To benleet,

Your data supports my point. That minimum wage of $12.50 would increase the price of meals by 4%. Reich denies that this is a probable outcome of forcing employers to pay more under union pressure.

If the cut-throat restaurant operators could have made more profit by raising prices, then they would have already raised prices, before the minimum wage increase. The equilibrium price balances profit per meal against customer demand for meals at that price. At 4% higher prices, those restaurants would sell far fewer meals, say 10% fewer, more than negating the extra profit per meal.

So, they would employ 10% fewer workers at the higher minimum wage. They would fire the least productive workers, exactly the ones who need that low-wage job the most. That is a terrible outcome for the minimum wage policy.

Looked at another way, why not set the minimum wage at $30 per hour? Of course, most businesses paying a low wage would fold up, and millions of workers would wish that they could find a job for $8 per hour.

TWO: "If you do nothing, we go back to the Clinton tax rates. We had a pretty good economy during the Clinton years."

Yes, let's raise taxes on everyone, and re-experience the boom of the Clinton years. Except, higher taxes don't produce prosperity. What would the mechanism be?

Actually, the economy improved because Clinton restricted the growth of government spending, and reluctantly agreed to a later tax cut pushed by Republicans.

FOUR: "Demand higher tax rates on the wealthy. Make them pay their fair share."

OK, what is the secret number for the highest tax rate, the percentage of extra income which is "fair". No one seems willing to set that limit. Is it 100% under particular circumstances?

FIVE: "Don't cut the safety nets."

OK, then the middle class will have to pay for government's promises on Social Security and Medicare.
7/11/2012 - Bloomberg by Laurence Kotlikoff [edited]
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In fact, the Social Security system is desperately broke.

The proof is buried deep in the trustees’ own 2012 report in a complex table IV.B6. The system’s actuaries prepare the report’s tables. It is a long-run balance sheet for Social Security. It shows that the system’s $88.9 trillion in liabilities exceed its $68.4 trillion in assets by $20.5 trillion.
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The required increase in taxes is about $200 billion per year, increasing in future years. The proposed tax increase on the wealthy is supposed to return $80 billion, but will probably yield less. The remaining $120 billion would have to come from the middle class.

So, certainly, don't cut the safety nets. Everyone working should be proud to pay up, and then make their children pay up for their own retirement.

SIX: "Don't cut investments in our future productivity."

- Government is encouraging students to graduate with $100,000 in education loans, with no big jobs waiting.
- Government has wasted money chasing a "green" future. Think $500 million lost on Solyndra, as an example.
- Government has invested in the future by building thousands of sidewalks to nowhere.
- Basic R&D which pays off is run by private industry.
- Government encourages green energy projects which will supposedly pay back their investment in 20 years. That return of "greater than the cost" is not enough to live on. Think of a bank account that pays back $5 on your balance of $1,000 after 20 years. Industry typically earns 10% per year on invested capital.

SEVEN: "Cut spending on military and corporate welfare."
Yes, the military could use a review, if those congressmen of both parties would give up their military pork. Incidentally, Big Pharma is one of the big winners under ObamaCare, which guarantees more customers, subsidies, and higher profits for them.

EIGHT: "Don’t cut the budget deficit as long as unemployment remains high."

False Austerity
5/23/12 WSJ - David Malpass
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Economics has often ignored the critical distinction between austerity for the government and government-imposed austerity on the private sector. In the former, governments which are over-budget sell assets, restrain their hiring, and limit their mission to essentials. That's growth-oriented austerity.

In the private-sector version of austerity, governments impose new taxes and mandates on the private sector while maintaining their own personnel, salaries and pensions. That's the antigrowth version of austerity prevalent in Europe's austerity programs.

Many economic models, including the U.S. Congress's budget scoring system and Keynesian stimulus, ignore national debt levels and disregard whether spending decisions are made by the private sector or the government.

This creates the absurd result that an economy in which the government spends and invests increasing amounts, even 100% of GDP, has the same projected growth rate as an economy where the government spends and taxes less.
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Reich: "And any wage gains they receive aren’t likely to be passed on to consumers in higher prices because big-box retailers and fast-food chains have to compete intensely for consumers. They have no choice but to keep their prices low.
  That means wage gains are likely to come out of profits – which, in turn, would affect the return to shareholders and the total compensation of top executives. That wouldn’t be such a bad thing."
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That is a dramatic statement. Those businesses will become less profitable and will attract less capital, then will employ fewer people. Unless prices go up, which isn't what you want either.

What is the example of unionization yielding higher workers salaries, without higher prices, and an expanding employee base? What if unionization yields (if successful) higher workers salaries for fewer workers, at higher prices to the public?

Mr. Reich, please provide a source that supports your proposed "likely" good outcome.

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Mr. Wray,

What am I to think of this report about the success of Nixon's wage a price controls to counter inflation?

Nixon’s price controls
8/8/2008 - EconoMonitor by Michael Pettis
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Today is an anniversary of sorts. Thirty-seven years ago, in 1971, President Nixon stunned the US by announcing the imposition of extensive wage and price controls in an effort to reverse rising inflation in the US. In retrospect it is pretty clear that the price and wage controls were unlikely to reverse several years of booming money creation
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Quoted in that article, from The Econ Review
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In a move widely applauded by the public and a fair number of (but by no means all) economists, President Nixon imposed wage and price controls. The 90 day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. Inflation had been raging, exceeding 6% briefly in 1970 and persisting above 4% in 1971. By the prevailing historical standards, such inflation rates were thought to be completely intolerable.

The wage and price controls were mostly dismantled by April, 1974. By that time, the U.S. inflation rate had reached double digits. While there were skeptics in August, 1971, there were a great many who thought “temporary” wage and price controls could cure inflation. By 1974, this notion was thoroughly discredited, and attention gradually turned toward a monetary approach to inflation. In a complete reversal, the policy to curb inflation in now thought to be an increase in interest rates rather than an attempt to hold them down.
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Mr. Wray,

You propose that populations irrationally hate inflation. Isn't that because the value of cash savings are reduced and the average salary lags inflation? Even if interest rates and salaries eventually catch up to higher interest rates and prices, the workers have lost some value along the way. That isn't merely a nominal problem for them.

Some people worry about alien invasions. That doesn't mean that all of the worries by all of the people are irrational.

"Gold bugs" predict inflation from an increasing money supply caused by the Fed buying Treasurys in large amounts, monetizing a good part of US debt. If inflation follows, your solution is to take over commerce and set all prices. Wow. Do you have an example where that worked out well?

Short of a totally planned society, what is your next best way of fighting inflation?

Mr. Wray, you repeat and support Krugman's conclusion that "There’s no significant inflation on the horizon."

That isn't comforting. The "horizon" for financial shocks is typically today. There is a graph of past prices ending today, and an extrapolation into the future based on someone's judgment. What is the practical basis for predicting "no significant inflation" other than that extrapolation into the foggy future?

Then, you worry me when you allow that there may be significant inflation.
(Wray):"Even if inflation should rear its ugly head, there’s not much an investor can do about it." So, inflation might happen despite the horizon. Krugman might be wrong, unthinkable in your preceeding presentation.

I would be happier if you could give some examples of societies with significant inflation which did nicely. I thought that "ugly head" meant inflation was a scourge, not a benefit. Instead, when you allow that significant inflation may occur, you propose the calming non-sequiter that investors can't do much about it anyway.

That is like saying a flood will not occur, but even if it does, don't worry, because you can't escape it anyway. What about the damage from the flood? If you can't escape, then it would be prudent to stay far away from the conditions which might cause that flood, like the dam breaking, or like expanding the money supply by $80 billion per month.

Even if investors (Wray):"cannot truly hedge against inflation", they just might decide that owning some basket of goods and services would be better than losing 10% or more yearly holding government bonds. Even if that basket is not perfect and doesn't have an attached coupon. They won't be calmed by the government proclaiming: "Don't worry about our bonds; we can print up all the money we need to pay you off".

(Wray, edited): "Gold isn't a perfect hedge, unless you consume only gold. King Midas found that to be a curse, as you no doubt remember."

This statement worries me a lot. You are arguing that investors might as well hold government bonds, despite inflation losses, because owning gold doesn't work out well, as shown by a Greek myth. I doubt your other statements when that is how you support your last point.

No one directly consumes cash, US Treasurys, or gold. The question is, do you want to own Treasurys or cash when the government and central bank are creating both types of paper at flood-level volumes?

Social Security and Medicare were sold as self-contribution systems. People would contribute along the way to their own retirement and health care. Of course, it never operated that way. These programs have been managed as pure welfare systems. So, Mr. Wray embraces the touching, humanitarian principle that politicians should apply force to the younger populace to extract whatever is needed to keep the promises of politicians, promises made for votes.

This is the miracle of stealing more and more from each generation to forcibly pay to their parents, or to someone else's parents. This is a policy of enslaving the young by promising them the right, in turn, to enslave their young. This a Ponzi scheme with forced contribution. The scheme will come to an end leaving millions without their own resources and unable to steal their retirement from the wized-up young.

Mr. Wray blithley states that "the Federal government cannot run out of money. Period." Yes, in the technical sense that the government can pressure the Federal Reserve to supply as much money as politicians dare create and spend. But, watch the riots in Greece, Spain, and France as money-printing runs into the reality of no actual goods to collect and distribute.

Ponzy Schemes Like Social Security

In a confusion of policy, Mr. Wray applauds the government, then accuses "Wall Street" of being evil for bribing the government to do the wrong things. Those ideas conflict: a wise and benevolent government, already bribed by big business to be unwise and unbenevolent. Yet, the financial sector is already the most highly regulated part of our economy.

Further, the prosperity of the past rests in part on financial organization, arranging for investment and ownership to be applied to productive purposes. Mr. Wray wants this prosperity in the future, to pay to retirees, but without the actions of "Wall Street".

Wray: "The real problem is trillions of dollars of unfunded public infrastructure investment!" So, the government will now spend $trillions on "infrastructure". Its guiding hand will lead us to continuing prosperty. But, new bridges and roads will not make us all rich. So, what infrastructure is Mr. Wray talking about? Perhaps Solyndra. Perhaps there is a document "A Plan For Infrastructure Investment Leading to Future Prosperity". I think not.

"Quantitative Easing" is elite-speak for creating money. The government prints more dollars and spends them. This transfers value to the government. The government expands (dilutes) the current money supply. This is a tax on all current dollars.

Businesses are happy at first to sell more goods and may even hire. But, as the value of the dollar falls, they cannot replace their supplies at previous, lower prices. Their costs go up, and their prices must go up. Prices move to a higher equilibrium. Businesses then do not see a continued higher demand. Businesses realize that they have sold goods at a lower price than they should have, and they have to lay off any extra workers they hired.

You can sell more donuts by cutting the price by 5%. That will cut into your pay and the pay of your workers. You may see that as a bad choice.

Or, the government can play with the value of the dollar, and fool you into selling donuts for dollars that are soon worth 5% less. You may see this as a bad choice, but you have no choice.

That is how dollar devaluation raises sales while cutting salaries and economic growth.

By the way, this has only a temporary effect. The dollar must be repeatedly devalued to keep the illusion going, until everyone is working overtime at a steadily declining real income.

The government is happy to create money. Each time it "injects" more money into the society, it collects the real value represented by that money by spending it before prices go up. Others now have dollars that will soon be worth less. Their wealth drops by the amount of the new money created.

Nov 2010 - The Federal Reserve has just imposed a $600 Billion tax by "injecting" that money into the government, to buy real goods and services with new paper.

You mean "hare-brained" as in "smart as a rabbit".

A recent jobs report was +80,000, when about 125,000 would be break-even for a growing population. Obama reacted to this by including it in his long line of "positive" jobs reports.

Politicians have defined "recession" as "two quarters of decreasing national production". This ignores that a growing US population needs about a 3% increase in yearly production to stay even in prosperity. When production grew recently at a 1.5% annual rate, that fell below break-even, but Obama and our government economists say that is growth, not a recession. This is nice for the politician, and bad for the citizen.

This all reminds me of the classic scene in Dumb and Dumber in which Jim Carey evaluates the news about his hopes for a relationship.
Dumb and Dumber 'There's a Chance'

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