Minimum Wage and Aggregate Demand Essay

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Introduction to Economics and Global Capitalism

The idea that minimum wage, even though it has risen, has not kept pace with real wages, according to the U.S. Senate Committee on Health, Education, Labor and Pensions (2013). The issue of course is one of inflation. So if Sen. Harkin wants to grow the middle class, which he calls the backbone of the economy, he should simply get on the Fed to stop printing trillions and increasing the money supply so that everyone’s dollars are devalued. No one’s wages are keeping track with the rate of inflation, and while raising minimum wage might help to increase aggregate demand, it would undoubtedly also lead to more unemployment as businesses struggle to maintain margins while passing on the cost of hire wages to consumers. Lowering the minimum wage or abolishing it altogether would actually do more to help reduce unemployment, as it would take off the burden of meeting a minimum wage that businesses currently experience—but then it might not do a thing to lift aggregate demand and help grow the economy—at least so goes the argument.

The problem with that argument is that it assumes that the low-income earning portion of the middle class (the minimum wage earners) are the ones actually supporting the economy.

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They aren’t. The only thing propping up today’s economy is the Fed, which has run off trillions in new fiat money over the past decade to keep the bubble economy from bursting—and now the Fed is trying to raise interest rates to get some of the bubbles back down to a manageable size.

That will lead to another problem—the fact that so much credit has been issued and is still being issued today that if rates go up, it will be very hard for debts to be repaid and either defaults will occur or else people will simply stop borrowing. Neither case bodes well for the economy as both will likely see a decrease in aggregate demand as a result.

The government’s role in the economy should not be to intervene in such matters but rather to step back or at least to simply let the bad blood in the economy bleed out. By letting so many zombie corporations continue to exist, leveraged to the hilt, making no money, but still being seen as darlings by investors (i.e., Tesla), the government is really just….....

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