sky high inflation coming?

[wheaties]

http://www.elitetrader.com/vb/showthread.php?t=284557&page=7

>>WAGES ARE NOT INCREASING WITH INFLATION.

Yes they are. It is a core, systemic rise and we are in the early to mid stages of it. It is coming and it will hit like a tidal wave. Low wage workers have been organizing for years under the banner of "Equality". These organizations transcend industry and political groups. They are strongly embedded in local governments and schools. They are the de facto law and have been for years (decades). If you want to know who is running the country read up on the events in Murietta. The recent march on McDonalds was a practice run. Read up on it.
The wage increases that are looming are unlike any other in that they have no financial or economic reasoning behind them. It is a money and power grab and nothing more. Like the kid who gets his hand stuck in the cookie jar, this money grab will have dire consequences, at least in the short term. It will send industries like hospitality and food service into a tailspin. However eventually prices will rise and we will be back to square one just as we have many, many, many times before. Expect to continue to see the escalation in wealth outflows to other countries as taxpayers seek value for their tax dollar (even if the absolute rate is higher, taxpayers will seek value).
I have personally witnessed workers being transported by bus to surround and shut down businesses who do not comply.

 

[piezoe]

http://www.elitetrader.com/vb/showthread.php?t=284557&page=7

>>WAGES ARE NOT INCREASING WITH INFLATION.

Yes they are. It is a core, systemic rise and we are in the early to mid stages of it. It is coming and it will hit like a tidal wave. Low wage workers have been organizing for years under the banner of "Equality". These organizations transcend industry and political groups. They are strongly embedded in local governments and schools. They are the de facto law and have been for years (decades). If you want to know who is running the country read up on the events in Murietta. The recent march on McDonalds was a practice run. Read up on it.
The wage increases that are looming are unlike any other in that they have no financial or economic reasoning behind them. It is a money and power grab and nothing more. Like the kid who gets his hand stuck in the cookie jar, this money grab will have dire consequences, at least in the short term. It will send industries like hospitality and food service into a tailspin. However eventually prices will rise and we will be back to square one just as we have many, many, many times before. Expect to continue to see the escalation in wealth outflows to other countries as taxpayers seek value for their tax dollar (even if the absolute rate is higher, taxpayers will seek value).
I have personally witnessed workers being transported by bus to surround and shut down businesses who do not comply.

Wheaties I don't think your analysis is correct, for the most part at least. Why might I ask is the current situation that much different then all the other times the minimum wage has been raised? There were no dire consequences then.

Furthermore much of the country already has wages well above the federal minimum. In these areas the effect would be almost nil. It seems you have exaggerated.

 

[wheaties]

>>Why might I ask is the current situation that much different then all the other times the minimum wage has been raised?
We are seeing a reallocation of wealth.
It used to be: 1.) Grow the economy and 2.) Create jobs for low wage earners.
Now its: 1.)Tax the rich via a minimum wage increase (i.e. anyone above the poverty line) and 2.) Give to low wage earners.
Look in this very thread and you will see good arguments that deflation is more likely than inflation in the near term. So why are we seeing ANY talk of wage increases? Because its a reallocation of wealth. People who depend on the government for their income are a majority (Edit: this is technically not correct. The number of people who depend on the government is growing and they are better organized than ever before. http://online.wsj.com/news/articles/SB10001424052970204653604577250310581495218).
Are they going to vote to reduce their benefits? No way. They are going to vote for "the rich to pay their fair share". Of course, we all know that income equality cannot be legislated. And here is what is going to happen. When a burger goes to $15 bucks I'm going to ask for a raise and if I dont get one I'm going to move to a place when I can enjoy the standard of living I'm used to (most likely out of the country - have no idea where).
>>Furthermore much of the country already has wages well above the federal minimum.
Over the mid and long term every job is a multiple of the minimum wage. i.e. the dishwasher makes minimum and the cook makes minimum + 25 cents. So when the dishwasher gets a raise so does the cook. And the restaurant owner raises the price of a burger to $15 so he can pay the rent. And Wheaties gets a raise or moves to some corner of the earth where he can afford a burger...

http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx
http://www.dol.gov/whd/minwage/chart.htm


Edit #2: I'm not an economist but this guy might be and he describes what I'm talking about - "Stagflation":
http://www.moneynews.com/Advani/Stagflation-deflation-growth-US/2014/06/18/id/577724/

 

[piezoe]

Thanks. Though I don't agree with you, you made your thinking on these issues very clear.

In the mid 1960's during a time of relative prosperity the minimum wage in constant dollars was about $10.50 per hour. I'm having trouble seeing how holding the minimum to $7.25 today helps anyone. My thinking is that we would all benefit from a more robust economy spurred by a more realistic wage. That would allow us high wage earners to decrease our subsidies of the big low wage payers via foodstamps and other welfare. But most importantly, from my point of view, it is never good for an economy to have wages of anyone below the true cost of labor, because that means that someone other than the employer, will have to subsidize the wage to bring it to the true cost. For the teen worker this might be the parents, not such a bad thing perhaps, but for the adult worker it is we tax payers. And that's a bad thing, as far as I'm concerned. (I'm a capitalist, for which I make no apology, but a rather poor one, I'm afraid, because I think competition is a good thing.)

You mentioned concern that deflation is more likely than inflation in the near term. There I have no choice but to emphatically disagree. The Fed's target is two percent. It is set there because they recognize the imperfections in their methods and don't want to risk deflation that might occur were they to set a lower target, say one percent, instead. I'm confident that the Fed target is sufficiently high to keep us from deflation for the foreseeable future. They have more than enough tools at their disposal to prevent deflation. Now inflation, or stagflation, that's something we might reasonably be concerned about.

 

[wheaties]

Your point about the true cost of labor is a valid one. However the other side of that argument relates to the true value of labor. In our economy we have a disproportionate number of low wage workers. From a simple supply/demand standpoint, the supply is bringing down the cost and the minimum wage is just a safety net. If we raise the minimum wage we will need to subsidize the employer or they will continue to leave the country as many have done.

To be clear my argument as a whole is not about the minimum wage. Here in Los Angeles you cannot make a living as a plumber or an electrician or a construction worker or a tile setter, roofer, brick layer, etc. All agricultural jobs are below minimum wage and have been for decades (remember the jobs that "Americans wont do").

The low wage labor force is now a majority. They are organized politically and culturally and they are going vote themselves into wealth. In the short term at least they are going to win. My argument is that we have become a nation of government dependents in spirit and, increasingly, in number. The idea of "Equality" has such a nice sound to that most people dont stop to thing about the danger of trying to legislate it.
Sorry for the disorganized post I'm late for work as a low wage worker

 

[piezoe]

Yah, if we raise the wage McDonalds might move their fryers to Switzerland -- Opps wages too high there. How about Bangladesh then? We could order our big Macs and fries over the internet and have them, microwave-ready, delivered by Fedex Air.

 

[wheaties]

I know it sounds funny but it is true. Honestly in my twenty year career I never once - ever - brought lunch to work. I always went to a local restaurant or fast food joint. In the last two years however I bring lunch to work all the time because food is too expensive. Today I went to lunch with a coworker. Spent $7.75 on sub sandwich that was little more than bread with 2oz meat and cheese. Seriously.... almost eight dollars for a piece of bread with a scrap of meat and cheese. Almost all my coworkers bring lunch to work too. Unseen in days past. I don't make a lot of money but I make enough to afford lunch. I rarely spend it on eating out however because it is a waste.
The cost of fruit is off the chart too. The only time I buy fruit is when it is on sale for about $1/lb and I haven't seen it in a couple years. Arguably some (most?) of food cost increases are from the drought here in CA but either which way when cost goes up demand goes down.

 

[piezoe]

Certainly there are many low wage jobs that can't be exported, fast food, WalMart, etc. And there are some that can be of course,e.g., call centers. Exporting your operation can put you at a competitive disadvantage however. You may save on wages but lose customers to U.S. based companies. We hate to be confronted with a long menu when we call a company and perhaps be put on hold only to talk to someone in India. Some companies have turned the exporting of call centers to their advantage by using U.S. based call centers staffed by enough workers to guarantee that a person will answer the phone, almost always on the first or second ring. I know one credit card company that has done this, and as a result their competition has been forced to do likewise. I believe that talk of jobs being exported because of a raise in the minimum wage has been greatly exaggerated.

What would you do if you got a raise right now? You would buy more fruit! If everyone such as yourself were to get a raise, most would spend much, or all, of the additional dollars earned. I don't know what your wage is, but that is virtually assured for minimum wage workers, because their living expenses are already being subsidized. There is nowhere in the U.S. a person can live on $7.25/hr, therefore minimum wage workers have zero disposable income.

Until income rises to the point where the last dollars made are disposable, 100% of net income will be spent. Even raising the minimum to $10.50/hr will not create any disposable income. Consequently 100% of the increase in wages will be spent immediately into the economy. Besides increasing the incentive to work, and improving self esteem and work performance, a boost in the minimum to $10.50 will give the economy a huge boost. That's something we could really use right now. Not only that, but according to many economists raising the minimum wage, because of its boost to the economy, will net as many or more jobs created than destroyed.

 

[Swan Noir]

If you take a look at the long term trend the exporting of jobs of all sorts (including call centers) has played a huge part in our unemployment problem. I'm OK with raising the minimum wage and I'm not sure how much more acute that will make the problem but let's not take the anecdotal of a few companies bringing jobs back as proof of anything. The reality is even after the problems associated with offshoring it is still a powerful force all over the world. We have a hard time competing with regard to low priced labor. To ignore that makes little sense.

Some companies have turned the exporting of call centers to their advantage by using U.S. based call centers staffed by enough workers to guarantee that a person will answer the phone, almost always on the first or second ring. I know one credit card company that has done this, and as a result their competition has been forced to do likewise. I believe that talk of jobs being exported because of a raise in the minimum wage has been greatly exaggerated.

 

[wheaties]

>>What would you do if you got a raise right now? You would buy more fruit!
Nope. I would not pay a nickel for a handful of dirt and if I got a raise I certainly would not pay a dime. Some things have relative value. Apples are worth a buck a pound to me and the amount of money I have is not a consideration.

>>Besides increasing the incentive to work, and improving self esteem and work performance, a boost in the minimum to $10.50 will give the economy a huge boost.
These arguments are being propagated by the liberal media right now and they are quite simply false and very damaging.

Number one: >>Besides increasing the incentive to work, and improving self esteem and work performance....

I recognize and admire (what appears to be) your desire to help those who are less fortunate than ourselves however I don't think the path you are advocating will have the desired effect.
Firstly, please understand that all societies have wage strata i.e. there are people who make more than others, who make more than someone else, who make more than the other guy. At the bottom of the pile there is a group who makes "the least" whether it be mandated by law (minimum wage) or culture. The group who makes "the least" cannot be legislated away. There will always be a group who makes "the least". Imagine a stack of books on a table. When you slide a new book in at the bottom of the stack, the whole stack rises. Likewise, when the government gives a raise to the poorest they are simply elevating the stack. The group that makes "the least" still makes the least. They are still at the bottom of the stack. Giving them even more elevates the stack yet again. And they are still at the bottom making the least. It never changes.

When societies pass laws that mandate all persons make the same wage, they quickly collapse because no one has incentive to do one more bit of work than what is required for the government dole. Most recent example of this is the USSR.


Number two: >>a boost in the minimum to $10.50 will give the economy a huge boost.
Not a chance. In the short term you taking from the middle class to give to the poor. No net increase to the economy. In the mid to long term the wage stack resets itself and you are back to square one. The wage/price spiral is well documented.


For the record, my original argument was related to the minimum wage but the minimum wage is just a part. My theory is that the country is effectively unionized along cultural lines and there is a quiet storm brewing among low income workers and their supporters (not just minimum wage earners). As they continue to gain political power these groups will vote themselves wage increases that outpace inflationary increases we have seen in the past. These wage increases will rapidly lead to inflationary pressure via the wage price spiral.