Indexing minimum wage to inflation is a BIG thing

[cthulu2016]

I honestly do not know what I think about it.

Given the world as it is today, I am an advocate for inflation. The last 32 years have been about deep changes in the global economy that are deflationary and also bad for workers. Inflation hurts capital more than it hurts labor and a low inflation environment is a rising inequality environment.

But having said that... an indexed minimum wage is a potentially scary thing.

The most literal built-in brake on inflation is that people do not have infinity money. At some point demand drops off. (Demand is the combination of wanting something and having the money to pay for it.)

To mechanically tie wages to inflation creates a positive-feedback loop. It's dangerous stuff.

But you know what? Fuck 'em. I have seen what an economy organized around reducing inflation (call it 1980-present) does to the prospects of ordinary people and throwing a wrench in that machine might be appropriate.

[Rabid_Rabbit]

1. Can you quickly explain

"Inflation hurts capital more than it hurts labor"
Not an economist so I might be missing something, also I was raised by grand-parents from Europe who would tell of the horrors of inflation. The paycheck earned the day before was not enough to even cover a loaf of bread etc.

[cthulu2016]

2. Inflation devalues money

First off, I am not talking about hyper inflation as helpful. That is a fluke thing that RWers always trot out, but that is a freak thing about governments and currency, not the kind of steady inflation that modern economies need in order to operate well.

I am talking about, say, 4% versus 1%.

If you start out with a billion dollars your hoard grows smaller with every increase in inflation.

If you start out with a strong back and no money the value of your ability to carrying a load of bricks is in the future—it is work you will do, not money you have.

The wage for carrying those bricks tomorrow can inflate, and in practice it does. But to the person with the billion in capital, what he has (money) cannot inflate. He can only lose. So the inequality of capitalist and worker decreases.

And the capitalist has to invest to try to keep up. Hoarded money simply reduces in value, so capital has to spend money to make money. The price of money is going down. The price of cars is going up. So it is better to build a car factory than to sit on a giant pile of money.

High inflation (which I do not favor) is indeed disruptive, and poor people cannot stand much disruption. Average people are, indeed, hurt by inflation. They are also hurt by deflation. We are vulnerable to almost any change or disruption because we live close to the margin.

Historically, however, pro-inflation eras are eras of worker advance.

Here's a good way to look at it—labor is a commodity, just like bread or cars or houses. In an inflationary environment you want to own commodities. It is relatively better to be a worker. (Though one would still prefer to be rich)

One feature of our low inflation 30 years here is the explosion of the finance industry. Since low inflation make money (relatively) worth more then trading money back and forth becomes a big business.

With low inflation it is good to be owed money. With high inflation it is terrible to be owed money—you will get paid back with devalued dollars.

All of that said, the specific disruptions of inflation do hurt some people individually, and a lot of energy has gone into convincing working people to be unduly afraid of what capital fears most, which is the devaluation of capital.

[Rabid_Rabbit]

4. Thanks

That makes sense. Inflation makes the money saved less valuable but it makes my ability to work more valuable

[safeinOhio]

3. Ohio does it.

15 cent raise the first of this year.