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An upside view of downside risk (& a spoonful of minimum wage)



December 14, 2013 – Comments (0)

From John Mauldin and the perma-bear perspective:

By Rich Yamarone, Chief Economist, Bloomberg

What's the Forecast? Economically speaking, existing conditions are cloudy with a chance of a storm. According to the latest entries in the Bloomberg Orange Book, we should expect to see more of the same – that is, sub-par economic activity with a propensity toward a downturn....

 etc.  Interesting article as always, but here are a few reasons why it might be wrong:

 1.       2013 bumper crop of corn- the price of butter, cheese and eggs are relatively high even though there is a bumper crop of corn and an excess supply of US crude oil. Corn (and soy) and petrol are the commonly cited reasons for high food commodity prices.  The fact that commodity prices remain high suggests that it might be commodity traders who are keeping them so.  I think that has to collapse eventually; probably after New Years (when consumption is always lower).  I'm betting we'll see lower food prices.

2.       Oil prices again: as gasoline and heating oil prices continue to tick down, the lower and middle income people who spend all of their paycheck will have more to spend.  They may not notice it week to week, but more money in the economy is more money in the economy.

3.       Minimum wage increases: If the push to raise the minimum wage is successful, there will be a vast increase in the amount of money in the economy which will push more people back toward the middle class.  One can argue ‘til the cows come home about how that will affect business (and therefore jobs) in the long run, but if one reviews actual evidence, the net effects are wholly positive.  It basically comes down to this: if a job can be eliminated by automation, it eventually will be.  If it can’t be, then there is no job loss.  But prices will have to rise, you argue?  Sure, but people will have more money to spend.   That is the offset. In the meantime, our economy is distorted by low wages.  If so many are forced to take multiple jobs, utilizing SNAP and Section 8 and other public programs so that McDonalds can continue to pay $7 and hour, how much am I paying for your “value meal?” 

We complain about too many people on the dole, so let’s get ‘em off. 

You all have a good day...and support an increase in the minimum wage.

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