Saturday, December 31, 2011

Washington State Opts for Wage-Price Spiral

I recently wrote about how government minimum wage laws can be a conduit for a wage-price spiral that would trigger hyperinflation.  The state of Washington is about to make this a self-fulfilling prophecy by raising its minimum wage to $9/hour.  Other states are automatically following suit.  Here we go!  Expect Washington to lose small businesses as entrepreneurs decamp for lower-cost states.

Minimum wage mandates can get silly.  I find it odd that California has a different monthly minimum wage just for sheepherders.  Their annual California minimum salary of $17,070.24 is higher than the minimum wage of $16K a worker would get for 50 weeks of 40-hour labor.  What's up with that?  Sheepherders probably work just as hard as janitors and restaurant servers and can get free meals and lodging too.  Why not special wages for cattle herders, rabbit pen monitors, and hog farmhands?  I don't get it.

What I do get is that public outcries for action on workers' stagnant buying power will prompt more minimum wage increases, more price hikes by employers, and yet more erosion in spending power.  This stagflationary spiral can erupt into hyperinflation any time foreign central banks or sovereign wealth funds turn away from our Treasury bond auctions.  China and Japan have already established a non-dollar financial conduit.  The U.S. dollar is already on a slippery slope thanks to decades of federal indebtedness and a Fed that no more room to lower interest rates.  The hyperinflationary fire awaits its first spark.