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The True Minimum Wage Is $0 Per Hour

Submitted by Jeffrey Snider via Alhambra Investment Partners,

The minimum wage is not what is commonly referred, as is being proven again as parts of the US experiment directly with this boundary. In New York, fast food workers have been given a $15 per hour minimum wage which is being celebrated by the same fast food workers who will bear the brunt of the experimentation. Some of them will be happy with the results, but there will be clear losers – the full wrath of redistribution is usually unseen which is why it persists.

Twitter had been having fun on the other side of the country with a similar minimum wage diktat, as the University of California system mandates also a $15 per hour rate. Professors, who overwhelmingly lean in a favorable direction, are being shown this mathematical reductionism up close. One physics professor who in one tweet reiterated his support took the next to realize the logic of it.

 

Napolitano raises University of California minimum hourly wage to $15. It's a good thing but I cannot pay $15 to my undergrad researchers!

— Asantha Cooray (@acooray)

I now pay six undergrads/year starting at $9-$10/hour with raises maxing out around $13 as seniors. At $15 it'll be 3-4 students.

— Asantha Cooray (@acooray)

 

He currently pays $9-$10 per hour for six undergrad assistants now, but in order to conform to the new “minimum wage” command he will only be able to afford four, maybe three. In other words, the true minimum wage is $0 per hour.

To think it is any different for a fastfood restaurant is naïve. Business owners paying their workers more by arbitrary government setting will not bring in offsetting revenue (a very close microcosm of all that belies “aggregate demand”). The cost of the law will be felt by fewer hours being worked, leading to rationing of the business operations (checkouts and those cooking in the back, meaning longer wait times and worse service) and, where possible, rising prices. None of this is surprising or especially insightful.

And yet in 2015, six years into recovery, there is still a huge and heavy undercurrent of discontent that breaks out into this kind of nonsensical “solution.” There has been a resurgent trend toward Marxism already (dating back to Occupy Wall Street that survived in sentiment beyond that pitiful outbreak) that flares up here and there with the next great Marx replica (Picketty being the last, global vestige). In a real recovery, none of this counterproductive meandering would stand a chance. If the labor market were growing as it should, in sharp contrast to how it has been presented over the past year, minimum wage laws would be the furthest from the mainstream.

The same goes with the sudden outbreak of robot envy/fear. In the case of fastfood workers, they may find themselves actually staring into that reality as beyond the short-term automated technology may be more cost-effective, and productive, than unskilled at $15. But by and large, in the overall economy, this raging tinge of disgruntlement about technology and jobs is of the same deficient impulse. In a truly functioning economy robots are quite welcome. Instead, what we have now, and have had for a decade and a half or more, gives way to this:

The bleakest news involves manufacturing and service jobs. He reports that Foxconn, the primary maker of Apple products, plans to deploy up to 1 million robots in its factories. A chief Nike executive, meanwhile, thinks the solution to rising wages in Indonesia is “engineering the labor out of the product.” This would not only be more affordable, it might also silence criticism about horrendous working conditions in international factories that make beloved American products. Self-checkout aisles at the grocery store, Redbox movie rental kiosks, and touchscreen ordering at restaurants are all examples of the same trend.

 

For those who claim that these changes simply move jobs from one sector of the economy to another, Ford points to statistics. Blockbuster once employed roughly 60,000 employees nationally. Redbox, in the entire Chicago area, has a staff of seven. A comparison between Google and General Motors is another instructive example. After adjusting for inflation, General Motors earned a profit of around $11 billion in 1979, when it employed 840,000 workers. Google, in 2012, earned almost $14 billion and employed fewer than 38,000 people. He offers many other examples suggesting that not every job lost in one area is gained in another.

The relevant comparison is not GM to Google but rather GM to first Japan and then China, with all of Google, Silicon Valley and the like added to Wall Street and its legions of mathematicians, accountants, lawyers and offshoot day traders and house flippers (along with the burger flippers, bartenders and hospitality workers “serving” asset inflation) to pick up the “slack.” Monetary redistribution is entirely the problem, not shipping off low wage jobs overseas (and getting lower price products in return) and having the government artificially price the entirety of the bottom rungs.

Innovation is the spur to all of it, so long as it doesn’t become entangled in exactly these kinds of socialist misdirections. In other words, the fear of robots is somewhat justified right now but only because innovation has run aground in the decades since financialism re-charted the overall economic course. The last time machines were “taking jobs” in such huge numbers it worked out very well not just for Americans but the rest of the world. There was once background fear of tractors as farming industrialized and reconstituted the entire workforce.

In 1820, out of the estimated 2.88 million American workers, 2.07 million (72%) were farm workers. By 1880, non-farm workers outnumbered those in agriculture; in 1910, the number of farm workers in the US peaked in absolute numbers, amounting to then just less than a third of all labor; today, very few are employed in agriculture. Innovation through industrialization absorbed labor into new and once “impossible” endeavors, industry and products that were prior scarcely believed realistic and certainly beyond the reach of all but the richest. True economic growth, labor specialization as its core, should be welcomed even though it is highly messy and dynamic. The general upheaval is, over time, unquestionably received in higher living standards for everyone.

The fear today should not be ATM’s removing tellers from bank branches, just as there are no more elevator operators working in moving cages amongst the nation’s taller buildings. The anxiety now is instead really about the serious lack of innovation that suddenly appeared right around the time hard money, and thus financial restraint, was banished so that various control elements could endeavor upon their utopian ideals of redistribution.

In other words, across now more than a century of monetary recalculations, the object remains the same – to become what Marx called that “third party”, to be the wielder of a mathematical code that will break the conventions of the past and lead to a more or even most perfect economic existence. The problem, universally, is that value is not just some convention to be deciphered, it is essential and immutable. Monetarists have believed that money was that object, pliable and a perfect substitute across ages, but money is just the expression of a much deeper ethos, a physical stand-in for the dimension of value. Political socialism is to transform individuals into a cohesive singular entity; monetary socialism is to do the same, centered always on redefining value. We live today not with free market capitalism, or even a functioning eurodollar standard anymore, but what looks very much like the inevitable end of the third age of socialist monetary experimentation. Value, beaten, battered and bastardized, so far survives.

Each of these ages of socialist economic direction has pressed further and further into the economic foundation. Where once an entire system of economy was redistributed by market forces into global modernism, we now live in communal fear of every form of job being “taken” toward even the slightest difference (what would have been slight hyperbole just a few years ago isn’t so much now). Perhaps the greatest rebuttal of these socialist ages is that now workers cling to mostly stasis of every kind (fastfood jobs are now as careers?), as job and labor opportunities are almost ancient concepts applied only to past remembrances of what it all used to be like (especially among the millennials; how must the economy look to all those stuck in school, endeavoring as college-educated baristas and living at home with mom and dad until after 30). There is no economic confidence because there has been no reason for it; the more that this is planned out by these kinds of intrusions into economic inner-workings the farther away from the utopian agenda (but not the totalitarian offshoot) we “progress.”

The economy has shrunk and with it the means to be hopeful about what should be natural – opportunity. Robots are not the problem, per se, and the minimum wage will always be zero; it is this “secular stagnation” of serial asset bubbles that have robbed the economy of its organic and natural vitality and spreadable vigor. Fix the obvious incongruity, monetarism most especially, of redistribution by government directive and economic growth will engulf and subsume what is really unnatural economic angst expressed in all these various and quickening counterproductive “solutions.”

Some disquiet about the uneven progress of market beneficence has always been present, but what is unique about especially the past six to eight years is its pervasiveness and persistence. In other words, there will always be some that fear dynamism because, again, the widespread benefits aren’t readily apparent right away; but when so many are convinced in the opposite something is very, very wrong. The first step is to stop making the economy shrink and let opportunity, real opportunity not linked to asset market gambling and the fake recovery efforts, again take hold.