What I learned... we could boost the fed rate to 8% and have 2.4% unemployment, with 7% inflation. I think most people would take that over what we've got now. Get hot, Fed!

Reminds me of this:

http://www.marketplace.org/topics/economy/budget-hero (new window)

First run through I was too conservative. Then I managed to win but with higher unemployment. Then I decided to really screw with it and jacked the rate up to 13.5% straight away. Then I dropped it to 0% for 2 quarters, then set it to 4.25, then 4.5. Rode out level after that. I guess the economy was ascared of me at that point and figured it better not fark up again otherwise I'd take it out to the woodshed and beat the tar out of it.

douchebag/hater: incendi: What I learned... we could boost the fed rate to 8% and have 2.4% unemployment, with 7% inflation. I think most people would take that over what we've got now. Get hot, Fed!

Yeah, what I noticed was no matter WHAT I did to the rate, inflation went up.

Game is just that: a game.

And it appears to be rigged.

wait, this isn't real life?
I think the trick is to make radical movements.

I can get fired at just over a year. Awesome.

Can anyone beat that?

BiffDangler: How about back the dollar with silver and turn the lights out at the fed. Was that an option?

What, and have a run on the Knickerbocker Trust Company again? Not on JP Morgan's watch.

As others have tiptoed around, inflation is not bad. It's supposed to happen. The more people work, the more the value of their work-energy represented in money is added to the money supply. So the money supply should always be increasing.

The problem with inflation is that the first things that go up in value are the largest commodities humans can buy: Property. It sets the standard by which every other purchasable thing on the planet is priced. When property spikes, inflation trickles down and everything else slowly adjusts accordingly; next comes housing, then stocks, manufacturing and shipping, entertainment, and finally consumer products, right on down to chocolate bars going up 5 cents at the corner store. It usually takes 5-10 years for the smallest consumer good to adjust medially against a property spike.

The last thing that goes up, however, are employee wages. Especially minimum wage. There are some states that have not adjusted their minimum wage since the 70s (the minimum wage in Wyoming is $2.13 for employees receiving tips.). This is why high inflation is prohibitively bad for the working class because their wages never keep up and their incomes are always shrinking against the real value of fiat.

I've always wanted a metric that sees federal minimum wage tied to inflation. If that were the case, it would be around $10-$12/hr right now.

Likewise with unemployment, it's not bad either. There needs to be some liquidity in the labor market (a happy medium seems to be around 5%), otherwise there is no labor mobility. Low unemployment brings just as many problems as high unemployment.

Really, the solution is to keep employment low but not to the detriment of inflation, and vice versa. It's a careful balance, always offset over time by demographic indicators such as baby booms, pop culture trends, foreign wars, inept administrations and voodoo economic theories.

MugzyBrown: Welcome to 15% unemployment

Let me tell you a little secret about business that employers will never admit: Employee wages have NEVER shied any employer away from hiring work. EVER.

If there's work to be done and businesses need to expand operations or hire more labor, they will find the money. They will borrow it, sell off stock, apply for grants/subsidies, seek loans and financing through banks, investors, venture capital, or do whatever it takes to finance the additional work orders -- there are countless ways to raise capital. But they have always been able to find the money from somewhere if the work is in demand. Don't worry about businesses not having the money. That's the last thing you (and the economy) need to worry about.

What businesses really dislike is hiring people and then having them sit around collecting paychecks with no work to do. If there's no work to be done, then the jobs aren't there. It doesn't matter how many tax cuts you give them. All they'll do is move the money offshore or invest in each others companies (neither of these ventures create any meaningful work).

Higher wages mean more disposable income in the working class. More disposable income means more purchasing power. More purchasing power means more money is spent, more products are moved, demand for goods goes up, business hires more work to fill demand. Recession over.

Henry Ford figured this out when he paid his workers $8 a day (a lot of money back then) because if he didn't there wouldn't be anyone with any money to buy his cars. He was the instigator of the modern leisure class and middle America.

Arthur Jumbles: [lh4.googleusercontent.com image 510x408]

Set it at 6% and never changed it. Stability is what markets like.

Wow. That absolutely worked.

MugzyBrown: Think of a grocery store. If I pay my checkers $5/hr I can hire 8 for the price of 4 at $10/hr. If my volume demands I have 8 checkers on duty to service my customers, when the minimum wage increases to $10/hr for the social good I have three options:

If your profit margins are so thin than you cannot afford to pay 8 employees $10/hr, you don't deserve to be in business in the first place.

MugzyBrown: 1.) Increase prices to make up for my higher wages - cost of the mimum wage gets passed on to all my customers, who are now worse off.

2) Hire less workers - now service is horrible, long lines, I probably will lose business

3) The increased cost of labor now makes the purchase of automated checking systems more advantageous. So I invest $x in self service lanes. So I only need 4 employees and now my customers are doing the work for me for free.

You forgot the fourth option:

4) Hire all 8 workers and have them on duty all the time. Lead with the carrot, not the stick -- the increased wages attracts checkers from other supermarkets to apply to your store, eager for more salary, better working conditions and compassionate management. This creates competition, the slackers are weeded out and new hirees are picked up, improving productivity and response time because they know they have a good, well-paying job with an owner who cares, and they want to stay. That's how you build loyalties.

Eat the costs for a few months, until word is generated that your grocery store has the most responsive, the most available, and most productive staff in the county, with lightning-fast checkout lines even during peak hours. This generates more buzz and increases business, and within six months you're in the black again, and kicking ass. Eventually other grocery stores are forced to rethink their strategy as your store is killing them. In response, they attempt to win back your all-star employees (and their old customers) by increasing wages and conditions too, hoping to duplicate your model.

And THAT, my friend, is what a REAL capitalist does.

(and I know your hypothetical scenario is hypothetical, but in reality it's nowhere close to accurate: Any supermarket that has 8 checkers on duty is a major chain, and they have a starting wage of $11.80. At least where I live)

I also find it amusing that whenever business wants to save money (or make more), the first thing they look at are employee wages. Not costs, not overhead, not distribution, not shipping, not HR or accounts receivable/payable or consulting, not promotion or marketing or advertising, not expenses or any of the other lines on the ledger (and don't call them fixed costs, because when it comes down to it, nothing is truly a fixed cost), but the people on the bottom floor. It's as if they want to be more productive but don't want to pay for it.

MugzyBrown: Think of all of the minium wage jobs that were around in the 50's and 60's that we do ourselves now.

I, for one, wish we still had milkmen.