History shows that boosting the minimum wage leads to consumer spending

[Yo_Mama_Been_Loggin]

As part of his massive $1.9 trillion emergency pandemic relief plan, President Biden called on Congress to raise the federal minimum wage to $15 an hour from the current $7.25. Democratic senators are waiting for a ruling from the Senate parliamentarian on whether such a provision can be in the relief bill and debating whether to raise the minimum wage to $15 or some lower amount.

The debate over a minimum-wage increase has been fierce. Supporters claim raising the minimum wage would benefit women and people of color — the very demographics hurt the most by the coronavirus pandemic.

Yet opponents argue it would increase unemployment because higher wages would force small businesses, already under economic duress because of the pandemic, to lay off employees.

This conversation, however, ignores just what increasing the minimum wage does to the larger economy. To understand the intent of the federal minimum wage, it is necessary to look at the original minimum wage legislation — the 1938 Fair Labor Standards Act (FLSA), an enduring part of President Franklin D. Roosevelt’s New Deal.

-more-

https://www.washingtonpost.com/outlook/2021/02/25/missing-piece-minimum-wage-debate/

[Metaphorical]

1. What's usually not mentioned

The people who work in small businesses generally are exempt from many of the requirements that companies with more than 50 people face, and usually tend to be specialists who band together - programmers, accountants, and so forth, who already earn well above the minimum wage. The companies that employ minimum wage workers most heavily: large restaurant and service chains (especially franchises), from restaurants to hair salons to clothing retailers. In those cases, raising the minimum wage usually comes at the cost of paying dividends, and so those companies' investors squawk loudly (and politically) whenever the prospect comes up.

I have also heard the argument that raising the minimum wage will cause inflation to rise. Again, what has historically been the case is that inflation rises when demand for goods or services is high but supply is constrained such as the case where we're in now, where the supply chains have been disrupted due to Covid. As Covid-19 eases, those inflationary pressures should go away. Inflation was high during the 1940s (during the War, when rationing reduced supply), from the late 1950s to the mid-1960s because the population was growing faster than the supply of goods or services could keep up, and from the late 1970s and early 1980s as the US went off the gold standard, precipitating the oil shock that brought OPEC into power and saw the creation of the Euro in response.

However, after about 1985, we entered into a disinflationary regime that's seen inflation generally sitting at about 2.5%, partially driven by (slowing) population growth and partially by the inherent fuzziness of credit-based systems. It's worth noting that most policy-makers until comparatively recently grew up during those eras, whereas most of the current vectors of growth, such as an aging population coupled with a very low birth rate historically along with digitalization, are outside the experiences of most economists.

Globalization tends to stabilize inflation if you're in-network, but amps up the possibility if you're not, and if Trump had not been booted out, I suspect that his isolationist rhetoric would have led to a major surge in inflation later this year or early next (and still might, due to time lag of events).

The problem, of course, that such an event will end up coming to fruition on Biden's watch, and the GQP will take advantage of that to play to their base. We'll be putting out Trump's fires for years, unfortunately.

[hedda_foil]

2. A few of us had the good fortune to be brought up with Keynesian economics from the start.

The push to privatize public services began in the mid 1950s, though it didn't get anywhere for a few decades. I remember a couple of classmates bringing it up when I was in 7th grade in 1957, so their parents must have been quite conservative. I argued that corporations had to show a profit and government didn't, so it would cost less if government continued to run those services in the public interest. It's still true today.

[Skittles]

3. people with more money spend more money?

WHO WOULDA THOUGHT?

[MissMillie]

4. Sort of...

people who already have all the money they can spend do not spend more money. They hoard it, or put in tax shelters, or invest in slave labor overseas...

or all of the above.

[MissMillie]

5. Thank you for this. I'm surprised I can see it

And I want to add that consumerism creates other problems, but I also think there is a way around that.