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Object Lessons in the Minimum Wage
Today is the sort of day that demands a quick and easy lunch. You see, I’m preparing for my company’s annual financial audit and I really just don’t have the time to wait around. (I usually try to get this audit done in February, but the birth of my anchor baby got in the way of that.) So, come 12:30 pm I hauled myself away from my desk and off to the nearest fast food establishment to grab a quick bite.
The restaurant is called CaliBurger, a not very subtle rip off of the great In-N-Out Burger, located near my office in Pasadena, CA. I’ve eaten there before but its usually not my first choice, the quality isn’t great and it’s a tad expensive compared to the real deal. What I like about it is that it’s close and they serve you quickly. The staff was always attentive and the service pretty good for a fast food joint. Lo and behold, when I arrived there today my experience was entirely different.
First, there was the person who greeted me and took my order:
Well, that’s new. Not that I’d never experienced an ordering kiosk at a fast food place before, it’s just that this place always had four employees at their various cash registers to take orders and keep up with the lunch rush. I looked around and saw one person milling about behind the cash registers, but he seemed to be doing other work. Ordering took about 30 seconds, a beep as my apple pay was charged and the machine spits out a receipt. There were no lines.
Ten seconds later the gentleman from behind the cash registers rushed over to me with a cup for my soda, which I filled at a self-serve station. He asked me if I wanted to watch my burger being made by “Flippy”. Well, I thought, that’s an odd and very specific nickname for the chef at a fast food burger joint, only to turn around and see:
Meet Flippy: the burger flipping robot. Equipped with a vast array of cameras and sensors Flippy can cook up to 300 burgers an hour to the exact same specifications every time. No more underdone or burnt burgers. He will even switch utensils for different jobs automatically and clean the grill in between each batch. Not only does he cook a pretty decent burger (it was the best one I’ve had at this restaurant) but he also is equipped with a sophisticated cloud-based AI that can learn from his surroundings and experiences and acquire new skills over time.
Well, damn.
Oh, that guy in the background? He’s Flippy’s assistant and puts cheese on the burgers when needed. I guess Flippy hasn’t acquired that skill yet. Other than the gentleman who brought me my cup and Flippy’s Sous Chef there was one other employee I could see, a nice lady who assembled the finished burger once Chef Flippy was done cooking the patty. The same gentleman from earlier brought my burger to my table.
All told, only three employees and a robot were there to serve me my lunch. Total time from order to first bite: about 2 minutes and 30 seconds. In a restaurant that used to employ four cashiers, nevermind the rest of the back kitchen staff required to make a burger.
Thank you, California’s $15 minimum wage.
Published in General
On a related note, this is extremely interesting.
No one talks about it because we never have a deflationary economy. As long as we have inflation, tax revenues go up. For example, say you buy an asset today, and inflation causes the price to double over the next 20 years. When you sell it in 20 years, even if the sales price is exactly what you paid for it in real dollars, you have a nominal capital gain, which gets taxed. There are all kinds of other examples where inflation increases tax revenues, such as bracket creep in the income tax.
Now, I don’t like that any more than you do, but you have to recognize the pressures that influence government policy. You’re not going to just wish them away. If you want to make some progress in the right direction, then support something like indexing capital gains to the inflation rate. That might actually get done. But just wishing for a deflationary economy is a waste of time. It’ll never happen and it wouldn’t work if it did happen.
They are running out of central planning options to fix this inflationary economy. They don’t know what they are doing.
Ever since robots and globalized labor came on there scene, they have been doing everything wrong. The relief valve is our currently whacky political system.
What happens next?
Nobody ever knows what they are doing. That was the key insight of Adam Smith and of Hayek. But I think you are putting way too much responsibility on the central bank for things that would happen with them or without them. If you want to see a really inflationary economy, remove the regulatory responsibility of the central bank and let commercial banks create endless money supply without constraint. That would create a boom and bust cycle that would look… well, it would look exactly like it used to look in the country before we had a central bank. And I don’t think you would like it very much.
Good question…
Market money would not do that. No way.
Back then, I think we needed a central bank that ran on a “real bills” principle to solve the swings caused by the agriculture cycle. That would be fine right now, too. There is nothing wrong with central banking that doesn’t push the economy around.
I think the other thing is, there was no good way to control what amounts to banking fraud back then. They had never thought it out enough.
I think realistically due to politics and the way our financial system is structured, the best we can do is just run with a 0% inflation rate and try like hell not to cause any asset bubbles.
In the problem is, measuring that stuff is a joke in reality.
Yes, markets could react to steadily falling input prices per unit of labor by holding input prices and output prices the same, and increasing velocity forever without limit. The equation of exchange doesn’t give any information about cause and effect.
And I admit I did consciously avoid bringing up that complexity in what I wrote.
But I don’t see economic reason why markets would act that way, and I’ve not read anything by economists to say that they would. (If I read George Selgin’s primer on monetary policy correctly he thinks that price deflation would occur).
Please educate me about why markets would prevent price changes. Meanwhile, here are my thoughts about the subject.
Velocity could increase exactly enough to compensate for the increased production if for some reason transactions got faster without limit at the right rate. Weekly paychecks, then daily, then hourly, and so on. But what is it about falling input prices that would cause that?
Regarding credit expansion increasing velocity, if we take the money supply to be circulation (money plus money substitutes) rather than base money, your argument that credit would grow is false by assumption. But that is avoiding the point you bring up.
The question is, if we consider M to be base money, would markets correct the disequilibrium caused by increasing productivity by holding input and output prices the same, and expanding credit without limit?
I think not. Under free banking, credit is limited by the need for prudent reserves, which would never go to zero because banks would occasionally fail, so credit expansion would halt at some time.
@larry3435
Ah, but as long as it is the Big Financial types who are getting part of the benefit of basically free monies, why would the media mention what you just did?
Think about this cluster fish of activity: How many ads on TV are about credit cards? Why do those ads exist? Surveys already carefully instruct those in management at the Big Banks that we do the 2018 equivalent of Tivo-ing our programs. No real humans are watching those ads, except for two year old Timmy when mom or dad runs out to the kitchen to get him a new snack. Does anyone think Big Finance people are too dumb to read those surveys?
But if the news rooms in this nation ever mention the scams that exist with regards to “public policy” – even one whiff of the reality of the control that banking and financial management has over our economy – then whatever unfortunate Talking Head was handed that script would be out of a job before his or her next makeup re-do. That Talking Head would be gone because someone at Chase or Bank of America would be telling the station executives how their ads, worth tens of billions every quarter, are about to be pulled.
Commercials are not commercials, they are bribery plain and simple.
One day the masses will find out what legal tender laws are really for.
I hate that I didn’t think of this myself.
The dollar is forced up so they can do whatever they want.
Also good.
Rufus, you would be very interested in George Selgin’s view of this, if you’ve not read him already.
In his view, what the US needed to avoid bank panics and runs, and financial crises caused by them, is relatively free banking, which was highly successful in Scotland and Canada for long intervals in the 18th through 20th centuries.
The efforts by the Federal Government to prevent financial instability by interventionist regulations were the CAUSE, not the cure. The main culprits were restrictions on note issue and on branch banking. Free banking solves the problem of cyclic demands for money and the inelasticity of money supply, which you refer to, through market forces.
References (downloadable)
“The Theory of Free Banking – Money Supply under Competitive Note Issue”
“A Monetary Policy Primer”
The only good news is, if the Democrats take the House, Maxine Watters is in charge of all of this stuff. lol
Larry,
George Selgin’s paper on Free Banking, which I mentioned in a reply to Rufus, has an excellent explanation of why commercial banks under free banking worked so well at least from a banking stability point of view, and never created unlimited credit, and would not do so today with fiat money that was not managed by government planners to manipulate markets.
He has also addressed the Austrian Business Cycle Theory, which raises a separate issue about bank credit from bank runs and panics. I’ve read only a smidgeon of his theory on this (that checking and saving account holders DO voluntarily save) and I have to say that I don’t find that part convincing.
WOW. I am tired today.
Right, right, right. I agree with that.
There is no one way to do this. All of them have bad features.
(I was a bank examiner a million years ago, if it matters. )
It never got in the news much, but The Comptroller of the Currency contributed greatly to the housing bubble. I know a guy that switched agencies because of it. He was disgusted.
Well, Carol, how many TV ads are about pharmaceuticals? How many are promoting beer, or perfume, or ambulance-chasing lawyers, or (God help us) politicians? I have to admit that I share your skepticism that all this advertising actually works, but the businesses that seem to believe in advertising are hardly limited to banks. In any event, just because someone is doing something that doesn’t make sense to you or me does not prove a conspiracy theory. I have read a good many of your comments here and, I must admit, I think you are far too quick to jump to conspiratorial conclusions based on scant evidence. For my part, I believe in the maxim “Never attribute to malice that which can be explained by simple stupidity.”
Mark, I will try to get to Mr. Selgin’s work (do you have a link?), but just as a passing observation – recent experience with bitcoin does very little to convince me that non-fiat currency will be treated responsibly, and will not be subject to massive bubbles and panics. And that’s just one of many examples.
Mark, I don’t believe I even suggested that would happen. In fact, I think the most likely effect of a deflationary economy is that, as consumers realize that their money will buy more tomorrow than today, they will start hoarding money – which is to say that velocity will decrease. And the historical evidence, at least to the extent that I am familiar with it, suggests that this is exactly what happens.
Bitcoin can not be created in unlimited amounts and isn’t issued to help political goals. It had / has horrible trading markets and no way to hedge until recently.That’s the problem. They still don’t have cash futures markets.
IMO, idea that legal tender laws enhance human flourishing is a complete joke at this point.
How is any Western central bank going to reverse their balance sheet at this point? How is any Western government actuarial system going to get repaired? All central banks do is rob from the future and give it to the already wealthy, Big Finance, and the government.
Here are links to the article and part 1 of the Primer.
http://oll.libertyfund.org/titles/selgin-the-theory-of-free-banking-money-supply-under-competitive-note-issue
https://www.cato.org/blog/monetary-policy-primer-part-1-money
The remaining parts of the Primer can be found in the archives at Alt-M.org, which is a blog maintained by the alternative money group at Cato.
If bitcoin does eventually become a money, which was its stated purpose according to creator(s), it will be a fiat money, as that term is usually used. That is, it will be a unit of indirect exchange (and thus, unit of account) with no use-value: a pure money.
Current experience with bitcoin doesn’t tell me anything about how it would perform as money.
I know this much:
Would it be treated responsibly?
Yes, if we restrict ourselves to bitcoin as money in the narrow sense. People rarely treat money irresponsibly because it is so valuable. People generally treat US dollars (base money, for example, Federal Reserve Notes) responsibly. Of course they occasionally gamble recklessly with whatever happens to be money in their society at the time, whether fiat or commodity money (gold, eg).
I believe that the US Govt. (or the Fed) does not treat the current US and main world trade money (USD) responsibly, in terms of management of the base money supply. Would they suddenly start treating the money responsibly if bitcoin were the money?
Yes. They would have no control over the base money supply, unless they were willing and able to break its security, or control its private use by draconian laws.
If bitcoin were to become the money, would banks act responsibly with respect to creating credit money?
In ANY monetary regime where there are banks, they will conduct fractional reserve banking, creating credit-money in the process. Whether they do so responsibly or not is unaffected by the name given to the virtual “money” (credit-money is always virtual money): call the units of money “dollars”, “bitcoin”, renminbi. it has no effect on their behavior.
Would there be massive bubbles and panics?
Bubbles and panics created by creation or destruction of base money would disappear. Those caused by creation or destruction of broad money (credit-money) would be unaffected by the change in money.
Harold Malamgren:
link
This is what is going to happen. The dollar is going to stay propped up forever, you will never get any interest over inflation, and political governance in the West will never improve in any way. Which means the government will run out of money at some point.
Then everything will blow up and we will point guns at each other while we figure out how to overhaul the global monetary system.
There is a lot in your comment with which I disagree, but I’ll limit my response to the statement above. Bitcoin would never be fiat money, because there is no government fiat recognizing it as legal tender. The usual definition of fiat money is “inconvertible paper money made legal tender by a government decree.” A unique characteristic of fiat money is that the government will accept it as payment for amounts due to the government (i.e., taxes). You can’t pay taxes with bitcoin, and I daresay you never will.
However, bitcoin is a medium of exchange, and therefore qualifies as money which is not recognized or regulated by the central bank. And as for the proposition that inflation (or deflation) is caused by whims of the central bank – if that were true bitcoin would be stable. It is anything but stable.
Thanks for your thoughtful comments, Larry. There are so many semantic differences between our posts that it’s hard for me to know where we agree and where we disagree.
According to that definition, you are right. When I used the term “fiat money” I was using a completely different definition of “money” than you are. In the sense I was using it,
By that definition, bitcoin isn’t money. It was meant to be money, it might become money, but it isn’t money now. Also, US Dollars would be classified as money in the international trade economy and in the US.
I was using a completely different definition of currency v. money, too. In my usage, the US Dollar is money, a paper dollar is currency: these are two completely different things. For you, currency and money are the same thing, it seems.
You also use a completely different definition of “legal tender” than I do. According to yours, a legal tender law regulates the use of a specified money. According to mine, a legal tender law regulates the use of a specified currency, and says nothing about the use of any money, including the money in which the currency is denominated.
For that reason, in my view a legal tender law is merely a regulation to streamline judicial proceedings, similar to a law declaring the length of one inch. It is a law that only becomes necessary when there is already a money in use, and it has no effect on what the market chooses for its money.
I believe that a thing becomes, and remains, a money mainly because of commerce, that is, markets generally make something a money. For example, the newly united states and the US Government accepted the dollar (at the time, simply a unit of measure, about 25 g of silver) because markets had already made it a money.
The market could make bitcoin into its money, replacing the USD etc., without Government accepting it for taxes and other legal obligations, but certainly it would be a huge obstacle, perhaps too big to overcome. You would have to exchange your money at tax time, etc.
I think you would agree that it is meaningless to regard “being a medium of exchange”, or not, as an inherent property of a thing. Whether something is a medium of exchange or not, at a point in time, must be completely determined by whether or not it is used that way.
Agree, it is not a central bank’s actions that determine it.
I have never thought that inflation is necessarily caused by the whims of the central bank. If I said that, I misspoke. Inflation occurs when, and only when, the aggregate demand for money balances decreases. That can be triggered by
A typical example of a monetary disturbance is credit expansion by private banks. Prior to 2008, in the US, credit expansions could be and were triggered by the central bank’s whim of buying Treasuries on the open market. Today, the Fed could trigger inflation by cutting the IOER rate, for example.)
Another monetary cause is a sudden fear of war.
An example of a real disturbance causing inflation is a decrease in productivity due to drought.
First, something that is not money can’t be a stable money nor an unstable money.
Why is the exchange value of bitcoin in US Dollars and other current moneys unstable?
Because the supply is stable and the demand is driven purely by idle speculation: during the panic, everyone is selling for the sole reason that everyone else is selling, not for any real cause, and as soon as the panic ends, another bubble begins to inflate, and everyone is buying for the sole reason that everyone else is buying.
If bitcoin were money (by my definition, which is perhaps the most common in economics literature), it could not possibly be wildly unstable. That it is so proves that it is not money.
Monetary policy won’t work without legal tender laws. Our Rulers force us with guns to use what they want to use as money. Monetary policy is nominally just a bunch of propeller heads GUESSING just like GOSPLAN to “help” us. It’s really just a tool to rip off the average person and give it to the government and Wall Street. It’s is a geopolitical weapon. See the Nomi Prins interview on Real Vision.
The thing is, I can say all of that in theory, but unless all of the other counties quit doing that stuff you have to keep your central bank as is, with all of it’s pernicious aspects. Your only defense is to get a good career and a good broker. It’s even better if you get in on all of the graft and rent seeking. Corruption > productivity and honesty.
The fact is discussing and thinking about politics is really a waste of time if you don’t factor this stuff in. Hardly anyone does.
Dr. Bob Murphy has a great, balanced podcast on bitcoin. I think it’s on ContraKrugman.
The other thing is, demographics affect how lose monetary policy manifests. Now we have a zillion old people that can’t get any interest over measured inflation because we have a zillion old people. The knock on effects are a sociological, political, and economic disaster.
Central planning: DON’T DO IT.
Mark, I think you are reading too much into my mention of bitcoin. My point was really just a response to Rufus who, if I understand him correctly, is arguing that without a central bank everything would be just peachy. Bitcoin illustrates (and you made this point) that anything that is used as a medium of exchange (whether you want to call it “money” or “currency” or “debt”) is subject to fluctuations based on greed and fear, which lead to bubbles and busts. Bubbles and busts can happen even with a central bank (e.g., the dot com bubble in the 90’s and the housing bubble in the 00’s) but I don’t object to the central bank trying, however imperfectly, to moderate the effects of such events.