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On Minimum Wage and Inflation

roman_mir (125474) writes | more than 2 years ago

User Journal 5

It should be obvious to anybody by now that price and wage controls set by governments don't work. These ideas end up creating unemployment and black markets. But what about minimum wage, which is also a type of a wage control?

Well, minimum wage makes it illegal to hire somebody below a certain price (7.25 in US, but may differ to the higher side from State to State). What does it mean from point of view of employees?

It should be obvious to anybody by now that price and wage controls set by governments don't work. These ideas end up creating unemployment and black markets. But what about minimum wage, which is also a type of a wage control?

Well, minimum wage makes it illegal to hire somebody below a certain price (7.25 in US, but may differ to the higher side from State to State). What does it mean from point of view of employees?

1. This doesn't affect those who work above the minimum wage.
2. Those who work below minimum wage are suddenly priced out of their jobs.

What does this mean? If somebody only has the skills necessary to provide a company with about 3-4 dollars worth of benefit (profit) are now a net loss for a company if the minimum wage is above that amount of money. So hiring somebody at 7.25, who after all expenses only generates the company say 4 dollars makes absolutely no sense. Who is affected by this? Students, people who didn't even go to school, anybody who is just starting out.

When governments sets a floor price for a product, it makes it illegal for those, who cannot afford the item (or labor) below that price to buy that product. Some believe it makes sense to have government set the minimum wage, what would these people say about government setting minimum price on milk for example?

If milk had a government dictated minimum price of $5/liter, this would price a lot of people out of buying milk, this also would put many milk producers out of business, because now they have a much smaller customer base, much fewer dollars in that market.

So if you believe that it makes sense for government to set minimum prices, think about government setting minimum price of milk, or whatever your preferred product and think what this means from point of view of competition as well. So now it's illegal to sell milk at a lower price, this prevents any new competition from entering the market, trying to produce milk cheaper, because they can't even sell it legally.

Setting minimum price on labor creates similar problems, and with real unemployment being where it is (above 20% in US, see shadow statistics), it's preposterous that government talks about fixing unemployment without actually dealing with all of the regulations that it has on the books that actually creates unemployment.

From minimum wage laws, to 'equal opportunity employment' laws, any so called 'civil rights', which are just entitlements and obligations, which make it more expensive to hire people who have special government protections. Anything that government does regulating business, causes labor costs to go only in one direction, and that's the opposite direction to where they must be going.

---

Now realize that the government is schizophrenic, because on one hand it sets minimum wage and on the other it creates inflation, which in reality only 'helps' to grow economy (from Keynesian perspective) actually by reducing the purchasing power, it really only 'works' by lowering the actual earnings of a worker!

Yes, inflation (counterfeiting or money printing) is all about stealing the purchasing power, and when the Fed says it has a mandate to ensure price stability and maximum employment, it should admit that its mandate is a direct contradiction of the only tool in Fed's disposal - the printing press (figuratively speaking, they don't even have to print physical cash to increase the money supply.)

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5 comments

for-profit higher education 1910 rule price floor (1)

roman_mir (125474) | more than 2 years ago | (#37850368)

amazingly enough, I found an interesting sound clip with Peter Schiff interviewing Andrew Rosen [noxsolutions.com] (CEO of Kaplan Inc [kaplan.com] )

Audio around 33:30 talks about this 1910 rule, that effectively acts as a price floor created so that for-profit higher education institutions could not compete with public education institutions on price.

So there you go, government setting price floors.

Re:for-profit higher education 1910 rule price flo (1)

corbettw (214229) | more than 2 years ago | (#37856186)

What is the "1910 rule"? A quick Google search didn't turn anything up.

Re:for-profit higher education 1910 rule price flo (1)

roman_mir (125474) | more than 2 years ago | (#37862352)

1910 is a name of a rule that specifies what percentage of for profit institutions can come from Title IV programs. It's too much legal stuff [ed.gov] , I think an easy way to get a more precise answer is to email Andrew Rosen and ask [kaplan.com] .

Obama's new plan to increase tuition costs (1)

roman_mir (125474) | more than 2 years ago | (#37850654)

And here is more from Obama [foxnews.com] , not only keeping the price floor for higher ed, but certainly causing the prices to spike even harder.

You think the prices for tuition are too high today? Well, under this new genius plan the students basically will have a price cap on the amount of loans they have to repay, so once they hit that price cap, they can take ANY amount of government guaranteed loans, and they will not have to repay them!

This is great, why don't universities not just hike the tuition fees themselves, but also sell any kind of stuff as part of this so called 'education', after all, it's stimulus money that will be paying for it and students won't be on the hook for any of it basically above some amount around

Today the amount of money that has to be paid by student per year is capped at 15% of so called 'discretionary income'. Discretionary income is any money that is above 150% of 'poverty level', so for a single person that's 10K poverty level, and 150% of that is 15K USD. So the most a student had to pay was 15% of income that exceeded 15000 per year, after 25 years, anything unpaid is forgiven.

Obama says: students are only responsible up to 10%/year of discretionary income, not 15% and balance will be forgiven after 20 years, not 25.

If somebody graduates and gets a job at 30K, they have to pay only 10%/year on the 15000 of discretionary income, so the most to pay back per year is 1500/year, about 125USD/month.

So it does not matter how much money a student borrows at all actually! A student should borrow so much, he should buy a few cars and a few houses and a tons and tons of stuff with the money, because if he/she graduates and only makes 30K / year, he/she only has to pay 125USD/months.

Why not borrow 1,000,000 USD? Why not 10,000,000 USD?

So there is no incentive NOT to borrow as much as possible, the students will not care where the prices will go (and they will skyrocket) and universities should just sell whatever they want, houses and cars included as part of 'education' package, because the students are not the ones paying the bills.

This is the same moral hazard that's created for health care under all of these 'socialist' ideas.

Re:Obama's new plan to increase tuition costs (0)

Anonymous Coward | more than 2 years ago | (#37852882)

Exactly. Just another reason why we're doomed. Just the unfunded liabilities will bankrupt us in a few years.

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