So I was walking to work the other day when a man approached me...

[Ted Striker]

Originally posted by Zkribbler
Putting a few more bucks into the hands of the working poor means they'll spend it on stuff, sales go up, eveyone wins.

[Kuciwalker]

to meaningless number games to make ourselves feel better

[Ted Striker]

Go on.

[Kuciwalker]

Let's simplify this. There's one company and it produces the one good that represents all the commodities people buy. It decides to raise the wage it pays its workers (= all of society). Therefore, they can afford more of the commodity - so business is better! Except wait a second, we actually haven't increased production at all, we've just given everyone more pieces of paper, so the exchange rate of paper for the commodity increases and everyone gets exactly the same amount of it as before, just with larger numbers of pieces of paper circulating around to represent the same transfer of goods and services.

[Ted Striker]

That doesn't even make sense.

Production will increase if people buy more of the product.

[Kuciwalker]

Ted, don't you get it - why didn't production increase before? Money isn't even paper anymore, just a bunch of bits in a computer. The inherent value of that bunch of bits is ZERO. So increasing the rate of flow of those bits basically accross the board does nothing to increase the rate of flow of goods and services that wouldn't occur normally.

By your logic, if the government had simply declared that all $1 bills now were worth $2, production would increase to meet the new demand.

[Ted Striker]

That doesn't even make sense. If people have more money they will spend it somewhere.

That's like saying money is worthless after the gold standard was abolished.

You're trying to be too fancy.

[Kuciwalker]

That doesn't even make sense. If people have more money they will spend it somewhere.

Yes. They will spend it. But the fact that every person now has $2 instead of $1 doesn't change the underlying economics of the sitution, which is that there is still exactly the same capacity to produce supplies. Ask yourself: if everyone crossed out the 1 on dollar bills and replaced it with a 2, would the economy be affected at all?

That's like saying money is worthless after the gold standard was abolished.

No. Money was worthless before the gold standard was abolished, too, since at that time gold had pretty much no inherent value (except as jewelry).

[Imran Siddiqui]

Kuci, don't forget also, that the money paid to the lower wage workers will be reflected in increased prices, thus making it unsure how much more lower wage workers will indeed purchase (not even counting how much less others will purchase when the prices rise).

[Ted Striker]

Your argument makes absolutley no sense.

I've gotten big raises the past two years. Do you think I'm buying more stuff than before? HELL YEAH I'm buying more stuff. Way more stuff.

Taxes are cut so people can buy more stuff.

Supply moves up and down to meet demand. That's basic economics.

It's like that punk kid that comes into philosophy class the first day and says, "like, duude, how do we know we're like, actually here? I mean, we just THINK we're here, but how do we KNOW we're here?"

[Kuciwalker]

Originally posted by Imran Siddiqui
Kuci, don't forget also, that the money paid to the lower wage workers will be reflected in increased prices, thus making it unsure how much more lower wage workers will indeed purchase (not even counting how much less others will purchase when the prices rise).

That's my entire point.

[Ted Striker]

You're basically trying to say that it will make inflation go out of control, so it's a wash.

The problem with that is that the money is already distributed before it is reallocated to workers. It's just going to them instead of stockholders, upper level executives, etc.

[Kuciwalker]

Originally posted by Ted Striker
Your argument makes absolutley no sense.

I've gotten big raises the past two years. Do you think I'm buying more stuff than before? HELL YEAH I'm buying more stuff. Way more stuff.

OK. Apply that big raise accross the board - which is the (desired) effect of raising the minimum wage, AIUI. The net effect is simply multiplying the total supply of money by some factor, which results in no actual change. It's called inflation.

Now, because the change from increasing the minimum wage is not universal, it doesn't have exactly this effect. But it is a close approximation.

[Ted Striker]

Private companies don't print money. They are not the Federal Government nor the Central Bank.

They just reallocate what they already have.

[Kuciwalker]

Originally posted by Ted Striker
You're basically trying to say that it will make inflation go out of control, so it's a wash.

Not out of control. It will cause a one-time burst of inflation, and the value of the dollar will set at some new, arbitrary level.

The problem with that is that the money is already distributed before it is reallocated to workers. It's just going to them instead of stockholders, upper level executives, etc.

But if, as you contend, this money is simply "hoarded" and "not doing anything" then the net effect is to simply expand the money supply (as this money wouldn't really be in the money supply if it wasn't doing anything).