the grand econo-Ponzi so we won't touch those. So I have to ask the author, if inflation is so low that minimum wage can push it up then why are stocks and housing so high?

His logic is not wrong on this one, housing and stocks are high because price inflation is actually very high as well. More on this later.
But when the U.S. government released its figures for October, everything changed. Not only did prices fail to rise in the month of October — prices actually fell one per cent.

Falling prices sound good. If you're in the market to buy something, and if you have money in your bank account, deflation is good for you. Gas is cheaper at the pumps. Finally you have the prospect that your money will go further.
Notice what he says there: "if you have money in your bank account" (also notice he says money, not currency, which should be a store of value). Shouldn't that be the majority of people in a healthy wealthy economy? Shouldn't the majority of people benefit from deflation? "If you're in the market to buy something" again describes something most people fall under. Pretty well everyone needs to buy something all the time that's why we like to call ourselves "consumers".
But the news struck terror into the hearts of economists and sent markets into another sharp decline.

The reason economists worry about deflation is, like many issues in economics, rooted in human psychology.

When prices are rising, the best time to buy something you need is now. If you buy it next year, it will be more expensive.

But if you are convinced that prices are falling, the psychology changes. In that case, delaying a purchase only makes it cheaper.

As Bank of Montreal economist Michael Gregory pointed out in an interview on Wednesday with the CBC's Fred Langan, deflationary psychology had already hit the U.S. market in a big way. Prices for houses, the biggest thing most people are likely to buy in a lifetime, are falling. If prices are falling, Gregory says, "I'm not going to buy it now."
Maybe "psychology" is what "economists" have been trained to think the fear is but it's not really the "why" of why deflation is such a bad thing. He basically chops up the why as "people will wait to buy items". But why is that bad?

Again, referring back to Mike Maloney's videos which demonstrate this so well (I knew how this system works before I saw those videos I just think there is no better presentation of what is ultimately very complex information) deflation has a very real physical effect, it is not purely "psychological". Being that all currency is debt and that there is always more debt in the system then there is currency to pay it if interest is included deflation represents the evaporation of the currency supply as whether prices are rising, or falling, the debts must be paid and every dollar of currency has interest attached to it.

That is why bankers and the owners of the system fear deflation. That is why it's a bad thing if you're waiting to buy a house because you are not going out to take a loan and add new currency to the system to pay off someone else's old debt and thus overall the volume of new loans goes down. Being that we use fractional reserve banking once the defaults get rolling it cascades throughout the system as all of your borrowed money is someone else's debt. When a corporation pays you for your work that too is borrowed currency, either by them or paid to them by someone else who borrowed it, and so on. Exactly the events that lead to the 2008 collapse and deflation in which the author is responding to.
And here comes the confession.

In Toronto, where I now live, there has been a shortage of people to do house renovations. Condos shooting up all over the city have had a lock on many of the best carpenters, plumbers and plasterers. Those few who were left were hard to get. Other homeowners, many of them using loans borrowed against their rising property values, had bid up the price of contractors.

In my household we've been saving up, with a plan to insulate and maybe put a second bathroom in our drafty concrete basement. But even before hearing the inflation news from the United States, we decided to put off calling a contractor.

This was our logic: as construction projects slowed, we reasoned, some of the heat would come out of the renovation market. Contractors might be more inclined to return our calls. They would be less inclined to laugh when we told them how small the job was. And maybe, in a buyer's market, prices would be lower.

As I listened to BMO's Gregory talk about how deflationary psychology had arrived in the United States, I realized it had arrived in Canada, too. It had arrived in my home.

One of the reasons deflation is considered so poisonous is that it's a case where one of the cornerstones of the market economy turns on its head. Capitalist theory tells us that individuals acting for their own benefit are supposed to make things collectively better. But in deflation, individuals and businesses working for their individual benefit make things worse.
Again, he states it without quantifying it. Why is saving and storing currency worse? Because credit collapses, which he alludes to in a second.
The other damaging thing about deflationary psychology is that it acts on people who are otherwise relatively untouched by a recession and who could thereby help to curb it. In a downturn, unemployed people and failing businesses will obviously have less money to contribute to the economy. But deflationary psychology affects people and businesses who do have money to spend; it makes them not want to spend it.

And even for those of us who understand the harmful effects of our collective actions, it is very difficult to go against our individual interests. That especially applies if you need to borrow money to make a purchase or investment.
Deflation hurts

Here's an example: the latest data show that Canadian house prices are falling. There is no expectation that Canadian housing values are going to crash like they did in the U.S. following the subprime disaster, but nonetheless, do you want to be the person who takes out a mortgage on a home that will be worth less in six months?

Mortgages in a falling market are an example of the danger of leverage during deflation. Leverage is the advantage you get by borrowing to buy an investment that's gaining in value. Initially during a home mortgage, you may only own 10 per cent of your house, but if the price rises by $50,000, you pocket all the benefit. But in a falling market, everything reverses. When the price falls $50,000, the whole loss comes out of your 10 per cent. And that may be all of it.
I wasn't aware houses shat out production, were you? When housing prices magically start rising that is clear indication of a bubble, usually caused by low interest rates. Your house isn't worth any more than the materials it's built out of plus the value of the land. He is basically saying that deflation is bad because bubbles pop and that will be bad for you if you buy at the top of a bubble. However, it is inflationary monetary policy which creates these bubbles. If you're going to pump the price of a house far above it's value then yea it's going to come back down. There is something fundamentally wrong with our system if $50,000 in value can simply evaporate without any meaningful changes in land value, etc. Of course the evaporating value wasn't there in the first place.
Perhaps the most damaging thing to an economy is that businesses start to think the same way. Why borrow to grow a business that will be worth less in the future? Unlike during inflationary times, the business will have to pay the interest on the loan and swallow the entire loss.
Uhh, that has nothing to do with psychology bud. That's just a function of simple economics. If I don't have the money, I don't have the money, whether I think or want to have it. But I do have the debt, regardless. This goes back to what I was talking about above which he failed to explain in his why. Credit deflation, currency is used to pay debt and no new currency is created to replace the obliterated currency.
Deflation may not have arrived yet, even in the U.S. And it may not be coming at all. Deflationary psychology isn't the same as full-fledged deflation. True and poisonous deflation is a general decline in prices over months or years, where every spending decision is best delayed.

Prices are always changing in a dynamic marketplace. It was not deflationary to put off buying a Beanie Baby on eBay during the height of the craze.

But if deflation does come, and prices do start creeping ever downward, I'd like to offer the government a solution. Unlike the U.S. government, which handed out stimulus cheques that have now been spent or used to pay down debt, Canada should not just hand out money. Instead, it should use a tactic from retail to get the people who have money spending it: the time-limited discount offer. Twenty per cent off, but spend it now, before it's too late.
So you got that folks? It is not deflationary to put off buying a beanie baby during the beanie baby bubble or "height of the craze" but apparently this logic does not extend to housing bubbles. Also: Canada should not just hand out money. Which clearly raising the minimum wage isn't, err, right?

Wow, fun right? Two more to go and then I will summarize my position.

Inflation's benefits, despite Sarah Palin [2010]
The centre ring event at this week's G20 circus in South Korea will be tag-team beating of U.S. central bank chairman Ben Bernanke. It has already started.

"With all due respect, U.S. policy is clueless," Germany's finance minister is widely quoted as saying, though some dispute the translation.

China's Xinhua News Agency, a voice for the Chinese government, spoke for many countries when it said Mr. Bernanke is "not able to carry out responsible currency policies."

Russia, that bastion of economic stability, has ordered that Moscow must be consulted before the U.S. central bank does it again.

And these are only the things people said in public.

What they are all talking about, of course, is last week's announcement that Mr. Bernanke's central bank, the U.S. Federal Reserve, will create and inject $600 billion into the U.S. currency pool, hoping it will push the economy up and the dollar down.
Of course this has had a direct effect on Canada and emerging markets where the U.S. exports it's inflation to and the results of which are just beginning to play out now.
As the world's top economists and financial thinkers weigh in, one of America's big thinkers has stepped into the ring too. Sarah Palin.

While Ben Bernanke is on the floor being kicked, Sarah Palin has piled on.

"We shouldn't be playing around with inflation," she said. I didn't actually hear her say it, I
read it in the Wall Street Journal. But in my mind's ear there is no G on "playing."
Inflation is good

I agree that Ben Bernanke may not know what he's got himself into. I agree that dumping half a trillion dollars into the world economy may cause more problems than it solves. I even agree with the new Brazilian president-elect who said previous competitive devaluations have led to war.

But when Sarah Palin starts dissing inflation, someone's got to stand up and speak for the other side. Because inflation is good.
For the record, I don't care what Sarah Palin says.  My views on this are not in line with hers.
Inflation is not absolutely good, of course, and certainly it has a bad reputation. I mean, you don't have to go back to prewar Germany, as Sarah Palin did, to see the damage it can do.

In the early 1980s, North American inflation was running above 13 per cent. If you were an elderly person living on a fixed income, that really hurt. A case of cat food that cost $100 in 1970 would cost you more than $300 in 1985, according to the Bank of Canada's
inflation calculator. But certainly, when compared with deflation, its evil twin, inflation is a wonderful thing. And it is especially good at a time like this.
Again, a reference to the pain those on fixed incomes feel.
What inflation does is lubricate an economy. And to explain that, I have to introduce a highly sophisticated piece of economic vocabulary. "Sticky."

Sticky, strangely, refers to prices that don't want to move. They stick.

Two very well-known examples are house prices and wages, both of which tend to be "sticky downward." Which, translated from sophisticated economic vocabulary to normal Canadian English, means "they don't like to go down, eh." (For a correct translation, non-Canadians should remove the "eh.")
Wages get stuck

No one ever wants to accept a cut in wages. But in a complex economy, wages must constantly adjust in comparison with other wages and in comparison with other prices. Without inflation, wages stick. With inflation, no one takes a cut. Some just get a little more than others.
Well when you consider that "with inflation" a "raise" isn't really "a raise" at all, is that not the same as "sticking"? Your wage isn't going up anyway, so if prices weren't going up either then who cares?
Same thing with house prices. Say you live in a Vancouver shack that you just bought for $600,000. When everyone begins to realize that the shack market is overpriced, you might think the price of your shack would fall gradually to $500,000. But without inflation, that's not what happens.
The reason is that, rather than sell out at the current market price, homeowners say, "I own a lovely $600,000 home. I'd rather not sell it at all than sell it for less than its value. And it is not a shack."

So without inflation, generally the first sign that house prices are falling is a decline in sales, because only people who really have to unload are willing to accept sharp declines in the perceived value of their houses.
But once again, inflation would come to the rescue. With an inflation rate of five per cent, it takes only four years for something that used to be worth $500,000 to become something priced at $607,000. Do the calculation yourself. That way the homeowner gets his price, and the market adjusts to the new reality.

If you are a homeowner or a wage earner, it may seem that inflation is just a way of tricking you to take a financial hit. And that may be true. But it also allows markets to adjust, rather than grinding to a halt.
Notice how he now uses the term perceived value? So what does he advocate? Inflation, of course! So that the homeowner perceives that they got their fair value when in reality all that happened was their purchasing power diminished. They're still selling the house for $500,000 but so they can feel good about their perceived profit the author advocates devaluing everyone's dollars. Great for "homeowners" not so good for "homebuyers" as we're seeing now with first-time homebuyer affordability at all time lows even as record low interest rates dilute their purchasing power further. Inflation sure does "lubricate" all right, right before the banks shove their dick in your ass.
Inflation's lubricating effect does not just hurt the little guy. Another big advantage of inflation is less loved by banks and rich folks. That's because people laden with debt — Canadians and Americans for example, not to mention the U.S. government — get to pay off their loans with inflated money. In effect, their loans shrink. It is especially nice if the interest rate they are paying is locked in for a long time, like many American home loans (but not lines of credit).
Ahh, right, you got that folks? The banks which literally create their loans out of thin air apparently don't like inflating that debt away for the people. Even though all of the currency which dilutes the value is created by them, and all of that currency has debt and interest attached as well. That's believable eh?
The final advantage of inflation is that it gets capital moving. Right now we know that companies are sitting on mounds of cash. When inflation is happening, the best thing a company can do is get rid of that cash and spend it on something. In other words, rather than holding the cash because you know it will become worth more (as happens in evil deflation), your best course of action is to invest it before it inflates away, because every minute you hold cash it is worth less when inflation exerts itself.
Yes, you work hard so that you can have your currency that you earn "inflate away" if you don't spend it. That's a "good thing".  Not for you of course, but rather the economic Gods fighting off that evil menace "deflation". It helps them out incredibly.
That's not to say inflation is a cure-all. As the Germans found out, and as Canadians discovered during the 1980s, inflation can get worse and worse if you let it. At some point, it has to be stopped with higher interest rates.

But for people who are retired or saving for retirement, higher interest rates aren't all that bad. In fact, in many ways, they're good.

But I don't have to defend higher interest rates from Sarah Palin. At least not yet.
Fuck, do I even need to comment on his closing statement?

Alright, now on to our feature presentation, the very reason I'm writing this post. His post on minimum wage.

Raising minimum wage could rescue the economy: Don Pittis [2014]
U.S. President Barack Obama, Ontario Premier Kathleen Wynne and Bank of Canada Governor Stephen Poloz are all on the same page. They just don't know it yet.

This week, Obama and Wynne talked about raising the minimum wage, with Ontario announcing on Thursday that the rate
would rise to $11 an hour starting June 1. Last week, Poloz warned about disinflation.
I've covered the "disinflation" here.
It's a marriage made in economics heaven. Let me explain.
Left-of-centre politicians want to raise the wages of the very poorest. From a humanitarian point of view, it seems an easy choice. Just listen to some of the recent interviews on CBC’s The Current with people trying to raise kids while making minimum wage. Half of minimum wage earners in Ontario work for large corporations. The idea of corporate executives, members of the One Per Cent, getting richer and richer while their workers can't feed their kids properly is not an appealing thought to many Canadians.
The difficulty for politicians who, for moral or electoral reasons, would like to raise the minimum wage is that they face stiff headwinds.
Again, if wages and inflation rise together why would there be any headwinds at all? In fact, why would there even be an argument over it, should it not just inherently occur?
A loud voice of opposition

We should note here that a huge majority of businesses pay most of their employees more than the minimum, and there are good reasons for doing it. According to a
recent Statistics Canada report, "in 2009, some 817,000 people were working at or below the provincial minimum wage. This represents 5.8% of all employees in Canada, a slight increase compared with the 5.2% recorded the previous year."
And I would just like to add that minimum wage even in Ontario where minimum wage has just been risen, is below the poverty line. Just because a business pays more than minimum wage doesn't mean they are paying enough and keeping up with rates of inflation. More importantly as we've been covering on here recently inflation is not evenly distributed. The poorer you are in our lopsided easy currency Ponzi-conomy the more inflation you have. Energy, housing, food, but sure if you can balance that out with buying a new TV or boat you're going to see some savings in other sectors. But for those below the poverty line inflation is already running high.
But those businesses that don't want to pay higher wages to their minimum wage employees represent a loud voice of opposition.

They are supported by a very traditional market argument that says raising minimum wage results in fewer jobs and is thus bad for the wider economy. Of course, the extension of this argument is that no minimum wage at all would be even better for the economy. If you think that, it is time for you to emigrate. There are many countries with no minimum wage.

The trouble (if you think it is trouble) is that in rich countries such as Canada, we have a minimum standard that we declare socially acceptable. And this throws a monkey wrench into the economic argument. It reminds me of something I noticed while living in England back in the 1990s.

Railway workers had just negotiated a salary rise, and it happened to be just as my wife and I were looking for a cheap apartment to rent. The new railway salary was exactly the same as the lowest possible market rent. So how, I asked, could railway workers live on that salary? I quickly learned that it was quite normal for low wage workers in Britain to live in government subsidized housing.
This again destroys his primary argument for why inflation is good and doesn't hurt as supposedly wages rise with inflation. In an economy where inflation is "healthy" a minimum wage that is indexed to rises in the cost of living is completely necessary. To say one isn't necessary or having one results in fewer jobs is indirect admittance that the very core economic design is broken. Rising wages are rising wages, regardless if mandated or not and if wages are not rising then people are working more and more for less and less on an ongoing basis (gee, sort of what it feels like right?).

However, a rising minimum wage as a requirement is really just a patch for a system that at it's core is broken, and impossible. It's an attempt to address the problem, without fixing the problem. It's understandable that businesses want to resist paying employees more which is another indicator that it is the system that is broken and is not operating "normally". If your currency is devaluing, so is your employers'. Everyone, people and companies, are producing more and making less as inflation eats away unseen at the wealth being generated.
Subsidizing employers?

It struck me then, as it strikes me now, that in a society that sets a minimum standard for what people need to live in terms of health care, housing, social support and other things provided by taxpayer funded services, allowing employers to pay less than that standard is in effect a taxpayer subsidy to the employers. In this scenario, those hiring low wage workers are not paying the full cost of doing business, and neither are their customers.

By this way of thinking, the kind of jobs that Canada needs, to build the kind of economy Canadians want, are not minimum wage jobs. The jobs we need are those that pay a wage sufficient to live an acceptable Canadian lifestyle. And that is what most Canadian employers do.

But these kinds of arguments do not mollify those who oppose a rise in the minimum wage. Perhaps they need a colder, more economic argument.

And here is where Stephen Poloz comes riding to the rescue with his latest warning about disinflation. Poloz's job as Bank of Canada governor is to keep Canadian inflation at two per cent.

The importance of keeping inflation high enough is a traditional economic argument at least as old and as strong as that against raising minimum wage. I have explained
the argument here and here, so I won’t repeat it.
And as I've demonstrated above his "old and strong" argument is really a bunch of hocus pocus resting on a weak foundation. The author hasn't the faintest clue why it's important for the system to keep inflation high, he just thinks he does.
The important point is that disinflation can lead to deflation, which causes economies to seize up and begin to shrink.
Not economies! The banking and credit system as what is happening in emerging markets right now as their massive 'empty cities worth' of Fed funded economic bubbles begin to pop. People will still trade regardless with gold, silver, and now possibly bitcoin. People who see what's truly happening have plenty of opportunity to protect themselves from the seizing up of a banking system and why does it seize up? Because it is fundamentally a Ponzi-scheme that needs new loans at the bottom to feed interest to the top.
A great opportunity

The conventional way to drive off disinflation and boost inflation is to cut interest rates. But the central bank and the government are both wary of that, for fear it spurs a new round of borrowing in a population that has already borrowed too much and pushes up house prices to unsustainable levels.
They are not "wary" of it, it's exactly what they are doing, it just hasn't worked. And for fucks sake, housing prices are unsustainable.
And here is the great opportunity. By gradually raising minimum wage, some small fraction of the six per cent of minimum wage jobs may or may not disappear. But the payoff will be huge, as the whole economy will be saved from disinflation. Poor people spend their money; they don't use it to bid up assets. But they can bid up prices, starting the slow cycle that leads to increased inflation.
Again, the author appears to be unaware at how disproportionate inflation is right now and that the poor people (which includes all of those at or below the poverty line not just those on minimum wage) are already spending all of their money. A $0.75 raise isn't going to all of a sudden give them all that discretionary spending needed to purchase items. However, raising the minimum wage will definitely help pick up inflation, but for a different reason. Where does currency come from? It's loaned into existence! So if we're going to start paying people more, we're going to have to start borrowing more and thus diluting the value of the currency even more. At the end of the day like the person who perceives their house is now worth $605,000 are you really making more at all? No, you're not.
Not only that, but employers that are forced to pay higher wages will also raise their prices slightly to cover the added costs. If customers won't pay a few cents more for their burgers and dollar-store items, then that is an economic signal Canada, as a country with minimum social standards, cannot afford those products and services.
He's right, it is an indicator we're living beyond our means. We are borrowing from the future to pay for the present and the needed growth to service that debt is not materializing. Any additional currency will simply dilute your purchasing power.
Up till now, governments and central banks have cut interest rates and printed money. They admitted that pumping money into the economy had the effect of bidding up the stocks and property owned by the rich, making the rich richer. When some objected, they said sacrifices had to be made; it was the only way to save the economy.
Remember what he said about inflation 'being good'? Stocks and property?
Now, we must save the economy from disinflation and evil deflation. While some may object to the poor becoming richer, sacrifices must be made. So far, the rich have taken all the flak for benefiting from the government's economic rescue strategy. Now it is the turn of the poor to get a little richer to benefit us all.
The poor won't be becoming richer at all, the rich will be becoming richer because they are at the source of inflation. It is those at the source of inflation and currency creation that benefit from the old value of the currency before the new currency is circulated.

Alright I will now reiterate my position on this, after all that I don't have much more to say.
If we're going to continue pretending there is actually a solution to this in our Ponzi-conomy then perhaps the best thing to do would be to index minimum wage to the average of the incomes of the creators and benefactors of inflation, the banker CEOs. I'm betting that would end their "low inflation" woes in a jiffy.
Of course I'm being sarcastic, my solution like any raise to minimum wage is an attempt to patch a fundamentally broken system from within the logic of a broken system. It's fucking broken, folks. It benefits the few at the expense of the many. It operates on a set of fantasy rules that are simply changed when reality becomes inconvenient and ultimately complicates a very simple and unsustainable concept: infinite exponential growth.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for CenturyLink

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

1 comment:

  1. It’s totally ludicrous that raising minimum wage will save economy. Conversely, it will continue to destroy the economy. My wage is really minimal and the only solution that I’ve found is to take payday loans Canada. The government doesn’t think about people. It’s our problem how to earn money and how to live with minimum wage. Hope that once our government will change something.