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I stayed up last night researching various things, and ended, exhausted, with several open browser windows. I'm going to write it up here because I have a feeling that others will find it interesting, and because I'd like to close my browser windows.

For a while now, I've wondered what positive impact raising the federal minimum wage would have on payroll tax revenues, and therefore the solvency date of Social Security. I also know that the minimum wage has been shrinking over time.

First, I found this table showing how the minimum wage has been shrinking in real terms in recent years. Here's a graph:

Now, several states have their own minimum wages that are higher than the federal minimum wage. Here's a table. It seems that right here in Oregon and Washington, we have the highest in the nation - plus, they are indexed for inflation. That seems like good news. $7.25 in 1996 dollars, if I'm calculating this correctly, is about $6.22, so you can see where that lies on the graph.

Now, I said it seems like good news. I went over to its article on wikipedia to get some counterpoints. First, let me just say I love wikipedia. It's a place I can go to get consensus counterpoints, knowing that for sufficiently popular subjects, the authorship has grudgingly hashed things out to fairly represent both sides. It's great for politically divisive subjects like this. It turns out that most economists believe that minimum wage, when its many costs and benefits are looked at, is a net loss. "Most", meaning, it is a slight consensus. The more complete way of looking at it is that the need for labor is inelastic up to a certain point - minimum wage is fine, and a net gain, up until that balance point, but beyond that point, it is a net loss. However, it is like most things in economics, where you don't know if you've reached that magical balance point until you've blown right past it. Raise it too high, and the economy starts to suffer as a whole. Most Republicans think that "too high" point is lower than where most Democrats think it's at. :)

We'll come back to this in a moment. I was also researching GDP. One of the common arguments between the left and the right is that one side will often exaggerate the damage or cost of a program by focusing on it in raw dollar figures, comparing it to other cost in the past. The response is usually to complain that our economy has been growing since then, so it's better to look at it in terms of GDP. An excellent example is the national debt. Our national debt is the highest it has ever been in dollar terms, but as a percentage of GDP, it's still not as low as it was during Reagan's term, and the beginning of Clinton's term. When people talk about increasing our nation's financial health, they talk about improving the debt-to-GDP ratio.

Here's a graph of our debt-to-GDP ratio over the last many years:

It's pretty obvious the negative effect that Reagan/Bush I had on the ratio, how much Clinton improved it, and how Bush's presidency has made it dramatically drop again. However, it's not as extreme as it was fifteen years ago, and his budget projections show the ratio rising again (even though it's more likely they will be falling at a gentle slope).

Now, the reason this is used as justification is because the GDP is widely seen as a measure of increasing national financial health, much like an individual's increasing wages. But it turns out that isn't really accurate. From the wikipedia entry on GDP, you can see there are a lot of problems with it. For one thing, it doesn't account for the long-term costs of nonsustainable practices, like the overproduction of natural resources. It doesn't account for opportunity costs. One well-known example is that when a factory produces goods and also pollutes a river, that boosts GDP. When the citizens then clean up the river, that boosts GDP again.

There's a different index that tries to take all this into account - it accounts for the costs of our environmental policies and other externalities. It accounts for the rising wealth gap between our rich and poor. It's called the Genuine Progress Indicator (GPI), and it's supposed to be a replacement for the GDP. Other countries are actually using this thing. It is developed by an organization called Redefining Progress, which releases occasional supports detailing the health of the nation in terms of GPI. Here is a graph of how the growth of our GPI looks, compared to the growth of GDP:

The reason the two start diverging wildly around the 70's is evidently because that is when the gap between the rich and the poor started increasing dramatically.

With that data, it should be possible to calculate multipliers to convert any GDP-based data into GPI terms. I think with that, we'd see that things are far worse now in real terms than they were before. Some back of the envelope scratchings show that the 2002 debt-to-GPI ratio had already returned us to the same point we were at in 1988. (More recent (or projected) GPI numbers are not available yet.)

While reading about GPI, I came across this interview from one of the economists behind the GPI, and he talked about the minimum wage. It turns out that a far superior technique to increasing the welfare of the poor is through refundable tax credits like the EITC. This basically gives the benefits of a minimum wage, without the costs. By giving people a tax credit, where the difference actually gets refunded to the person if they didn't earn enough to exhaust it, it raises the boats without hurting the businesses that would have to deal with the higher minimum wages. He also talks about free trade versus fair trade, and his opinions of the "right" way to handle it - on the whole, it sounds very balanced. Check it out, it is a good read.

Finally, while following links, I came across information about various UN-recommended techniques to increase financial health in nations and micromarkets. One was converting to GPI-related banking systems, but another was a suggestions to use microcurrencies. I've been interested in this subject for a while, but never to the point of seriously studying it. This is basically locally-oriented favor-tracking. In general, people say that to decrease our environmental footprint on the world, it is better to restrict your commerce in as local a fashion as possible. Local microcurrencies or LETS - where everyone agrees to invent and use a currency that is only good in their locale, after which they trade goods and services in that currency when it's convenient - are a great way to save dollars for other expenses, and raise wealth. I think it's fascinating, and it's one of the areas that I bet will see a tipping point on the web if anyone manages to create a good website for it. It's a perfect add-on to the various peer-to-peer websites we see cropping up all over the place. Imagine it attached to something like craigslist or a political volunteering site. There is already something called Favors, but I'm not sure it's quite the same thing.