"An increase in the minimum wage will raise workers' incomes, which will increase aggregate demand, which will increase output and employment. So would an increase in union wages."
I remember hearing that argument a lot in the 1970s. You don't hear it as much nowadays, but it still lives on in the underworld of economic ideas.
It's (usually) wrong; but it's not a stupid argument. And you can't dismiss it just by drawing a downward-sloping labour demand curve, and showing how an increase in wages will cause a movement up along that demand curve, to a point with lower employment. The whole point of the argument is that an increase in aggregate demand will shift the labour demand curve to the right.
And (most) firms (nearly) always want to expand output and employment. What constrains firms from doing so is not that wages (and other costs) are too high to make additional sales at current prices unprofitable. What constrains firms is demand. They want to sell more output, and would be able to hire the extra labour needed to produce more output. They just can't find the extra customers to buy more output.
Ask any firm this question: "If I could bring you more demand, at your existing price and quality, would you be able and willing to produce more and sell more?" Most would answer a very enthusiastic "Yes!". That's why they spend money on advertising, for instance.
When I put down the textbook and look out the window I see a world where output and employment are (nearly always) constrained by demand, not by supply. So it seems very plausible to suppose that an increase in wages across the economy, if it raised aggregate demand, would increase output and employment, even if it did raise costs a bit. You wouldn't want to raise wages too much of course. If you did raise wages too much so that marginal costs increased above the price of the good, it wouldn't work, because firms would no longer want to increase output and employment to satisfy an increase in demand.
So, what's wrong with the argument?
First, if you wanted to increase aggregate demand, why not just use monetary and/or fiscal policy? Why increase minimum wages? Fair enough. But suppose you wanted to change the distribution of income as well? Why not use an increase in minimum wages to increase aggregate demand?
Second, why would an increase in minimum wages increase aggregate demand? The simple argument is that an increase in wages increases people's incomes and if people's incomes rise, their demand will rise. But that simple argument is fallacious. It forgets that capitalists are people too. For a given level of output, which means a given level of income, if wage income takes a greater share, then non-wage income must take a lesser share. You need to argue that the distribution of income affects aggregate demand.
It might. Maybe there's a lower propensity to save out of wage income. Or maybe the velocity of circulation is higher for wage income.
But let's get to the main point.
Start in equilibrium where there is no upward or downward pressure on prices (or where the upward and downward pressures are exactly balanced). That does not mean that supply equals demand. It would mean that supply equals demand if markets were perfectly competitive, but they aren't. Markets are imperfectly competitive.
If markets were perfectly competitive, in equilibrium each firm (and worker) is on its supply curve. Price = Marginal cost (Wage = Marginal disutility of leisure). It doesn't want to sell any more output (labour) at the current price (wage). The economy as a whole is on its aggregate supply curve.
The one great thing about New Keynesian macroeconomics is that it let us think about macroeconomics when markets are imperfectly competitive, and each firm (worker) faces a downward-sloping demand curve. And most firms (and some workers) do want to sell more output (labour) at the current price (wage). The economy as a whole is off its aggregate supply curve. It wants to sell more.
Offered a deal in which demand increases so they can sell more output and labour, but cannot raise prices or wages, most firms and some workers would accept the deal. Aggregate output and employment could rise.
But that's not the deal they are offered when aggregate demand increases. They are offered an increase in demand; they can choose to increase output and employment, or increase prices and wages, or a bit of both. Most will choose a bit of both. And that's the problem.
Starting in equilibrium with no upward pressure on prices or wages, any increase in aggregate demand, output and employment will put some upward pressure on some prices and wages. It doesn't matter how small it is; even if the average individual firm (worker) raises its price (wage) just a little, the positive feedback effect results in an infinite rise in prices and wages.
There is positive feedback because each individual firms and worker cares only about the real price and wage — which means the price and wage relative to other prices and wages. Upward pressure on prices and wages means upward pressure on relative prices and wages. And it's impossible in aggregate for the average firm to raise its price and wage relative to the average price and wage. The attempt by each to do so results in an upward spiral of unlimited speed.
It's the Long Run Phillips Curve that limits the effectiveness of aggregate demand, not the Long Run Aggregate Supply Curve. Both are vertical, but they are not the same curve. The LRAS curve tells you the level of output at which firms and workers would be unwilling to sell more output and labour at existing prices and wages. The LRPC tells you the level of output at which firms and workers would be unwilling to try to raise their relative prices and wages.
If the economy is in equilibrium, at a point on the Long Run Phillips Curve, an increase in minimum wages, or union wages, even if it does increase Aggregate Demand, will not increase output and employment in any sustainable way. Nothing that only increases Aggregate Demand will increase output and employment in any sustainable way.
It's worse than that.
An increase in minimum wages will cause a firm's Marginal Cost curve to shift up. For a given level of demand, an increase in MC will cause an increase in the firm's profit-maximising price. Start in equilibrium, at a level of output and employment where there is no upward (or downward) pressure on prices and wages. So the economy is on the LRPC. Then increase the minimum wage. Now there is upward pressure on prices and wages. The economy is no longer on the LRPC. The LRPC has shifted. We would now need lower output and employment to create an offsetting downward pressure on prices and wages. Anything that increases the upward pressure on prices and wages, for a given level of output and employment, will reduce the sustainable level of output and employment.
Are there any cases where an increase in the minimum wage would cause a sustainable increase in employment? Yes, I can think of three:
1. Suppose aggregate demand is too low, so we are off the LRPC, and there is risk of a deflationary spiral. And suppose that monetary and fiscal policy cannot be used, for some reason. Then it is conceivable that an increase in minimum wages could increase aggregate demand, and bring the economy back to the LRPC, and be the only way to do so. Maybe.
2. Suppose the labour market has monopsony power. Wages are below the competitive equilibrium. There is excess demand for labour at the given wage. Firms won't hire more labour because they would need to raise wages to persuade workers to sell more labour. In this case, an increase in minimum wages would shift each firm's MC curve down, not up. They would respond by lowering prices. For a given level of output and employment, this would put downward pressure on prices. This would shift the LRPC curve in a good direction. But that's a labour market where firms are hungry for workers; not a labour market where workers are hungry for jobs. It doesn't sound much like Canada, on average.
3. This one's weird. Start in equilibrium, at a point on the LRPC where there is neither upward or downward pressure on relative prices and wages. Now suppose that an increase in output and employment would cause downward, not upward pressure on prices and wages. That means the initial equilibrium is unstable. Any small increase in output and employment would cause prices and wages to start falling, and the economy would move down along the AD curve to higher output and lower prices, until it eventually hit the LRAS curve, and prices and wages stopped falling, because nobody wants to sell any more output and labour at given prices and wages. As with all cases of unstable equilibria, the comparative statics have the "wrong sign". Anything that increased upward pressure on wages and prices would shift the LRPC in the good direction.
I could rig up a model that looked like this, if I wanted. Assume some combination of: increasing elasticity of an individual firm's demand curve as aggregate output increases; increasing marginal product of labour as aggregate output increases; downward-sloping aggregate labour supply curve. Anything that causes an individual firm's Marginal Revenue curve to shift up, and/or Marginal Cost curve to shift down, when aggregate output increases.
But we can rule out that last case. It would only be by sheer fluke that any economy found itself in an unstable equilibrium. Almost certainly, the economy would already be at maximum capacity, or else be at zero output.
And in any case, if we were by fluke at that unstable equilibrium, and an increase in minimum wages shifted the LRPC in the good direction, the economy would likely go off in the other direction, towards zero output and employment. The better thing to do would be a sudden burst of monetary expansion, which would cause output to rise and prices to fall.
Worthwhile Canadian Initiative 
Yes I was invoking various complex externalities – but there almost always are complex externalities, and there are lots around the minimum wage. The comments point to some.
I presume that you are not making a theoretically interesting point, but an argument directed at policy. If so, ignoring the externalities is hard to justify.
What are these externalities?
Stephen
Well, for a start, wages are rarely an arms-length negotiation, and in practice are not all that flexible. Workers in general are constrained by family needs, location, a sense of their relative power and their lack of negotiating skills relative to employers (who can, after all, employ specialist negotiators and people skilled in the relevant law). Why do you think employers (and unions) put time and money into lobbying for changes to employment law? Employers are often constrained by law, and sometimes by community attitudes.
Minimum wages are often either starting wages for the young, or wages for the least advantaged (eg migrants, unskilled women). Setting them too low pushes families or other informal support networks into subsidising the wage (eg pizza delivery where the employee is using the family car). Surely this counts as an externality?
While a pure theoretical approach would lead to the conclusion that wages cannot be below subsistence, lots of studies show that employed people in these groups in the UK and the US can have negative income – their wages do not cover their costs of living. The difference is made up by charity, the state, family and so on.
The largest externality probably arises from the fact that humans – like other closely-related social species – are very sensitive to relative status. There are well-charted links between relative status, stress, cortisol levels and general health. In brief, lower status people are sicker, die younger and have less healthy children (Wilkinson’s Mind the Gap is a recent summation on humans, but the same findings have been made for baboons and other social primates). Wages are a signal of status, but also an enabler of status in non-monetary areas (hard to be the best backyard chef in the neighbourhood if you can’t afford a barbecue). So the minimum wage level affects a large group in lots of non-obvious ways. If it’s below what’s needed to maintain the social decencies, this has large effects. I believe Adam Smith made this point – wages needed to be high enough for a working man to afford shoes in England, but not in Scotland, where going barefoot was not a mark of extreme poverty.
That enough?
Allan: “No it isn’t. The sales are not that responsive to price. Any marketing guru will tell you that.”
If sales (quantity demanded) were extremely responsive to price (as under perfect competition), then the firm’s demand curve and MR curve are both horizontal (and MR=P). As sales get less and less responsive to price (as we move towards imperfect competition), the demand curve gets downward-sloping and steeper, so does the MR curve, and MR becomes lower relative to P. So what you are arguing here totally contradicts what you said earlier about the MR curve being upward-sloping.
Again, read a basic micro textbook.
Peter T. If an increase in minimum wages causes an increase in unemployment, that would also cause a negative externaility.
There is a big externality in the sort of model I’m talking about. It’s called the Aggregate Demand externality. Any increase in any price or wage causes a reduction in the real level of Aggregate Demand that is sustainable. The solution to that externality, in principle, would be to impose maximum wages and prices, not minimum wages or prices.
In principle, maximum wage and price controls, allowing the central bank to increase AD without triggering inflation, can make people better off.
Wage and price controls can work in principle, at the macro-level, in this sort of economy with imperfect competition. The trouble with doing so is at the micro level. Because there are lots of relative price changes needed that this sort of policy would not allow.
Nick writes: “Jon: here’s my take on your argument. I basically agree, but have a different way of thinking about it.”
Okay, I’ll believe that. Always fascinated by your deftness with model isomorphism.
Nick writes: “I agree that econometric studies of economy-wide changes in the minimum wage would need to be macro-based, and take the CB’s reaction function into account. But changes in provincial minimum wages could maybe ignore macro effects.”
I didn’t mean to argue to the contrary. My point was only to state that my narrative was consistent with there being a broad range of results from econometric studies. Neither of our arguments really holds for a minimum-wage change applied to a small region within the larger economy. That’s a purely micro-economic question, and its clearly not prescribed by the LRPC or LRAS given the mobility of capital and people in that context.
“If I charge coffee at 50 cents and sell 1000 cups and then sell coffee at $1 and sell 990, I get an upward sloping MR do I not?”
No. You don’t. Assuming a linear demand curve, using the points you describe you have a demand curve of Q = 1010 – 20P. This yields a marginal revenue curve of MR = 1010 – 40P. Which you’ll note is downward sloping.
p vs qp
Revenue is not a q
Arithmetic error Mike!
Assuming a linear demand curve you get:
Demand curve: Q=1010-20P (as you say)
Invert it as: P=50.5-0.05Q
Total Revenue curve: TR=PQ=50.5Q-0.05Q^2
Take derivative wrt Q:
MR=dTR/dQ=50.5-0.1Q
I think I got that right.
(You forgot to invert the demand function).
But yes, the MR curve is downward-sloping.
Allan:
And, regardless of the linearity or otherwise, the elasticity of demand in your example is less than one over the range $0.50 to $1.00, so MR is negative. That firm would certainly raise price, because it would increase Total Revenue (plus, presumably, lower Total Costs) if it raised price.
A change in marketing is a shift in the demand curve (and a shift in the MR curve), not a movement along the curve. It says nothing about the slope of the MR curve.
“(You forgot to invert the demand function).”
Whoops! That’s what happens when I also forget my afternoon coffee.
Allan: “Prices are not based on cost at all. Your insistence that they are stems from a lack of business experience and a subjection to business propaganda that, “We only raise the price because we have to”. Business raises the price because it can. It only lowers the price when it has to.”
This shows a total misunderstanding of economics.
Economists certainly do not believe that “We only raise the price because we have to”. Economists believe that firms raise price whenever doing so would increase the firm’s profits. And whether or not an increase in a firm’s price raises or lowers profits depends on whether MR is less than or greater than MC.
OK: here’s micro 1000.
A firm faces a demand curve. The demand curve shows the relation between Price and Quantity demanded, other things equal. The firm chooses that point on the demand curve at which profits are maximised. That point is determined by MR=MC. A small (one unit) increase in Q (cut in P) will raise its Total Revenue by MR (by definition of MR), and will raise its Total Cost by MC (by definition of MC). If MR is greater than MC it will increase TR by more than TC, and so raise profits by increasing Q, and will keep on raising Q (cutting P) until it reaches a point where MR=MC. Conversely, if MR is less than MC, it will cut Q, and keep on cutting Q (raising P) until MR=MC.
Continuing: so the MR and MC curves determine the profit-maximising Q. And the demand curve then tells you the Price you need to get that profit-maximising Q. So, in general, the profit-maximising price depends both on the demand curve (which determines the MR curve), and on the MC curve.
The only case (I can think of) where a firm’s MC curve has no effect on P is where the demand curve is horizontal. (And even in that case, which is normally due to perfect competition, an upward shift in the MC curve of all firms in the industry will cause an increase in the market equilibrium price, and shift each firm’s horizontal demand curve vertically upwards, and so still raise price.
It’s Marshall’s scissors. Both blades of the scissors do the cutting. Price depends both on the demand curve and on the cost curve. That makes sense, because profit is Total Revenue (which depends on the demand curve) minus Total Cost (which depends on the cost curves). So a firm choosing the profit-maximising price will look both at the demand curve and at the cost curve.
I have a fair bit of experience in business, both as an accredited investor and in management. The success of a firm is driven by the numbers. Everyone in management, in sales, etc, knows the costs. You have to know it to start negotiating anything. You guess at your vendors costs, and your customers guess at yours. Planning revolves around costs. Everyone computes the numbers and drives the bargain end-to-end.
One point though–perhaps its because of I’ve been involved with growth industries and small firms–the cost curves seem much flatter that anyone draws them in school. The most significant up-sloping factor within the firm tends to be organizational structure. One guy can do a 100, but 10 guys don’t make 1000. First, the ‘one guy’ is usually exceptional and second 1 of those 10 guys is supervising, 1 is in some other support role…
Maybe if I was COO at McDonalds, I’d see the upsloping costs of more potatoes! I’m not so sure. I think this reflects that even the largest firms are quite small relative to the whole (world) economy.
Otherwise its much more common to see substantial returns to scale.
The fascinating part–to me–is that many of these statements are wrong at the macro-economic scale.
Jon: very interesting comment. My working hypothesis is that individual firms’ MC curves are roughly horizontal, and MR curves downward-sloping.
At the macro-level, my working hypothesis as that the (real, inflation-adjusted) “Macro-MR curve” is roughly horizontal, and the “Macro-MC curve is upward-sloping.
By slope of “Macro MR curve” I mean d^2TR/dydY + d^2TR/dydy evaluated where y=Y, where y is individual firm and Y is average firm. In words, what happens to an individual firm’s real MR when it and all other firms expand output by the same percentage. If the individual firm expands output by 1% its MR falls, but when all other firms expand output by 1% its MR rises again, and by roughly the same amount. Because the relative price stays the same when all firms expand output by the same %, and so does elasticity of demand.
What I am trying to tell you, and what every salesman will tell you, is that prices are not fixed by a calculator or a study graph. You sell for as much as you can, and if the circumstances of the negotiation are such, you have a huge latitude on which to play with. Your theories just do not coincide with the real world.
Allan:
“You sell for as much as you can”
Some things to think about:
– Why do firms offer volume discounts?
– Why would management not hire infinitely many sales reps? Put another way; if a firm was to considering hiring one more sales rep, can you think of a reason why they might decide against it?
You argue theory against reality. There is a saturation point to the market, and you cannot sell more product regardless what you do to the price or what costs you incure in marketing. You don’t try. If the thing doesn’t sell at the set price, you scrap it and move to the next item. You do not try and dither an extra penny return by adjusting the price. It sells or it doesn’t and that is all there is to it. Only when it is selling do you dither the price some, and that is almost always up!
And firms offer volume discounts because they are trying to maximize the sales return, and like it better to be getting 50,000 on a hundred items than 20,000 on 10 items. The costs are not a factor on the pricing game.
“The costs are not a factor on the pricing game.”
Sure, that’s why I can down an buy myself a Porsche for $1.27 and some pocket lint.
“firms offer volume discounts because they are trying to maximize the sales return”
How do they calculate sales return?
… and you didn’t answer my second question.
“That is your theory, and whoever wrote it, and whoever believes it, has no experience in business. You choose your price on a gut level to try and maximize sales. If it does not sell at the price given it, you throw it out or slash prices well below costs to clear the shelf for another item. If it IS showing good sales at the price selected and so giving you profit, you might well raise the price some to test the elasticity of the demand. If you find by raising prices that your dollar take is increased, you will probably do it again.
The manager seeks to maximize the revenue and minimize the costs. With experience he gets better at both goals, and with any experience he will know that the two goals are not connected at all.
“Of course you do. That is the base line, but you don’t sell anywhere near that line or you’d get fired. You try and sell as far away from the costs as you can get away with. The costs certainly do not dictate the price.”
Actually Allan, they do dictate the price. You just said it yourself. If they didn’t, then I wouldn’t need to know the base line to begin with.
Allan said: “They won’t sell it without making a profit”
How can you say costs don’t matter then turn around and say that a sale wont’t happen unless the vendor makes a profit? Since profit is, by definition, revenue minus costs, on your account, costs matter. If you increase costs, on your account, some sales that might otherwise have occured won’t happen because the vendor won’t make a profit.
But, hey, can you tell me where I can get four porsches for the price of three?
Let me see if I understand what you’re saying, the price is set at whether or not the sale will be made. So are you saying that a vendor will always want to make a sale even if its less than cost? That’s clearly nonsense. I’d happily buy a porsche for $1.27, but I don’t see anyone beating a path to my door. If the buyer isn’t willing to pay you at least marginal cost, it’s not bad if he goes away, it’s good. Any sale would either cause a loss to you, or would have an adverse effect on the customers well being (because he’d be paying more than he values the goods or services.
And if the price is constrained at the bottom by cost, you’ve conceding that costs matter.
You write: “You choose your price on a gut level to try and maximize sales. If it does not sell at the price given it, you throw it out or slash prices well below costs to clear the shelf for another item.”
Of course there is a difference between a going concern and a liquidation. While going firms sometimes have to liquidate–that’s risk, and in the net, that raises the overall cost-basis–a continuing business recovers it elsewhere. I think you’ll find that even through some ‘speculation’ results in a loss that is not a MR/MC sort of thing. After all, once you discover the loss you surely don’t supply one-more unit. You liquidate.
But in aggregate those losses are built into the ‘margin’ over BOM on other salable items. That’s the risk return to capital at work.
The return to capital is a component of cost. This is one of the clever little linguistic ways that economics and business do not speak the same language.
Consequently, although you may observe in your words, “The profit is wholly elastic. The price isn’t according to how much will be made on the sale, but whether or not the sale will be made. Good if I make 10, better if I make 20, bad if the buyer goes away. Good if I sell 1 and make 10, better if I sell a hundred and make 20, best if I sell a hundred and make 1000. And with markups easily up to 85%”
This is a one period analysis. If the sum of those ‘profits’ do not cover the return to capital beyond the immediate costs, the firm ceases to exist. So I disagree entirely with your conclusion. Price discrimination is a great way to make money but looking at the aggregate, forget about temporal ordering–which deal do you turn down? Its the marginal one. i.e, MR=MC.
Allan: ” Too, the MC is down sloped, and you can replace the 100 cheaper per unit than you can replace the single unit.”
That sounds like a downward-sloping ATC curve, rather than a downward-sloping MC curve.
Yep, if AVC and MC are horizontal, but there is a fixed cost of producing a batch, the ATC curve will slope down.
Now say someone comes in and says, “I’m buying 200 cans of coke, but you’d better make me a deal or I’m out of here” What do you do? You could go to .45/can, and still have a losing hour, or you could say .50/can just to cover the hour’s cost, or .55/can to show some profit. But what if he’s only looking for say .75/can? You have a chance to make money, and you’ll try and make as much as you can. How much it costs you to keep the store open plays no part in this pricing game. You just need to keep the client happy.
Allan: in your example the MC of selling a can of Coke is $0.40, and the MC curve is flat. The Average Total Cost Curve is the one that is downward-sloping.
Also, an increase in the minimum wage in your example increases Fixed Costs, and so Average Total Cost, but does not affect MC.
You are right that a change in Fixed Costs does not affect Price (except that an increase in Fixed Costs may cause some firms to make losses, exit the industry, and so reduce the number of firms left, which can increase demand for sales at the remaining firms, and that may affect Price.)
This works if the sales assistant is underemployed, so you can sell more Cokes without hiring more sales assistants. (Up to some point, where the MC curve rises because you have to hire more sales assistants if you want to sell more Coke). If the elasticity of demand for Coke at your store is e, then MR=(1-1/e)P. So setting MR=MC to maximise profits you charge a Price P=[1/(1-1/e)]x$0.40
And all of the above (except the math in the formula) is micro1000.
Oh, you teach that the businessman doesn’t care about your formulas or your theories?
Allan: “I am telling you that I don’t give a rats ass as a businessman. Either I am making money or I am losing money but I THOUGHT I could sell it at that price and I AM selling it at that price, and now that the price has been set, I just need to get the volume.”
You don’t give a rat’s ass about getting more profits? And, doesn’t volume depend on price?
“Making the client wait in line might mean losing a client, and so you might put on another cashier, but this is a marketing cost, and not something that can be added to the MC. Yeah, if you’re selling 800 cans of coke an hour, you’ll need another cashier,…”
But if you need to hire more cashiers to sell more cans, that is a part of the Marginal Cost of selling an extra can.
Allan:
“Oh, you teach that the businessman doesn’t care about your formulas or your theories?”
I teach that they come to roughly the same point, on average, by a process of trial and error, and copying what works. Rather as you describe it.
“>And, doesn’t volume depend on price?< Only to a very minor extent.”
If the percentage fall in volume is less than the percentage rise in price, then elasticity of demand is less than one, and you really should raise price to increase profits. MR is negative.
” MC is always down sloped.”
It might be, for some firms, over some range, I agree. But always?
” MC is always down sloped.”
“>If the percentage fall in volume is less than the percentage rise in price, then elasticity of demand is less than one, and you really should raise price to increase profits. MR is negative.<
But you see, price has almost no impact on immediate volume, but has high impact on growth rate. That is why in my example, that the price went up once the volume was sufficient. That is why concession stand prices are astronomical. They do not seek any growth rate.”
Let me ask you this Allan. Let us take your coke example. At $1.20, you say growth rate has leveled out. Let us say then, you raise the price to $3.00. Growth rate will obviously fall, but will volume fall? Will you still be able to sell the same amount as you did at $1.20?
“The growth rate would go negative. The first day you would probably sell just as much, but the people would be pissed, and start looking for other ways to spend their money.”
But volume would not decrease?
”
“The growth rate would go negative. The first day you would probably sell just as much, but the people would be pissed, and start looking for other ways to spend their money.”
But volume would not decrease?”
I ask this because of say, gas prices. Gas prices have increased over the years, but are they looking for growth rate? Since they have increased dramatically over the years, has their volume decreased? Or take even the health care industry. What about them? Has their growth decreased? You are willing to argue that increased prices decreases growth, but not sales. That taken an industry that has very little competition, or an industry that has increased its prices in unison, that sales will never decrease, no matter how high prices get, correct?
wtf is the matter with you.
Growth rate is the volume changing over time. Negative growth rate means that volume would go down over time.
“wtf is the matter with you.
Growth rate is the volume changing over time. Negative growth rate means that volume would go down over time.”
Why couldn’t you say then, that volume does decrease?
As you said, prices have no effect on volume. And then again, you are also agreeing with the law of demand. That as prices increases, sales decrease. I thought you said that was wrong. When we were arguing earlier, you said that as sales increase, prices tend to decrease. But now, you have argued here the exact opposite. That once profit is realized, then firms will increase their prices until they see growth level out. In other words, you are equating growth with volume.
But again, you also say that how much you make doesn’t matter, just how much you sell. Now, I can say that if you sell coke at 30 cents a can, growth rate will be tremendous. And again, you said this:
“How much is made or lost today is moot”
“As long as I’m losing money, I really don’t care, and, as long as I’m making money, I really don’t care”
Again, what you are saying here is that you don’t care about MR.
Or what about even concession stands? Do they even care about growth rate? You said they don’t seek it, so do they care about it? Can they continually raise prices and have volume not decrease? Let us take sporting events. Can a baseball game charge $10 per hot dog, and not see a decrease in sales?
Your problem is that you do not seem to understand when your argument is totally lost. I say it again. You have verbal diarrhoea.
“Your problem is that you do not seem to understand when your argument is totally lost. I say it again. You have verbal diarrhoea.”
I am not arguing anything. I am asking questions along with confirming the understanding of what I am reading. It tells me that you are not reading what I am writing, and deciding to instead insult me. Not very professional nor civil. Hell, not even nick has given out any insults even when responding to me.
Nick
All this analysis assumes that the business is paying the wage. What if the currency issuer is paying the wage? Now the wage is not a cost to the business but the added demand to the economy ends up benefiting all businesses. An employment subsidy for businesses and a govt job guarantee program would provide this.