5 ms·

continually adjusted each year for cost of living. One big risk here, or with any cyclically referenced benchmark, is runaway positive feedback. This can be e

continually adjusted each year for cost of living. One big risk here, or with any cyclically referenced benchmark, is runaway positive feedback. This can be exponential growth, oscillation, or exponentially growing oscillation. If wages are referenced to CoL, but CoL is affected by wages, you have this risk. A real example I have encountered: years ago, before an area I was living in experienced hyper demand, rent prices were fairly stable. I was able to get decent places just under $1k. My landlord was pretty chill, but said that they had to raise the rent eventually because they couldn't write off expenses (or maybe it was losses) if they were charging below the area median rent. So every year, landlords would have to increase the rent to the median, which would almost certainly raise the median (unless literally the bottom 50% of prices were exactly the same), and then they have to raise again, etc.

Robotbeat 6y ago
I don’t buy it. Civil servant salaries are adjusted for cost of living, and this isn’t just the lower levels but ALL levels. Again, this is just excuse. You can’t fix a lack of housing issue by keeping wages low.
- nitrogen 6y ago
  I don’t buy it. It's math. If f(x)=K * g(x-1), and g(x)=L * f(x-1), you need to be very careful about choosing values for K and L.
  - Robotbeat 6y ago
    It's not math, it's a hypothetical, somewhat absurd model. There's actual empirical research on minimum wage, and it doesn't support these claims of exponential cost increase: https://noahpinion.substack.com/p/why-15-minimum-wage-is-pretty-safe https://noahpinion.substack.com/p/why-15-minimum-wage-is-pre...
    - akiselev 6y ago
      That's because minimum wage isn't actively pegged to a cost of living measurement, it's manually adjusted from time to time (ostensibly to be inline with cost of living). That manual adjustment is slow and decoupled enough that there's no runaway feedback loop. If you legally define the minimum wage as a formula instead of an absolute number, and that formula includes cost of living, you can create a runaway situation.
      - Robotbeat 6y ago
        The fact that the minimum wage isn’t pegged means it IS adjusted: downward over time due to inflation. That has massive societal impact as it reduces wages for folks over time, risking homelessness and other effects of poverty. It also reduces productivity growth. THAT has real risk of runaway effects due to the compounding effects of poverty. I don’t see why a simple adjustment for inflation or cost of living is bad and risky a priori but allowing it to decline over time is a priori good and not risky. There is substantial bias in that assumption.
- ed312 6y ago
  It would be interesting to see a breakdown of the composition of an annual raise for a civil servant. How much (and from what factors) is the raise in pay related to CoL, and how much is it related to productivity? How is that labor actually valued? I think if 80%+ of that raise is due to CoL, that's clear evidence of this feedback loop in action.
  - nitrogen 6y ago
    The percentage of civil servants in the local workforce probably also has an effect. If only 2% of people are civil servants or otherwise receiving an indexed wage, then other factors may dominate. But if a large number of people are civil servants / receiving an indexed wage, then positive feedback might dominate.
    - Robotbeat 6y ago
      There isn’t a strong feedback effect, though. We know this because there are areas that have large civil servant populations. Secondly, we’re talking about minimum wage, not all wages.
Judgmentality 6y ago
> One big risk here, or with any cyclically referenced benchmark, is runaway positive feedback. This can be exponential growth, oscillation, or exponentially growing oscillation. Have we ever witnessed an exponentially growing oscillation in a large scale economic feedback loop like this before? I'd never really considered that concept for macroeconomics.
- Robotbeat 6y ago
  It’s not really a big risk, here. It’s hypothetical. A scare tactic to argue against increasing the minimum wage to even moderately adjust for for inflation and overall productivity growth (and cost of living growth).
  - nitrogen 6y ago
    It is very frustrating to have any kind of productive discussion when the slightest hint of anything unexpected is negatively labeled and associated with the entirety of some diametrically opposed position that was never actually raised.
    - Robotbeat 6y ago
      I apologize. But it's frustrating when people express opposition to even a minimum wage level from the 1960s with sort of outlandish hypotheticals. There's a bunch of pretty good empirical research out there on the effects of minimum wage increases, and none of them suggest this sort of "exponential" increasing effect. https://noahpinion.substack.com/p/why-15-minimum-wage-is-pretty-safe https://noahpinion.substack.com/p/why-15-minimum-wage-is-pre...
      - nitrogen 6y ago
        The thing is, you assumed what I believe. I'm actually in favor of higher minimum wages and indexing to costs. But the feedback-loop nature of the economic system, or any feedback system (where future output numbers of the system depend on previous outputs), must be acknowledged and accounted for, or else you will, mathematically, get exponential growth and/or oscillation. I also have a lot of family who currently live just fine making less than $15/hr. Their employers (small businesses) would have to raise prices (or go out of business, or both), which would raise costs, which would raise the CoL index, which would raise future minimum wages in a feedback cycle, if there is not some compensating factor in how wages and prices are set.

Robotbeat 6y ago

I don’t buy it. Civil servant salaries are adjusted for cost of living, and this isn’t just the lower levels but ALL levels. Again, this is just excuse. You can’t fix a lack of housing issue by keeping wages low.

nitrogen 6y ago
I don’t buy it. It's math. If f(x)=K * g(x-1), and g(x)=L * f(x-1), you need to be very careful about choosing values for K and L.
- Robotbeat 6y ago
  It's not math, it's a hypothetical, somewhat absurd model. There's actual empirical research on minimum wage, and it doesn't support these claims of exponential cost increase: https://noahpinion.substack.com/p/why-15-minimum-wage-is-pretty-safe https://noahpinion.substack.com/p/why-15-minimum-wage-is-pre...
  - akiselev 6y ago
    That's because minimum wage isn't actively pegged to a cost of living measurement, it's manually adjusted from time to time (ostensibly to be inline with cost of living). That manual adjustment is slow and decoupled enough that there's no runaway feedback loop. If you legally define the minimum wage as a formula instead of an absolute number, and that formula includes cost of living, you can create a runaway situation.
    - Robotbeat 6y ago
      The fact that the minimum wage isn’t pegged means it IS adjusted: downward over time due to inflation. That has massive societal impact as it reduces wages for folks over time, risking homelessness and other effects of poverty. It also reduces productivity growth. THAT has real risk of runaway effects due to the compounding effects of poverty. I don’t see why a simple adjustment for inflation or cost of living is bad and risky a priori but allowing it to decline over time is a priori good and not risky. There is substantial bias in that assumption.
ed312 6y ago
It would be interesting to see a breakdown of the composition of an annual raise for a civil servant. How much (and from what factors) is the raise in pay related to CoL, and how much is it related to productivity? How is that labor actually valued? I think if 80%+ of that raise is due to CoL, that's clear evidence of this feedback loop in action.
- nitrogen 6y ago
  The percentage of civil servants in the local workforce probably also has an effect. If only 2% of people are civil servants or otherwise receiving an indexed wage, then other factors may dominate. But if a large number of people are civil servants / receiving an indexed wage, then positive feedback might dominate.
  - Robotbeat 6y ago
    There isn’t a strong feedback effect, though. We know this because there are areas that have large civil servant populations. Secondly, we’re talking about minimum wage, not all wages.

Judgmentality 6y ago

> One big risk here, or with any cyclically referenced benchmark, is runaway positive feedback. This can be exponential growth, oscillation, or exponentially growing oscillation. Have we ever witnessed an exponentially growing oscillation in a large scale economic feedback loop like this before? I'd never really considered that concept for macroeconomics.

Robotbeat 6y ago
It’s not really a big risk, here. It’s hypothetical. A scare tactic to argue against increasing the minimum wage to even moderately adjust for for inflation and overall productivity growth (and cost of living growth).
- nitrogen 6y ago
  It is very frustrating to have any kind of productive discussion when the slightest hint of anything unexpected is negatively labeled and associated with the entirety of some diametrically opposed position that was never actually raised.
  - Robotbeat 6y ago
    I apologize. But it's frustrating when people express opposition to even a minimum wage level from the 1960s with sort of outlandish hypotheticals. There's a bunch of pretty good empirical research out there on the effects of minimum wage increases, and none of them suggest this sort of "exponential" increasing effect. https://noahpinion.substack.com/p/why-15-minimum-wage-is-pretty-safe https://noahpinion.substack.com/p/why-15-minimum-wage-is-pre...
    - nitrogen 6y ago
      The thing is, you assumed what I believe. I'm actually in favor of higher minimum wages and indexing to costs. But the feedback-loop nature of the economic system, or any feedback system (where future output numbers of the system depend on previous outputs), must be acknowledged and accounted for, or else you will, mathematically, get exponential growth and/or oscillation. I also have a lot of family who currently live just fine making less than $15/hr. Their employers (small businesses) would have to raise prices (or go out of business, or both), which would raise costs, which would raise the CoL index, which would raise future minimum wages in a feedback cycle, if there is not some compensating factor in how wages and prices are set.