>But consumers won't pay more than $5 per smashed widget, so there is no way you can charge enough to pay for that labor.
Yeah except the worker already gets paid $18 at his current company. Producing $5 worth of goods with $20 worth of labor is economically impossible. Someone has to eat that loss. Either it's the company, the customer or the worker and as far as we know the customer always picks the cheapest stuff regardless of how sustainable it is and the company will always yield to the customer. The worker will always receive the short end of the stick.
Ok lets assume the worker accepts the $5 job. Previously he could afford buying lunch for $18 but now he desperately needs super cheap $5 lunch because his job doesn't pay as well anymore. The restaurant cook can't be paid $18 per lunch anymore because the worker switched to fast food. The cook now has to work at a fast food place and only gets $5 too.
This scenario is called deflation. Prices go down and with them worker compensation starts shrinking and through lower compensation prices must go down too. It's a vicious cycle with awful consequences for workers. Meanwhile investors benefit because their investments appreciate without doing anything at all.
What if the opposite scenario happens? What if the worker wins and get his pay increase? Well exactly the opposite happens. The worker will spend the extra $2 per widget on better lunch. The cook will now receive $20 for his lunch and use it to buy more expensive widgets.
Obviously this is inflation. Some inflation is good. Excessive inflation is just as harmful as deflation.
So what we need is a healthy balance between inflation and deflation.
Yeah except the worker already gets paid $18 at his current company. Producing $5 worth of goods with $20 worth of labor is economically impossible. Someone has to eat that loss. Either it's the company, the customer or the worker and as far as we know the customer always picks the cheapest stuff regardless of how sustainable it is and the company will always yield to the customer. The worker will always receive the short end of the stick.
Ok lets assume the worker accepts the $5 job. Previously he could afford buying lunch for $18 but now he desperately needs super cheap $5 lunch because his job doesn't pay as well anymore. The restaurant cook can't be paid $18 per lunch anymore because the worker switched to fast food. The cook now has to work at a fast food place and only gets $5 too.
This scenario is called deflation. Prices go down and with them worker compensation starts shrinking and through lower compensation prices must go down too. It's a vicious cycle with awful consequences for workers. Meanwhile investors benefit because their investments appreciate without doing anything at all.
What if the opposite scenario happens? What if the worker wins and get his pay increase? Well exactly the opposite happens. The worker will spend the extra $2 per widget on better lunch. The cook will now receive $20 for his lunch and use it to buy more expensive widgets.
Obviously this is inflation. Some inflation is good. Excessive inflation is just as harmful as deflation.
So what we need is a healthy balance between inflation and deflation.