Thursday, April 10, 2014

Cause and effect inequality

It is a basic tenet of science that one must observe in order to reason about cause and effect, but it seems that skill is lacking in most people -- at least, it is not employed by those beholden to an ideology. Find the exact name for it in this taxonomy if you please.

In my post on the appeal beyond numbers, I mentioned the movement in Seattle to raise the minimum wage to $15/hour. This movement in my view confuses cause and effect. Activists do see the effect, but they attribute the cause to something that isn't. Corporations aren't the cause, nor the vague monster of capitalism, or savings-ism. (Capital is savings that can be applied to new ventures). If money were sound and not 'inflated down', wages wouldn't decline in purchasing power and those in the lower quintile wouldn't feel that downward pressure.

Mish has a better handle on it than I do. Inflation exists to benefit the wealthy. (There are great charts as well in that post by Doug Short). This is what the Fed's "mandate" is, though the unstated one of course. And with a focus on benefiting those with first access to money, who can use it to buy other things before the value of money falls for the rest of us... Mish in another post sums it up correctly in my view:
I propose that extreme income inequality is a result, not of excess savings, but as a direct result of the fraudulent nature of the system that benefits those with first access to money.
Low wages are a result but savings (capital) are not the cause, as savings are weakened anyway. Competition is also deflationary. But that's another post.

Addendum: Pater Tenebrarum at Acting Man notes that "in the end the purchasing power of the higher wages would not be greater than before."