Are you allowing for the costs of travel too and from work, or for daycare / childcare?

My understanding of the minimum wage is that it is a nominal price.

By removing it people are forced to decline work opportunities because the cost is greater than the revenue.

The only benefit here is too the government policy maker who can take the moral high ground and say “that person is voluntarily unemployed” – rather than “we as policy makers have destroyed the free market by our very existence”

Alan

DWM PhD

DWM PhD

Or is the assumption that the market will not clear and involuntary unemployment is a necessary condition of the free market?

Considering how pathetically low the minimum wage is any argument pertaining to lowering it is an admission that no solution exists to better the living conditions of your fellow citizens.

I do agree though that more legislation certainly is not the answer either.

An overhaul of the pantents system and so on would probably be far more beneficial with respect to competition.

against what, precisely?

Presumably, he means against the stable asset that is gold (or perhaps silver!).

against what, precisely? shares, property or other financial assets, food, medical services? pick any index, and immediately you’re making arbitrary choices, exactly what leads monetarists astray.

How this enters into the general deflation vs inflation question isn’t clear, but I don’t see why the general question even matters as much as the specific question.

Let’s not get mired in the old macroeconomic debates of meaningless aggregates.

May I ask you to think through the term “price inflation.” There is actually no such thing. Prices can increase or decrease but they do not inflate or deflate. They are what they are.

In a monetary sense inflation is when the value of the monetary unit is falling, depreciating, in value and deflation is when it is rising, appreciating, in value. Prices and monetary value do not necessarily move in the same direction.

Consider the present situation where there is a total lack of confidence in the economy because of the fear of what the government may do after one invests. You can drive down the value of the currency all you want but investors will not invest and prices will fall. The manifestation of the decline in the value of the monetary unit will not be seen until confidence returns to the market and transactions return.

Contrary to what many here profess inflation is not simply an increase in the money supply. Mises has it right when he recognizes that both supply and demand must be taken into account.

Thanks for understanding my previous posts on deflation.

I have to admit that the first paragraph really gave me heartburn.

In a recent post on Mises.org Doug French argued that we should not worry about deflation. There are some sound theoretical reasons to favor deflation. Since increasing productivity brings prices down deflation is a sign of progress.

This is totally false. Deflation is not a sign of progress. It is a sign of a distorted monetary unit.

Those who worry about deflation per-see ignore the fact that gradual deflation resulting from rising productivity has no effect on the timing of consumer purchases.

I have had to counter exactly the same argument concerning “gradual inflation.”

I do like the argument that the minimum wage law makes deflation worse, but even without the minimum wage law deflation does tend to create unemployment.

As you know I believe the best solution is neither inflation nor deflation.

I did like Robert Higgs article.

Minimum wage can be detrimental in all cases, but is least detrimental when as Krinken suggested above, that the price floor is set low and changed very infrequently. This has the effect of allowing inflation to erode the real wages of labor and increase the nominal DMVP of all labor, thus repricing formerly submarginal individuals into a supramarginal condition. Its most pernicious effect is evident in a deflationary situation where real wages rise (but not nominal wages) and nominal DMVP falls, pricing formerly supramarginal labor out of a job.

Fractional reserve banking is subject to wild swings in money supply as the multiplier works in both directions, inflationary and deflationary. As reserves are removed from the banks, the banks must reduce their loans outstanding by the multiplier to remain “solvent” and to keep their minimum reserves. This has the effect of drastically cutting the money supply during recessionary times. The fed has been attempting to counter this by pumping reserves into the banks, but debtors are reluctant to take further debt and the banks are reluctant to lend out to the full multiplier. Thus the capability for great inflation is in place, but until confidence returns on both ends of the loan market, it will remain unrealized, and monetary deflation may be the greater force.

Has there been destruction of money supply in this recession that the printing of money is meeting? (That is, is the money supply truly being inflated or is it counteracting a deflationary force?)

Trying to get a handle on how bad things will get!

-r

Are you putting off the purchase of gas for your car or breakfast cereal or printer paper because you expect the price to drop (or conversely, since dairy products and meat seem to be on the rise again, are you stocking up at the current low price?)

Most folks time large durable goods purchases to get a favorable price (emergencies discounted). This is not indicative of inflation or deflation in and of itself.

Did you forgo buying a $400 ink jet printer in 1993 because you expected to pick one up for $39.95 in 2008? Heck every time someone buys a new computer it is with the full understanding that it will be a discount model in a year or less.

Falling prices are always good for consumers and savers. In general this means more goods will be sold, not less (how many TVs are in your house now vs. the number in your parents home when you were a kid? how many pairs of shoes do you own v. the number your granddad had when he was your age?). Now a hyper-deflation would be disruptive to production, but this never really happens, because there is no mechanism in a fiat money system that would promote a rapid increase in the currency’s unit value. Hyper-inflation has and will occur for precisely the opposite reason. And it could well be the America will see it for the first time in 250 years.

Your parents need some inflation protection in their portfolio. While commodities have fallen along with everything else in the recent selloff, my guess is that they will respond quicker than stocks when the inflation is felt in prices. Gold is the obvious choice, but there are also commodity index etfs. There are also TIPS, but those are only indexed to the CPI.

Another Mises article by Robert Higgs today tackled this topic (Nonsense About Deflation), and it too, needed clarification, which fortunately a poster did in the blog discussion.

Are we talking about “price deflation” or are we talking about “monetary deflation?”

They are not necessarily the same thing. Presently we are experiencing a price deflation, both in the consumer goods markets and in the stock market, despite massive inflationary expansion of the money supply by the Fed in an attempt to stop the tumbling prices. This is not a good thing, especially when the stock market prices are falling faster than consumer goods prices.

My parents are retired, and have seen their retirement income shrink dramatically as their stocks lose value (“value deflation”?). They are getting hurt by this, as they cannot enjoy the comfortably affluent retirement they worked hard to achieve for many decades. If price deflation were occurring at the same rate or faster than the shrinkage of the stock market, then it would not matter, because they would still have the same relative affluence and purchasing power on their shrinking fixed income.

If the money supply were actually shrinking — monetary deflation — at the same rate as the nominal value of their stocks, then they would be OK, as well, since the cost of living would have to drop to match the existing money supply. But the opposite is happening. The monetary expansion that the Fed is frantically inducing will not lead to a true deflation of the money supply, and the temporary drop in prices (price deflation) will be quickly reversed.

Higgs said: “does deflation actually loom at present? If it does, its occurrence will surprise me greatly, because the Fed has been creating base money as if there were no tomorrow, and if the bailouts continue, as seems likely, more of the same is virtually certain. So far, the huge spurt in base money has simply been absorbed and held by the banks in the form of (legally) excess reserves, but the likelihood that the banks will sit on $268 billion of excess reserves forever is nil. Once they feel more secure, their loans and investments will go forth in search of a higher yield than the Fed pays them (since a recent change in policy) on their reserves, and at that point the banking system’s money multiplier will kick in with terrific force.”

Take a close look at the Fed graphs he referred to.

When that massive true monetary inflation with its multiplier effect kicks in, my folks are gonna get clobbered by the price inflation. Their stocks may rebound, but they are effectively on a fixed income, which will not grow, nor can it possibly keep up with the massive inflation that will follow. And their stock market savings will not inflate in nominal value at the same rate as prices, because the stocks are valued based on the market’s belief in the underlying productivity of their company, not indexed to the inflation, which will hurt productive companies by driving up interest rates and business costs.

It took the stock market decades to recover from the 1929 crash. My parents will likely not live long enough to see their savings regain the nominal value they had earlier this year.

It is not price deflation that we should worry about, as that is simply a temporary adjustment to the reality of the bubble collapse and recession. It is the unwanted effect of the govt’s response, in an attempt to bolster prices and wages, that is the real terror.

I am sure the exercise in crafting the article (as well as the impossibility of addressing every one of the potential questions arising therefrom) would tend to make one keenly aware of the near-impossibility of adequately addressing such matters in particular (as opposed to in general, with due emphasis on related matters).

The seemingly simple matter of the effect of minimum wage rates is a case in point. I don’t see the matter in as quite a clear-cut manner as do you and most of the commentors. It’s more insidious than merely a simple fixing of a minimum price for labor that happens to exclude some significant number from employment—far worse: it’s a sabotage of entry-level labor AND skills acquisition, a monkey-wrench thrown into many rational sorts of labor arrangements and accomodations common in a fair number of societies. It would be my guess that one of its most profound effects has been to super-marginalize (and desocialize) enormous numbers of both urban and rural blacks and with a follow-on effect being a wipe-out of any chance for the marginal (beginning and especially black) entrepreneur, particularly in the various “trades.”