Once you get over a certain income it gets harder to spend the money quickly locally. The wealthy in a way end up hording their income as they can and often spend it slowly. The wealthy often spend it trading for objects and property from others in their cohort. The difference is the velocity of money for a minimum wage earner compared to the top 1% in very large. In a study in my 1980s economics textbook, the annual multiplier for the bottom 20% of incomes, the money recirculated 11 times more within 12 months. The multiplier for the top cohort (I don't recall if it was a quintile too) was only 0.4 times. That top cohort might spend their money on art, brothels on the other side of the world or on international investments. This is the reason Adam Smith and John Stewart Mill advocated for a progressive income tax and for some legal restraints on corporations and banks. They spend their money slowly and in ways that harm most of us. This study is an example of how putting more money in the pockets of people who are going to spend their money quickly in their immediate neighborhood are going to actually in this case create local economic growth. We need a progressive income tax not for social justice but for better economic efficiency and getting a larger economic pie to all eat from.
If the “hoarded” wealth you mention is just getting plowed into assets like existing real estate and the stock market I tend to agree with you. All it serves is to drive up those asset prices, which really doesn’t seem to have much effect and is low velocity. The tax code should discourage this type of investment but actually seems to support it currently.
No more 1031 exchanges, less depreciation allowed or depreciation over some longer period, etc.
However, investment in new projects, new businesses, new building, etc is very stimulating. This is what the tax code should heavily incentivize.
Yes all that happens too, I was specifically referring to the issue that the inheritance exemption is so high that much of that has escaped much taxation.
But I think the underlying issue most of us have with inherited wealth is the idea of the idle rich.
The people who have inherited and done nothing to get the money they have and are able to passively invest and still pay low taxes. Let’s reduce the incentive to be passive with taxation changes.
There's some interesting reading about how the taxes should and should not work in the 5th book of the Wealth of Nations. Most copies only include the first 4 volumes.
While its not complete, you are somewhat limited in what you can do with the tax code incentives, and generational wealth or concentration into a Bourgeois caste is one of many issues that affect socialism more dramatically than our mixed system (though there still is an effect).
The inheritance tax is nonexistent. They kept it in entity vehicles until a law was passed excluding it then they dissolved the entities in a year where there were no tax implications (the entire amount was untaxed).
Fiat and debt have their own implications when the money printer runs above capacity. Have you seen the derivative exposure for banks listed at the FDIC website?
So weird that corporate media (the plantation class) emphasizes wealth accumulation while ignoring most other metrics like velocity of money and gini coefficient.
Popular economic "theories" are starting to feel like they've just been excuses for the ruling classes to siphon off all of the benefits of technological advancement for themselves.
And popular economic "theories" are not more wrong then any other popular broadly held believes in any other soft or even hard science. And they are not a some genius device designed by the ruling classes. And economists are not the evil because the show basic 'supply and demand' diagrams in Econ 101. History is just as prone to this. Sociology and so on.
And yes broadly defined 'ruling classes' will use everything and anything to keep their position and privilege. Including popular misconceptions of science of all kinds.
So therefore pretty much every government ever is capitalism. Got it, super useful definition. Even steppe triple confederations were lead by the families with the most livestock.
I guess one might be able to call a few exception, but its a definition so broad its utterly useless.
Do you honestly think industrial capital owners are working more than landlords? Landlords hire people to do maintenance, industrial capital owners hire people to assemble or fabricate or whatnot
You actually need to actively and effectively manage factories or you go out of business very quickly. For the last 50 years rentiers with enough capital basically can't not come out ahead.
That's a reasonable assumption, however management is usually carried out by people on payroll not necessarily the capital owners/investors. That's why I think rentiers and other capital owners are effectively the same
I don’t understand this. Isn’t that just forcing the lower middle class up by artificially inflating wages?
What is the motivation to pursue additional training, education, or to work challenging/unappealing jobs?
We also do this in the US to some extent with overpaid government workers. Until recently, there were relatively few of these jobs. But now state and federal agencies have become bloated with BS “do nothing” jobs.
It’s complicated. High base wages incentivize automation. Switzerland has much more extensive automation of basic labor then the us has. Higher wages also trickle up, a plumber demands 50/hr etc. jobs paying the base rate are rarely desirable from a social standpoint - social pressure provides an incentive to up skill/increase service standards.
Yes but it didn't go there because one the the government announced that every clerk got that much money. The economy grew and wages went up over time.
You can just say 'everybody gets a billion $ an hour' by law and have a great economy.
Once again, what specifically do you think is wrong with the study? If it's so easy to poke holes in it then do it instead of calling it 'perpetual motion' without even quoting any of it.
I suspect the correlation is valid, but mistaken for causation.
For example, areas with auto emissions tests tend to have worse air quality. Emissions tests don't cause worse quality, but air quality concerns beget emissions testing.
Similarly, perhaps the areas that raised statutory minimum wage were areas had inherently rising wages/cost of living due to existing economic growth.
I'm making a joke about the fact that it's starting to feel like neoliberalism is just a hand wavy way for rich people to continue to get rich at the expense of everyone else.
I have no issue with the article, just the opposite. Studies like these are demonstrating how we shouldn't assume popular economic theories are immune to scrutiny.
It was never "the conventional wisdom", as the article postulates, that raising wages would suppress job creation. It was a position held by a few people, which suited those with the power and will to amplify.
If wage is the only variable, raising wages would for sure suppress job creation. But there are many more factors linked to job creation, e.g. surging demand of certain services/products. I'm not sure if I scanned the article too quickly and I missed some of the points, I never see a discussion around those.
In classical and neoclassical economics, lowering wages stimulates employment. If there is unemployment, it is because wages are above equilibrium prices and should be lowered.
That is the current mainstream of economics but you are right. People who benefit from the status quo need a theory that justifies the status quo.
If you model only the first-order effects (supply and demand of labour as a good, only) then sure, price goes up, it seems pretty clear that demand will go down.
If you model the economy in more detail (with stocks and flows of money, and where money in different places has different propensity to be spent and so on) then you can start to talk about second or third order effects which may result in an increase in demand for labour if minimum wages rise.
I think ideologically the problem is that simpler models align with "classical / neoclassical" thinking, while more detailed models - even though they may be better (of course this is not a given) - tend to be less convincing firstly because they're harder to explain, and secondly because they tend to incorporate more parameters (so you run the risk of "fitting an elephant").
Personally I have my doubts that complex economies are actually amenable to simple explanations that fit human intuition at all - perhaps we'd be better off treating the whole field more like the weather, fewer elegant theories / word explanations and a lot more computational brute force and observation.
I guess a big problem with that is that economics is inherently political, and politics demands narrative.
Are you actually an economist with real insight about the current and the last decades of labor economics?
Literally all economics practices, with the exception of a few hard core marxists, and a few others is Neoclassical. The people who wrote study are also neoclassical.
Its seems you have a ridiculously oversimplified view of economics and the field.
It prices low skill or younger workers out of the market
Why hire a highschooler who never had a job before for 15$ an hour if you can get a guy with 7 years experience at the same price?
There’s both theory and evidence. The theory is that labor market monopsony (few employers dominating the market and having the market power to drive down wages) makes it so that minimum wage laws push wages closer to what they would be in a competitive market. This doesn’t reduce employment. Instead, it increases it.
The puzzle that they talk about is that previous research has found zero employment effect instead of a positive effect. The paper explains why they think this is.
If you consider human society to be the gradient between the newly created energy reserves via the big bang and the heat death of the universe, then equilibrium means death. Equilibrium models are static and don't feel alive. There is only one state and if you get off it, you make things worse, not better. Silly you, things are already perfect.
In reality the economy is alive and dynamic and imperfect.
If a central bank targets a demand variable, changes in minimum wage does not change MV. If V changes the the central bank automatically adjusts M. And inflation targeting is a form of demand targeting. Just linking to Velocity of money is useless.
I am not going to say that this is wrong, because I haven't read the study. But it was produced by the Berkeley economics department, which could well be the most left-leaning in the country. Significant parts of it are outright Marxist. Which is fine. Diversity of viewpoints and all that. But when a bunch of leftist economists tell you they've proven something that leftists in general wish desperately were true, you should be skeptical.
At least wait for some corroborating evidence to come in before you start writing policy, because you'll hurt people if you get it wrong.
Ask an economist about WHY economy exists in the first place and you can put a bet on the fact that many of them get it wrong. How can anything building on that be right then? Exactly.
This talk is utterly ridiculous. This guy clearly hasn't actually studied the intellectual history of economics. He gets very basic things wrong as soon as he starts. Economics was called the 'dismal science' because it disagree with slave holding elites that slave holding was good for the economy. The phrase 'dismal science' is well attest to a quote of a slave holder angry at economists, calling it 'dismal' because it can't defend slavery. This is well attest and not controversial.
And then he goes on to totally mischaracterize the field, he also doesn't seem to actually know what 'neoclassical' actual means in the history of economics thought.
This actually hurts to watch. Specially when he starts making a bunch of arguments that have been debated within 'neoclassical economics' for a long time. So instead of asking for a 'new economic field' he maybe should have actually read beyond Econ101.
I'm not saying any of his actual recommendation are right or wrong, but his engagement with the field of economics is embarrassing and seems to mostly serve as a crowed pleaser. The old tactic of uniting to fight a common enemy, the evil 'neoclassical' economists.
So, in other words they are less extremely right wing than other economics departments?
To be frank, in most of the sciences, left wing views are overwhelmingly dominant because they are objectively correct (global warming is real, the earth is not 6000 years old, evolution is real, etc). Economics is an outlier, and that is mostly because of its usefulness as a political tool of the powerful. To the extent that it’s right wing, its conclusions are extremely suspect.
For anyone who thinks I’m exaggerating- I grew up Baptist, and I can tell you that what they believe is that God created the earth and all the animals on it recently, that there is no such thing as continental drift or evolution, that Jesus is going to return soon to bring forth the end days, and that Noah really did fit every kind of animal on the ark.
More than that, they believe in maintaining the social order. That’s what they value. The reason they are so upset about trans people, for instance, is that they threaten the male/female gender based social order. They believe in a universe built on simple rules that apply all the time. Don’t kid yourselves, that’s exactly how they think.
And, they believe that having power is its own evidence that you deserve that power, because otherwise why did God give it to you? Therefore powerful people are virtuous and obedience makes you also a good person. And in a certain sense violence is virtue since it cleanses the earth of wickedness.
Again, I grew up among these people and this is absolutely what they believe.
And as a corollary, scientists or activists (largely the same, in their view) are by definition evil because they are in opposition to the social order, or in the case of science they are agnostic to the social order, which is even worse because science treats the social order as irrelevant.
> left wing views are overwhelmingly dominant because they are objectively correct (global warming is real, the earth is not 6000 years old, evolution is real, etc).
Maybe it’s only in your country where these are “left-leaning” views…and I even doubt that.
Example; I agree with these statements but I’m not “left leaning” by any shot.
Like many American commenters (I'm guilty of this as well), we assume a US-centric viewpoint a lot online.
You're right that these positions are not left leaning worldwide. Unfortunately, they are very much left-leaning viewpoints in the US. There are still more than enough voters on the right who genuinely believe the converse that they need to be catered to by right wing politics. And, on the other hand, left wing politics needs to put significant effort into fighting and refuting objections. Arguably, this puts more strain on the left, which might be another factor perpetuating all this.
Mathematical models aren't real in the same way as human social life is. Just like social structures, they are accorded certain laws, which determine their order; but human social structures have real effects, whereas one can modify axioms in a mathematical model and nothing changes until you apply that model to social life. By all means, math can model certain things from basic, accepted axioms that even we aren't aware of and give us conclusions we could've never predicted; but to pretend that this somehow implies that our axioms, which we constructed, are somehow "right" or "wrong" in and of themselves, and not in their relation to how we use such math to organize society--I believe that logic is extremely flawed.
Political ideology is always in the service of constructing a logic to sustain itself, consciously or not, someone constructing a set of axioms that just so happen to lead to the political conclusion they find most favorable, and then they call those axioms true. Whatever truth value someone ascribes to mathematical axioms, whether they be "right" or "wrong," is far less important than for what purpose they are employed.
Weather reports have a lot of math behind them, yet they're regularly wrong. I wonder what's the underlying reason for that? I also wonder whether that reason could also affect economics?
Wonderful comment. We'd require a whole lot more information and processing power in order to be able to accurately predict the weather, and if we had that, we would be able to accurately model and predict a whole host of things.
Like with anything, there is the objective reality that none of us can see, and then there is the constructed reality placed on top of it.
Economics used to be called political economy and split into economics and political science. Economists are well aware that things like 'property' and 'markets' are not some universal absolutes, but engaged in a larger social context. There are whole sub-fields of economics studying all these things.
Sure some macro economics that try to abstract over a huge amount of things, by necessary (its literally called 'macro') but even then they are aware that high level decisions have political implications.
These anti economics hate mostly generated by people who don't actually follow the discussion within the economic field rather believe in some leftist fantasy buggy man version of the economic field.
Joan Robinson: The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.
