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You just made a very persuasive argument that increasing minimum wage will spike inflation. But I don't think this is true when you look at the data. We've rec

You just made a very persuasive argument that increasing minimum wage will spike inflation. But I don't think this is true when you look at the data. We've recently increased minimum wage a lot over the last 8 years, but inflation hasn't really moved at all. And from a theory standpoint minimum wage increases should have very little effect on inflation. Standard inflation theory is too much money in the economy. And too much demand for goods, causes too much demand for workers. This causes a tight labor market which drives wage rates which get passed onto consumers through increased prices. But minimum wage workers have the least amount of negotiating power, and since the minimum wage is higher than their market wage they by definition can't negotiate. Which makes it impossible for them to drive inflation. > One, a higher cost of labor due to inflation, and two, from higher costs of borrowing money. As a result, companies increase prices even further, which starts an upward spiral where wages can't keep up. Inflation does have some serious problems, but the idea that wages can't keep up with inflation doesn't make any sense. How can wage driven inflation drive inflation higher than wages? I'm also not sure borrowing money is any more expensive. The nominal interest rate increases, but the real interest rate decreases. There is a large boon to current borrowers when inflation unexpectedly increases, and a boon to loaners when inflation unexpected decreases.

repolfx 8y ago
Well you have to be careful with the data. Firstly, inflation stats don't track every price. In particular they don't track house prices (directly) or the prices of financial instruments like debt, stocks, etc. So money printing that pours into the stock market will cause a market bubble whilst inflation stats stay stubbornly low. Secondly it's possible businesses have adapted to increased minimum wage laws by simply automating those jobs away. I see a lot of robotic airline checkin desks and McDonalds order takers these days.
- JamesBarney 8y ago
  They don't track financial assets because those jump around a lot based on interest rates(because of how interest rates effect future discounted cash flows). So this can give you the false impression that inflation is happening when it isn't and vice versa.
- JamesBarney 8y ago
  Imagine a bond pays out $10,000 in 30 years. Now if the interest rate is 0 that bond is worth $10,000. But if the interest rate is 10% then that bond is worth $573. So if the interest rate goes from 10% -> 0 we would have 1700% inflation. Which is crazy especially if all other goods and services in the economy remain unchanged.
  - repolfx 8y ago
    Why would that be crazy? Isn't that a circular definition of crazyness? Inflation is whatever statisticians say it is - if inflation stats were very different to how they are now, why would that would be crazy? Maybe it's crazy that we constantly read about asset bubbles yet inflation stays flat? The intuitive definition would imply inflation should swing up and down wildly given the huge size of the bubbles in question. In reply to your second post, which I think is essentially the same as this one, it makes no sense to say it'd give "a false impression inflation is happening". Inflation is whatever set of prices we want to include. If we arbitrarily exclude some because we think inflation stats should look a certain way, that's the tail wagging the dog - this data exists to inform decision making, not tell us what we want to see.

repolfx 8y ago

Well you have to be careful with the data. Firstly, inflation stats don't track every price. In particular they don't track house prices (directly) or the prices of financial instruments like debt, stocks, etc. So money printing that pours into the stock market will cause a market bubble whilst inflation stats stay stubbornly low. Secondly it's possible businesses have adapted to increased minimum wage laws by simply automating those jobs away. I see a lot of robotic airline checkin desks and McDonalds order takers these days.

JamesBarney 8y ago
They don't track financial assets because those jump around a lot based on interest rates(because of how interest rates effect future discounted cash flows). So this can give you the false impression that inflation is happening when it isn't and vice versa.
JamesBarney 8y ago
Imagine a bond pays out $10,000 in 30 years. Now if the interest rate is 0 that bond is worth $10,000. But if the interest rate is 10% then that bond is worth $573. So if the interest rate goes from 10% -> 0 we would have 1700% inflation. Which is crazy especially if all other goods and services in the economy remain unchanged.
- repolfx 8y ago
  Why would that be crazy? Isn't that a circular definition of crazyness? Inflation is whatever statisticians say it is - if inflation stats were very different to how they are now, why would that would be crazy? Maybe it's crazy that we constantly read about asset bubbles yet inflation stays flat? The intuitive definition would imply inflation should swing up and down wildly given the huge size of the bubbles in question. In reply to your second post, which I think is essentially the same as this one, it makes no sense to say it'd give "a false impression inflation is happening". Inflation is whatever set of prices we want to include. If we arbitrarily exclude some because we think inflation stats should look a certain way, that's the tail wagging the dog - this data exists to inform decision making, not tell us what we want to see.