" I agree with your analysis. It could be said in a historical sense, that the FDR "New Deal" democrats took a certain measure of intellectual and ideological liberty with John Maynard Keynes regarding the views that he espoused.
It should be noted however, that Keynes was not quoted as opposing FDR in his political refinements of Keynesian postulations. At least the historical record is not replete with such contrary admonitions in this context.
Again it truly is nice to be chatting with you here.

John "

" Well, I’ve enjoyed some of your other posts on here – especially the debate with poetman over church closures. As a Catholic, I admit that I felt under-educated in that discourse (and therefore I did not jump into that discussion).

I hope I do not have an “unhealthy attachment of classical economic theory” because teaching economics is my occupation. Personally, I find Keynesianism to be the most relevant of the economic schools of thought since it has practical (workable) answers to many economic issues. I’ve never found much practical material from Friedman or the Classicalists et al.

Anyway – there are a ton of issues here so I can not possibly address them all. Besides, I usually charge for this…

Keynesianism and the Minimum Wage: Since Keynes’ theories pre-date the U.S. Minimum Wage (and he was British, so may have never commented on it directly), we’ll have to reference what he did and did not say in his model. Basically, Keynes’ model proposes that the government answer to unemployment (as opposed to a “let nature take its course” solution – a la “the Classicalists”) is for the government to inject money into the economy by either a) giving them money to spend or b) hiring people. The difference between the two methods is that hiring people directly increases Real GDP – while giving them money does not.

Keynesianism includes two other relevant observations:

The Sticky Wage Theory: One reason that we have persistent unemployment is that wages do not fully adjust (the theory is about adjusting wages downwards – not upwards) when markets change. If economic forces lead to less demand for U.S. goods – we should see U.S. wages fall. In general, we do not see this and the reasons are cultural, legal, traditional etc. We’ll cover three reasons:

The union worker effect basically says that U.S. labor has traditionally been unwilling to bargain wages down – so they accept higher unemployment in exchange for retaining higher wage rates for those that remain employed. This has its roots in the structure of unions – whose power structure favors those with seniority (who stay employed at the old wage rate) over those without (who are the first to get laid off).

Another cause is that wage contracts are staggered over many years. Some employees are in the first year of their contracts, while others are in their second year, and still others in their third year. When a recession hits, employees that are renegotiating their contracts in the current year (and who have noidea how long a recession will last) will not accept a contract that gives them smaller increases than those of other workers who are in the middle or beginning of their contracts simply because the economic reality changed. You could call this the “keeping up with the Joneses” effect. The major factors in union wage demands are similar contracts in other industries – not economic cycles.

The final main reason for sticky wages is something called menu costs –which basically says that it is too expensive for firms to change prices. When a recession hits and firms are given the choice of lowering prices and selling all their production or keeping prices as they are and adjusting production – they have traditionally accepted lower sales at the old prices. This means they lay people off instead of passing on the lower revenue to employees in terms of lower wages.

The other Keynesian concept at play here is that legislating a higher minimum wage raises the Price Level in the U.S. economy relative to that in other economies. Since raising the Minimum Wage does NOT create any more production and (to use some global economics) increases the price of our outputs relative to the outputs of other nations (our competitors), we actually lose exports and increase imports by legislating a minimum wage increase (i.e. the trade deficit gets worse and more jobs go overseas). Since we now find that items made by low-wage workers are cheaper from other nations than from domestic producers, we buy from the foreign firms at a greater rate. Thus - our employment base shrinks – while theirs increases.

Keynes did actually suggest that governments hire or spend their way out of recession – not legislate themselves out of recession. Hiring is better (for several reasons) than simple welfare (another topic entirely) so we’ll use that to compare to raising the minimum wage. Because the money earned by these government workers represents new production, there is more “stuff” to go around (Real GDP rises). “More stuff” means more GDP - even if we don’t consume it ourselves (we can sell it to other nations – increasing exports – and possibly Net Exports as well) and it creates more real income (from making more stuff) which creates more demand for goods and services.

Yes - hiring workers is slower than legislating a wage increase in raising nominal wages (nominal wages are the number of pieces of paper we get for each hour of work – while REAL wages are what those pieces of paper will buy), but hiring raises REAL income – while legislating wage increases does not. Hiring creates a government deficit (a necessary side effect of expansionary fiscal policy) while legislating a wage increase does not (unless you consider the loss of tax revenue as employment falls – but that’s a bit down the road). But hiring actually increases GDP (decreases unemployment) and does not create inflation. Raising the minimum wage lowers GDP (raises unemployment) – and creates inflation.

With that: My kids want to go see “Cars” under the pavilion – so that’s all I have time for tonight. "

" Well finally I have in this forum an intellectual adversary worthy of my efforts!! While we obviously disagree on this issue, I can and do respect your obvious knowledge of this issue, even though I suspect that you have an intellectually unhealthy attachment of classical economic theory. But thats OK, some of the greatest friends share your views. We simple agree to disagree.
If you could reference me to any work that John Maynard Keynes did in reference to opposition to this minimum wage issue, I would be grateful.
Now I have a question for you, and its on another topic (The original post in this thread was about unemployment so I believe that all topics relevant to that discussion are "on topic").
Other than education, do you see any role in helping to bring this economy as close to full employment status as one can reasonably expect? Free market advocates always are in favor of expanded education for the labour force, but is that really a panacea?
What about all of the information technology jobs that corporate america continues to ship to India merely for the sake of paying them lower wages? Wont sheer corporate greed continue to dictate that no matter how many credentials many american workers have, that outsourcing will continue?
How can the American worker compete against peasant wages in third world countries? Are we to sacrifice a whole generation of people so that free market and free trade deals can run their course? No trade adjustment legislation for the american worker to help them through such a transition as they have in Europe? Just dump them in the marketplace and let them fend for themselves and if they lose their homes or their livelihood because of foreign competition and foreign cheap labour, well then thats just too friggin bad??
That is of course the conservatives answer to any social ill, just simply work harder and the world will beat a path to your doorstep. That type of view is way too simplistic and is usually spouted by those who themselves are not economically vulnerable to begin with.
The standard of living in this nation has been greatly compromised (with some exceptions here and there) by one sided free trade deals with other nations who dont have to compete fairly with us.
Our trade negotiators allow foreign companies to be subsidized by their own governments and then "dump" their artifically low priced goods in the American marketplace.
Many foreign companies are likewise free from the type of environmental or worker safety regulations common to more advanced industrialized economies.
Free trade and free market economic theories are valid up to a point. Every ideology has some percentage of merit to it. But we dont live in an ideal world.
Economic pragmatism should be the rule and not the exception. Whatever works economically should be tried, even if it doesnt quite fit our fixed ideological preferences. "

" In response to CUTTY:

You can argue "economic morality" and compassion - but raising the minimum wage DOES NOT help the poor - it makes them unemployed, or no better off due to the inflationary cycle it creates. That's economic reality.

IF it DID help the poor - then your argument would have merit - but it doesn't help them. It hurts some today; all of them after prices rise; all of them again when prices rise again and again and again.

If raising the minimum wage was so good - why stop at a modest raise - why not raise it to $15? Why not $20? Why not $100? If you're right - than raising it by even more is even better. If I'm right (and all economic theory and past evidence agrees with me) than the more you tamper with legislating wage increases - the worse unempoyment and inflation get. There's nothing economically compassionate about persuing policy that puts the very poorest workers out of work to help no one.

Also - I posted that your post was ideological confusion "Not because it picks pieces of policy from two opposing parties, but because it just plain doesn't add up.", so I don't know why you're arguing the former.

Second "Also": The "theory" of inflation and unemployment caused by minimum wage policies is not limited to Friedman et al - it's also rooted in basic Keynesianism, as well as Classical models. It's about as universal accepted as economic theory gets.

And finally: Your speculation argument if off the minimum wage topic and my posts are already too long. I'm not dismissing all the speculation argument - but it does not reverse the futility of the minimum wage argument. "

" To advocate a raise in the minimum wage for our most vulnerable workers, the so called "working poor" is not borrowed from both political parties. Only the democrats have historically advocated an increase in the minimum wage. So on that score there is no ideological confusion since I am not borrowing any idea from the Republicans in that regard.
Second, your arguments are based on the Milton Friedman school of economics, a policy which was controversial even before the advent of a high tech globalized economy.
Throughout human history, the marketplace has served mankind well. However it isnt perfect. Capitalism isnt perfect. Market driven economics arent perfect.
There is a legitimate role of government to act as umpire when markets become distorted through monopoly or unfair and unethical business practices.
Conservative economists love to trumpet the virtues of the marketplace as if it were some type of invisible force, when in fact markets are the collective behaviors of very fallable and intrinsically corrupt people. All of us are intrinsically corrupt. Life isnt fair and cannot be made utopian. However "common sense" does require that when labor markets become dysfunctional because of corporate collusion, the government should step in and enforce some measure of equity.
Market driven economics is both an economic and a political theory and nothing more. Reality and theory are substantially different from one another.
Do you truly believe that the price of gasoline is due exclusively to market forces? Have you listened to recent congressional testimony about the role that foreign speculators have had in artificially raising the price of gasoline? One economist estimated that up to 50% of the cost of a gallon of gas is due to such speculators.
Market speculation is not pure market economics at work my friend. Its manipulation of the marketplace for the financial gain of the very few over the majority.
Why is it that conservatives never talk about the "golden parachutes" doled out in the hundreds of millions to executives whose companies are either bankrupt or nearly bankrupt? What about all the corporate boards of directors which are comprised of the Chief Executive Officers of other companies who ensure that their corporate buddies will be taken care of in terms of compensation?
Is that pure market economics at work or is it "crony capitalism" at its worst??
Raising the minimum wage has a very miniscule effect on the cost of doing business, with the only exception being the small family business, for which some exemptions could equitably be given.
Otherwise to advocate an increase in the minimum wage for the "working poor" in this country is a supreme moral issue.
Its unfortunate that many conservatives who rail against abortion and gay rights and the sins of the flesh in other contexts, are totally blind to any concept of economic justice when it comes to business.
Yes the Libertarians are at least consistent when it comes to ideological consistency. Then again they too fall for this idealistic view of what free markets can accomplish.
There is such a thing as common sense. Those who dont possess it probably are morally blind in some fashion. The Rush Limbaughs of this world celebrate their own sense of rich white male intolerance and see nothing wrong with doing so.
Care for ones neighbor or community requires a conscience of some type and not an exclusive devotion to narrow self interest. "

" If you want the same old, same old, keep voting democrat or republican. If you are serious about real change, vote libertarian. Thank you. "

" Cutty Posted:
"Wouldn’t it be wonderful to have a political party that was in favor of raising the minimum wage AND in favor of national security at the same time? ..... To advocate this is not an example of ideological confusion but of simple common sense.
We need a President and a political party which protects BOTH its citizens domestically with reasoned and well managed entitlements AND which takes a vigorous stance in defending its national security interests abroad. "

REPLY:
The first domestic policy you're advocating (raising the minimum wage) is indeed "ideological confusion". Not because it picks pieces of policy from two opposing parties, but because it just plain doesn't add up. It may be "common" - but it's a "common" mistake.

When we raise wages by legislation (a.k.a. - the minimum wage) above the wage that people are getting anyway (the market wage), we create either unemployment, inflation or both. Part of the unemployment we are experiencing now is the unemployment created by this same misguided "common sense" policy.

Let's say that in Michigan about 25% of jobs pay at or near the current minimum wage rate. Let's say another 25% are union jobs that pay substantially more. Let's let another 25% be white collar jobs that pay salaries and the remaining 25% are a mix of self-employed, unemployed or otherwise employed.

Now let’s raise the minimum wage to $10. Let's say one of our low wage workers brought in $9.00 per hour - over and above the cost of materials. Let's also say that they were paid $8.50 per hour before the proposed minimum wage increase. At $8.50, their employer made $.50 per hour after paying the employee. At a higher minimum wage (of $10.00) - the employer would now lose $1.00 per hour for every hour that employee works. That leaves our employer two options: lay the employee off (unemployment) or raise prices so that the worker brings in more revenue per hour. If prices rise, real "common sense" says that people will buy fewer goods (and this time, “common sense” is also economic truth) - and the employer has to let someone go (there is that unemployment again - this time WITH inflation).

If average prices rise because 25% of the goods we buy went up in price (following option 2 above), then all workers who have contracts that require C.O.L.A. (Cost of Living Allowances) payments or otherwise have adjustments for inflation, will have an automatic raise in their wages (that's the 25% that are union workers and the 25% that are salaried workers). Their employers aren't getting more output per hour - just paying more for it. Just like our local employer of minimum wage workers, the employers have to either lay people off (unemployment) or raise prices to cover higher wage rates (inflation). Higher prices lead to lower sales and .... you guessed it, lay-offs.

This second round of inflation effects about 50% of the goods we buy, so it makes our minimum wage workers worse off – even if they kept their jobs through the first hit of inflation. Those unemployed now have even higher prices – eating away their savings faster than before (look familiar? - it’s what’s happening to gas prices, food prices, utilities etc – and those price increases in turn affect all the other prices over time). Does anyone getting a cost of living “raise” think that they are better off than they were at the old prices and old wage rate?

What about our final 25% - the self-employed? With less power to absorb the increase in materials costs (75% of goods now cost more) and less willingness to raise prices (they are the labor so sales losses cannot be matched with lay-offs), many of the self-employed (family owned businesses, small shops, etc) simply go out of business.

The only way to improve the standard of living of an economy is to make workers more productive. As an economy, we can afford to pay our worker $10.00 per hour - if they create more than $10.00 per hour in revenue (over and above the cost of materials). There are two general ways to do it: education (smarter workers work smarter - not harder) or create capital/technology etc that makes labor more productive. The second one requires us to make it profitable for companies to invest in new technologies – which is usually accomplished through tax breaks to companies (and yes, that includes oil companies) or tax breaks to individuals to invest (decreasing capital gains taxes, increasing the maximum on IRA contributions etc).

You simple can not legislate greater prosperity. "

" Just an inquiry to "dayooper". At what point are democrats willing to put the interests of their nation ahead of the interests of their party? At what point what democrats rally behind a Republican President, even one like Bush whom they despise, for the sake of the security of America?
If Russia began to invade Ukraine or threatened NATO generally, would you Mr. Yooper continue to rail against George W Bush?
Is your hatred for this man so profound as to blind you to national security threats posed by Russia?
Saying that experience doesnt matter within the context of national security is like saying experience doesnt matter when it comes to major surgery either.
Democrats are always known as being weak on national security and foreign affairs generally. They are in my opinion the party of appeasement. They generally dont believe in the U.S. military at all.
This nation needs a third party. The Republicans are too conservative domestically and only help their rich friends in banking and large global business. Democrats are too politically correct and naively liberal on most issues, particularly foreign policy.
Wouldnt it be wonderful to have a political party that was in favor of raising the minimum wage AND in favor of national security at the same time? Or a political party which favored some type of national health care system AND favored a strong military at the same time?
To advocate this is not an example of ideological confusion but of simple common sense.
We need a President and a political party which protects BOTH its citizens domestically with reasoned and well managed entitlements AND which takes a vigorous stance in defending its national security interests abroad. "

" I have yet to make up my mind as to whom I will give my vote. I have traditionally voted Republican, but I vote for the candidate not the party. It’s just that the Republican candidates have been more in line with my beliefs. I voted for James E Carter and I still think he is a great man. He was, however, a poor president. For a retired military officer, he surprisingly lacked the tactical wisdom to extract our people from Iran.

Our current president has shown himself woefully lacking in the strategic and tactical aspects of the commander in chief. I was hoping that McCain would step up to the plate and start showing some wisdom in that department. I find it depressing that he was one of the Keating Five. It’s an issue that he needs to address more thoroughly if he wants my vote. McCain has been a champion for campaign finance reform. It is very possible that his record since Lincoln Savings & Loan shows a changed man.

I understand that our economy is terribly important, nowhere more than Michigan, but it’s not the key issue to me. I’m waiting to see which of the candidates is willing to make a statement about the committing of American military forces.

The purpose of the military is to kill the enemy. It’s what they train for and we do it better than any country in the world. Though I deplore the necessity, I recognize it. Our military is not a peacekeeping force. To use them in that fashion is to throw away the precious lives of our sons and daughters. When Coleman Powel was asked what his plan for conducting the first desert war was, he said, “We’re going to put them in a box. Then we’re going to kill them.” He was right.

We have lost more soldiers since the war ended than we lost fighting it. During war our soldiers fight to kill the enemy. Peacekeeping soldiers fight to just stay alive. I’m waiting for one of our candidates to say, “The proper use of American military is to get in, get it done and get out.” "

" In regards to experience given McCain the tools to be a better President. The current Administration that started a war with the wrong country, that has turned us into the most hated nation in the world. That has ruined our economy with record spending and tax cuts for the wealthiest people and corporations in the US. That has given us the reputation of a nation that kidnaps and tortures people. This is the most experienced admin. you could ask for and very likely if not the worst Admin. ever they are one of the worst ever. So much for experience. "

" I agree with you Frank, but with foreign policy now becoming more prominent in the news lately, with the Russian Federation throwing their weight around globally, are we to trust the freedom and security of our nation to a Junior Senator from Illinois with hardly any foreign policy experience??
I worry about the future security of our nation and world when we have such bad actors on the world stage such as Vladimir Putin, Hugo Chavez, the current President of Iran ET AL.
John McCain has had 25 years in public life to make mistakes and to acknowledge them. Barack Obama will require a lot of on the job training. By the time he admits to making a huge mistake, our freedom and our identity as a nation could already be lost. "