On a frequent basis I comment that I really don’t understand economics but correct me if I am wrong on this scenario.
I work for Sainsburys. I get paid a wage. My employer puts my wages up (cheers Justin!). In order to pay for this Sainsburys have to put up their prices. Slacker comes shopping to Sainsburys. He finds the prices have gone up so his standard of living has dropped. So he goes to DCC, asks for and receives a pay rise. This means my council tax is going to go up. My standard of living will drop. I need a pay rise. This scenario is played out by all the workers in the land and continues in a cycle. Correct me if I am wrong but that’s called inflation.
And Inflation is bad.
It also leads to Unemployment
Also bad
Now somebody is suggesting that the answer is paying people less. So Justin cuts my pay by 50% (In Sainsburys case I think I’m fairly safe but I will go with the scenario) Now in theory this means that Slacker will be able to get his weekly shopping for less. So he won’t mind when DCC cut his wages, which puts my council tax down, so I don’t notice so much that my wage was cut. Presumably this is reverse inflation which I assume is good and low unemployment which again I assume is good.
Now of course we get to the problem. In scenario one it is of course those nasty unions who demand higher wages and the idle worker who doesn’t produce enough that cause all the issues. Sack the lot of them!!
Except of course that in scenario 2 somebody somewhere isn’t going to play the game and instead of passing those savings on to keep everyone at the same level they are going to pocket those savings and widen the gap between the haves and the have nots.
But that won’t matter because they are the good guys, the ones who have created all these jobs and generated the wealth.
Of course the health service will collapse because people won’t be able to look after themselves properly with good diets (and they won’t be able to afford the private health care). The Police won’t be able to cope with all the crime caused by people having to steal just to feed their families not to mention the regular riots by disaffected people. Not sure how councils will cope with all the people who need re housing because the banks have foreclosed on their mortgages.
But it won’t matter because everyone will be working thanks to those nice people who generated all this wealth.
In scenario 1, pay keeps going up. Great on the face of it. But its not just Sainsburys that have to put prices, so do all their suppliers, Hienz, Kelloggs, the milk farmers, whoever....so do all the petrol retailers, so do the gas and electric companys. To make matters worse, the factory down the road can no longer compete in a global market so closes, leading to more unemployment benefit being paid, and taxes have to go up. Before long, Jr working at Sainsburys has an extra £10.00 a week in his wage, but the cost of living has gone up by £20.00 so he's actually worse off by £10.00. That might not matter to the banker who earns £100k a year, but its a hell of a lot to the dinner lady on £100 a week. Which is why every single study into it has shown that since the introduction of the minimum wage, the gap between rich and poor has increased, the poor have become relatively poorer. And if it was a simple as just sticking a few extra quid onto someones wage, why not set the minimum wage at £20.00 an hour and eradicate all low wages. Because absolutes mean nothing, its relativity that counts.
In scenario 2, people rioting because they can't afford food??An interesting theory but I prefer to go on evidence. Before the minimum wage, under that nasty Tory woman, we didn't have people not being able to afford food, quite the opposite, we had years of sustained economic growth. In fact the closest thing we've had to the doomsday scenario described was under the previous Labour Govt in the 70s, with runaway inflation, bins not being emptied, dead laying unburied and the country being held to ransom by the unions. Unless of course, you include last years riots where the people were so starving, they couldn't help but loot all the shops for flat screen TVs and trendy trainers. And if your memory doesn't go back so far, then just look whats happening in Europe.
The whole idea of mini jobs, which is the main thing the coalition seem to be discussing and in favour of, (except Vince) originates in Germany. They started in the early 90s after east and west re-unified, putting Germany in severe financial trouble, and leading to severe austerity. So they slashed regulation and employment taxes, with the sole intention of getting people working. was there rioting on the streets, was there food shortages, no. Instead Germany has returned to the economic power house that it once was, keeping the rest of Europe afloat with its strong economic position, not only having strong growth in Germany, but also keeping Ireland, Italy and Spain afloat, not to mention the Greeks, where there has been rioting for food. So the arguments in Scenario 2 just doesn't fit in with the evidence, and its evidence I try to base my political judgments on.
