Predictions and thoughts on the Biden Presidency

[TheDrake]

Trickle Down economics don't apply to the scenario of a $15 minimum wage unless you somehow made it a global minimum wage. All a $15 minimum does is price low skill/low experience/"high risk" workers out of the work force, because their jobs become that much more likely to be off-shored to a part of the world where they'll happily work for $15 a day.

Why aren't we seeing that play out within the states? Companies and people are not fleeing from Arizona ($12/hr) to Alabma ($7.25/hr). Plus, there are still plenty of small businesses in Seattle that have managed to survive. Then there's the question, if Mom & Pop family owned businesses can't be as efficient as corporations that enjoy economies of scale and massive borrowing power, should they continue to exist? Let's wring our hands because some restaurant owner that can't handle food cost, invest in efficient equipment, or negotiate as effectively with suppliers and landlords, why should I shed a tear for them?

[TheDeamon]

Obviously there are a myriad of complications, including the fact that not everyone is making minimum wage, that raw materials may be imported from somewhere not affected by wage hikes, etc. There are also a variety of responses including deployment of technology - depending on the sector. One can respond by reducing quality potentially, lowering COGS. Scaling back advertisement, promotional pricing, on and on. All is moot, McConnell and the Republicans in the Senate ain't putting that one through, they would infuriate much of their base.

This is the other side of the equation. You make labor expensive enough, but the labor need still exists in a price/supply inflexible market (because a law is stipulating price) and the result will be you make automation and mechanization a more cost competitive option. Sure, people may enjoy that legally mandated wage hike for a brief period of time, but once the robots are able to assume the role, they're going to go from having enjoyed a larger paycheck to "enjoying" having no pay check at all.

Assuming they weren't working in a job that could off-shore easily, or for an employer that decided their financial interests were best served by shutting down the business entirely.

[TheDeamon]

Trickle Down economics don't apply to the scenario of a $15 minimum wage unless you somehow made it a global minimum wage. All a $15 minimum does is price low skill/low experience/"high risk" workers out of the work force, because their jobs become that much more likely to be off-shored to a part of the world where they'll happily work for $15 a day.

Why aren't we seeing that play out within the states? Companies and people are not fleeing from Arizona ($12/hr) to Alabma ($7.25/hr). Plus, there are still plenty of small businesses in Seattle that have managed to survive. Then there's the question, if Mom & Pop family owned businesses can't be as efficient as corporations that enjoy economies of scale and massive borrowing power, should they continue to exist? Let's wring our hands because some restaurant owner that can't handle food cost, invest in efficient equipment, or negotiate as effectively with suppliers and landlords, why should I shed a tear for them?

Because if economics was that simple, we'd have figured it out a long time ago.

Arizona has a lot of capital present in the state and a lot of population present as well(a lot it due to "northern" retirees and/or California transplants). That helps Arizona remain competitive with Alabama on certain things, while Alabama is competitive with Arizona on other things. There is a lot of "fuzzy variables" to go around. A lot of comes down to "sunk costs" in the location operations already are, and the cost of relocating and the predicted time for a ROI on making such a move. And when it comes to the retired people, the minimum wage in the area doesn't impact them beyond spending habits as a consequence of the cost of goods and services. They're there for the (winter) climate by and large.

As to other operations, sometimes opting for a little more mechanization/automation can cover the difference more easily than pulling up stakes and moving wholesale.

But if we're talking Phone Support for example, beware. For example, during my time doing phone support for DirecTV, I didn't actually work for DirecTV, I worked for a third party company who in turn had a contract to offer those services to DirecTV. (They also provided phone services for a lot of other major companies)

Those support contracts come up for renewal from time to time, and DirecTV has no "investment" in the call center I worked for(and to my knowledge, they're doing phone support for a health-services company these days). If they decide a call center in Mumbai offers "better value" for their company when the contract renewal is due to come up. Well, they're going to switch to Mumbai. The third party operator can then try to find someone else that is willing to pay for continued operation of that call center, or shut down the operation and declare bankruptcy if needed.

Now if we were talking about a mining operation and/or affiliated support services, obviously there are other limitations in play. You'd need to have a replacement mining site available to you, so on and so forth, and those options are likely to be limited especially if you are looking for new operations.

Other times it is something of a chicken-and-the-egg problem, where you need a workforce with a particular skill set, and obviously the place where you are already has that skill set or you wouldn't be there. They may now be more expensive than the market will bear due to a legislative action, but you don't really have a good option for relocation choices. So you either look at automation to bring labor costs down, or you simply vacate that market.

[Fenring]

It is not that complicated to understand why all minimum wage jobs won't be offshored with a minimum wage hike. Just think about it: all the businesses that did so would vanish, along with the economy. In other words, outsourcing all jobs that are paid minimum wage would guarantee the destruction of their own company. After all, they can import goods until the cows come home, but they are mostly selling them (especially the goods made in China) to the general public. Eliminate their income source and where's your profit then? So even on a first glance the risk that all jobs go overseas if the minimum wage increases is zero. The argument that the amount of jobs available would decrease is the more plausible fear, I think, but as I mentioned above I think this also tends to be a minimal concern when businesses have already minimized to the maximal degree how many people they hire. At a certain point the employment level of a company becomes inelastic; go lower and you simply can't operate. And I'm guessing most businesses are already there, as has been the trend for years.

Regarding the slim margin small businesses may find at risk with a payroll increase, I would question why they are not seeing a commensurate increase in sales that goes along with the general public having more disposable income as a result of their higher pay scale. Could it be that all the new income going to minimum wage workers is going to Amazon instead of to them? But in that case they were doomed anyhow, and this is just hastening that situation. I don't like it, but in that scenario in particular I have to unusually side with TheDrake in saying that this is the general tide at work, not the new law that is responsible.

But if that is indeed the case, wouldn't that apply equally to all economic pronouncements? Like "minimum wage will destroy the economy" or "lower taxes are always good"?

To whatever extent an economist is sure of something is the extent to which I doubt the claim. I think there are obviously some things we can rely on. For instance trial and error seems to show pretty clearly that altering the prime rate has a somewhat predictable effect on bank lending and consumer borrowing. This is not some arcane theory, but a mechanically demonstrated phenomenon. Now if an economist was going to insist that lowering the prime rate would definitely fix a problem, now we are getting into astrology, because that would imply they know for certain what is causing a trough, which surely they could not know with authority. But on the other hand in the case of a trough, I think an economist suggesting to at least try lowering the prime rate would certainly be making a reasonable suggestion with some chance of success.

I hope I understood your question? Generally I think general pronouncements are going to be problematic, because the fact is that the aggregate effects in the economy are really just that: a series of discrete events all happening at once. Generalizing a massive and complex system into "X happens because of Y" is about as silly as saying that a person is feeling unwell because he must have a bug; or worse, because his humors are out of balance. Needless to say, we know that all sorts of minutiae in both body and mind can cause 'distemper'. You could feel vaguely unwell, due to a conglomeration of actually unrelated circumstances, including anxiety about something you've consciously forgotten about, that time you pulled a muscle and since then slightly favor one thigh (thereby causing an imbalance in your lower back and now causing a pinching in your neck), the fact that you wronged someone back when you were 8 years old, and the fact that you haven't exercised enough recently and when you did your brow was tense. And just toss in that your diet has thrown your gut microbiome out of whack, and you have a malady soup that no doctor, osteopath, or psychiatrist is equipped to untangle for you with a general statement about wellness. And now imagine that the economy is made up of millions of people like this, and that the functioning of the economy is as much a function of their state of mind as it is of fluid dynamics, flow theory, etc etc etc. So that is in a nutshell what I think about pithy pronouncements about economics.

Again, it's not that we cannot say anything, but economists usually say too much. I really enjoy economics, so this is not some diatribe against the study of it.

Take a small analogy in political science: it's oft taken for granted that democracy is the best option for governance in our day and age. But in order to ascertain what effect a particular democratic system will have, it's not enough to draw a schema on paper and say it should be like this and that it ought to work pretty good. It will also involve who will be participating in it; what these people are like; what happened in their history; what current establishments are in place and how they will function in it; what a person could do in that system, aside from what they are supposed to do; and many other factors. Some general statement about its function would really be meaningless without these details.

[TheDeamon]

It is not that complicated to understand why all minimum wage jobs won't be offshored with a minimum wage hike. Just think about it: all the businesses that did so would vanish, along with the economy. In other words, outsourcing all jobs that are paid minimum wage would guarantee the destruction of their own company. After all, they can import goods until the cows come home, but they are mostly selling them (especially the goods made in China) to the general public. Eliminate their income source and where's your profit then? So even on a first glance the risk that all jobs go overseas if the minimum wage increases is zero. The argument that the amount of jobs available would decrease is the more plausible fear, I think, but as I mentioned above I think this also tends to be a minimal concern when businesses have already minimized to the maximal degree how many people they hire. At a certain point the employment level of a company becomes inelastic; go lower and you simply can't operate. And I'm guessing most businesses are already there, as has been the trend for years.

Not all minimum wage jobs can be outsourced because not all minimum wage jobs lend themselves well to outsourcing/offshoring to other locations.

A Barrista in India doesn't help brew coffee for the Facebook employee in San Francisco.
Likewise, a Janitor in Indonesia doesn't help with cleaning the Alphabet headquarters in Silicon Valley.

Now Alphabet could install a bunch of Roomba's and cut back on their janitorial staff as they don't need to pay someone to vacuum their floors nightly. But there are things the Roomba cannot handle, and other tasks that require a human for now. Although Boston Dynamics, among others, is working on that; they certainly seem to have a robot that probably wouldn't take much training to have go from cubical to cubical and empty the trash cans periodically. Their "problem" would likely be the outlier conditions that people working there would generate for the trash collectors. Although given "Spot" (which wouldn't make a good trash collector) would currently set you back a minimum of $74,500 right now, I think the janitors are safe for a few more years.
source:
https://shop.bostondynamics.com/spot?cclcl=en_US&pid=aDl6g000000XdpZCAS

The list goes on and on however.

The guy cooking burgers at McDonald's is another example of someone who couldn't be offshored, you need the cooked burger where the customer is, not 2,000 miles away.

But now at $15 and hour, that guy is now likely to be in a lot more danger as you don't need something as advanced as Spot to do his job. Assuming a store open from 6AM to 10PM and $15/hour for a cook to just do burgers, (and you'd have taxes, insurance, and other things to cover too) that's $240 per day at the $15/hour price point. Multiply that across 365 days and you get $87,600/year. But the reality is, you buy "BurgerBot" once at $90,000 and then probably sign on to a "maintenance contract" that'd maybe run you about $30K/year and come with periodic upgrades and service. So in the first 2 years you're out $150,000... Except the humans it replaced would have cost you at least $175,000. Score $25 grand in extra pocket money for the McDonald's Franchise owner by the end of year 2, everything else after that is almost pure profit(less the service fee).

All because you just priced that job position into a price point that Spot became price competitive with the unskilled human.

Granted that's a problem that is coming sooner rather than later anyway, not increasing the minimum wage at this point might only buy the burger guy an extra "handful" of years at that job. But at least he is employed in the meantime. And the reality is, one McDonald's goes down that route, it wouldn't just be one guy in the kitchen getting cut.

[DJQuag]

This paranoia about innovation replacing jobs with robots only exists in a mindset that declares that people must work.

As technology advances we'll get closer and closer to the point of Star Trek post scarcity. If robots can actually do almost everything, there'll be no reason for anyone to work except in areas they're passionate about. Art. Community involvement. Continued innovation.

If technology advances and more and more jobs become replaced, the base economic model itself will have to change. The only other option will be a world with the .001 percent robot owners facing down the billions of starving and jobless people.

Universal base income. It's the future.

[LetterRip]

For robotic replacement - manual labor at 15$ an hour is only slightly more likely to be replaced than 7.50$ an hour.  It changes the 'when' by a slight amount but not the if.

Lets use spot above - 75,000 dollars at volumes of 1000 a year say.

A 75000 one time robot with 10 year useful life is 7500 a year.  Say annual maintenance of 2500 for 10000 a year.

An employee costs

7.50 * 8 * 52 = 21,840

but a robot can work 3 shifts and weekends

so it replaces 3+ workers.  Also there are other employee costs.  So well say that 7.50 employee is really 30000 a year.

so 90000 a year for human labor vs 10000 a year for robot.

Of course spot is low volume - at a million robots a year it might cost 2000$.

At 2000$ it replaces labor that costs less than .50$ a day.

It is only because humans are so flexible and robots are hard to train and narrow capability.  The ease of training and flexibilty is increasing extremely rapidly due to AI advancements .  Human labor for the vast majority of jobs will be uncompetitive in the near future.