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Consumer liquidity



June 20, 2010 – Comments (7)

I was chatting about economics with a friend today and there is "something" that seems to be ignored or not showing up as it should in economic discussions.  Something that just came out in the discussion is when we were talking about low wages I said that there was no consumer liquidity when wages were too low and you need consumer liquidity for the economy to hum along.

I also maintain that economists that go on about there not being any basis for a minimum wage are missing something in their analysis and I am thinking it is this consumer liquidity.  In the macro perspective of looking at the economy consumer liquidity is extremely important to keep the economy humming along, just as this finanical liquidity that has made the news.

I suppose this is looked at from the perspective of disposable income, but I like this idea of consumer liquidity because it implies the parallel of the consumer activity coming to a standstill without liquidity just like the financial markets do.

I like this Franklin D. Roosevelt quote:

“No business which depends for existence on paying less than living wages to its workers has any right to continue in this country”

The economy simply does not work if people do no earn living wages at their jobs.


7 Comments – Post Your Own

#1) On June 20, 2010 at 8:53 PM, cthomas1017 (98.43) wrote:

Taking your statement at face value, please explain how the economy of this country grew and thrived before a minimum wage law was passed.  Further explain how the economy has expanded in China in recent years without the existence of a living wage in that country.

And please, don't divert the argument to one encompassing morality or justice.  I'm asking you to support the statement you made in and of itself.  Because there are those that would argue that our economy is not functioning now (besides alstry).  Their position would be that the disfunction hasn't fully manifested itself because of the illusions that have been created in the financial system.

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#2) On June 20, 2010 at 11:03 PM, ChrisGraley (28.58) wrote:

Minimum wage has nothing to do with consumer liquidity. Personal financial intelligence has everything to do with it though.

I know a few lawyers that bring in a huge income, but are barely scraping by servicing their debt load. They are slaves to their debt and will be till they die.

It's as simple as living below your means, and I had to do it for a long time at a very meager wage before I got a little more comfortable. How many of these illiquid consumers have cable TV and big screen televisions?


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#3) On June 21, 2010 at 11:10 AM, USNHR (29.58) wrote:

rec for the comments

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#4) On June 21, 2010 at 11:35 AM, Zanibel17 (92.35) wrote:

In the U.S. the unemployment rate for those under 24 is 42%, including those with college educations.  Repeal of the current minimum wage would be a terrific first step toward getting the U.S. economy going and reducing unemployment numbers.

Many people would be willing to work for less than minimum wage. Those people should have the opportunity to negotiate with their employer the price for which they are willing to work.  

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#5) On June 21, 2010 at 3:34 PM, miteycasey (28.97) wrote:

I doubt people would work for less than minimum the federal governemnt pays better. 

It's an 80/20 problem. 80% of the people are qualified to do 20% of the work. It's the people who lack skill that can't find a job.

Unemployment is under 5% for those with college degrees.

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#6) On June 22, 2010 at 8:46 AM, dwot (29.45) wrote:

What I think I am seeing in young people today, young as in those still living with their parents, is they don't take a job seriously.  I don't think the money is enough to set any meaningful goals.  They want an ipod or a those kinds of things, but it doesn't take a rocket scientist to figure out you could never live on the money and they quit.  They seem to quit these low paying jobs at a far faster rate then we quit "low" paying jobs when I was young, only low paying jobs when I was young had about 3-4 times the buying power.  I had a friend in high school that managed to live on a 20 hours per week minimum wage job when she got so angry with her parents she decided to leave home while still in grade 12.  She supported herself and continued her high school.  Young people can't do that anymore. 

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#7) On June 22, 2010 at 8:54 AM, dwot (29.45) wrote:

Chris, I strongly agree that debt servicing strips this consumer liquidity as well.

But, the way wages are going we are headed towards an economy where more and more people won't have a means to live to, they simply do not make enough money and there is no way to manage that money to make it work.

I tend to think that if you look at China, the people that are working have enough to pay their bills and are entering the age of consumerism.  Wages are rising relative to the cost of living.

The opposite is happening here, wages are declining and disposable income is declining and business needs consumer liquidity.

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