A Question for Economist-types

This post is another appeal to those trained in areas of public policy about which I know not my ass from my elbow. According to the Economist, “America’s total wages and salaries rose by 6.8% in the year to the second quarter of 2006, the most in six years” (“The perils of pausing,” August 5^th). The article primarily deals with fears about the American economy: in spite of apparently stable (if slowing) growth, there is a great deal of concern regarding rising inflation and a looming recession. As a consequence, the article advised Federal Reserve Chairman Ben Bernanke to continue raising the Fed’s interest rate on August 8^th (he didn’t).

I certainly don’t pretend to know much about economics. In particular, I recognize that such arcane disciplines often befuddle or even contradict what common sense might consider obvious. For example: overall wage increases, the price index, inflation, and the minimum wage. I don’t understand how it is possible that Congress could consider it a good idea to keep the minimum wage at its present level when the price index goes up across the board and inflation is on the rise. This does not even appear to be a moral issue, but simply one of mathematics. If the minimum wage is deemed to be necessarily X dollars one year in order for a human being (or family) to survive an economy wherein each dollar is worth Y amount of stuff, and the following year the dollar is worth less while prices for the same Y amount of stuff have gone up, and other wages on average around the country have gone up, then wouldn’t logic require that the minimum wage be raised? Put another way, either the minimum wage has some justification like my oversimplified layman’s version above, or it has no justification at all. If the latter is the case, then why not abolish it? If the former is the case, does it not need be adjusted whenever the terms of the equation which justifies it are adjusted? I understand that there are those who say that raising the minimum wage hurts small businesses, and that when these do well the economy does well and thereby trickles down to those lowest echelons in society. However, if minimum wage remains at the same level while prices increase, people have less money to buy stuff from the small businesses. Further, if wages overall are increasing but minimum wage does not, then the only way the lower strata could benefit is by a reduction of prices across the board due to the largesse at the top. If this fails to happen, does not the trickle down theory also fail? Again, some might say that minimum wage increases are so devastating to small businesses that they hurt the overall economy. In this model, the “trickle down” metaphor is a misnomer: what it really means is not that things get better for everyone when they get better for the rich, but that when things get better for the rich at least they don’t get worse for the poor. Nevertheless, this still appears specious if the wage remains the same while the price index goes up. Indeed, if it were not at least vaguely sound theory, then why do many economists look at inflation and the Fed by measuring the wage index against the price index?

And this doesn’t even bother with the moral issues. I’m not as interested in these, not least because I believe anything remotely smelling like emotional appeal tends to get pilloried in the public square (cf. former Senator John Edwards). But primarily I find such appeals unnecessary, as they are implicit in the logic of having a minimum wage in the first place. As stated above, if we only have a minimum wage because we want to make sure that Jobob McWorksalot can work and get paid enough to buy an apple (such that the overall economy grows), yet next year the apple costs more while his wages remain the same, then minimum wage cannot be based upon this reasoning.

(As an aside, everything that I have read while studying and teaching philosophy of law points to this understanding of the minimum wage, whether from the most hard nosed economy and law folks or the more liberal writers. Although he does not even mention the topic of minimum wage, Morris Raphael Coben provides an eminently readable example of the logic behind such laws in his essay "Property and Sovereignty.")

Admittedly, there are many factors that go into this equation. Economists can figure out how to peg minimum wage against some combination of the price index and inflation, whether considered domestically or against other currencies… all this is far beyond my ken. But at the very least it would seem necessary to make the wage much more fluid, such that it might respond to changes in the American economy (and thereby serve its apparent purpose).

If someone could please explain to me either why the above reasoning is flawed, or (if sound) why we have a minimum wage, I would greatly appreciate it.