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Minimum Wage Hikes vs. Tax Rebates - What's More Effective?

It's also unreasonable to assume that burst of borrowing will occur in the future. Credit is harder to come by and more expensive than over the past decade, especially for people who don't have much (or good) history. Plus, many of these minimum wage earners are already up to their eyeballs in debt thanks to soaring prices. The wage increases in the pipeline will mostly be saved or used to pay down debt - exactly the uses we should all be hoping they're put to. The challenge to the US economy is not to stimulate growth in debt-fueled consumption (haven't we learned anything?!) but first and foremost to avoid collapse, then to clean up our individual and collective balance sheets and rediscover save-and-invest economics.

It would be a sign of health if real GDP were to remain unchanged for the next 10 years if in that time its composition also moved away from consumption and toward investment, especially if funds for that investment came domestically from savers and new shareholders. This kind of deleveraging would make the US economy leaner, more competitive, and more resistant to credit shocks. It would also strengthen the dollar and remove price pressures. Americans, including minimum wage earners, would consume less but would have much greater wealth, especially as their investments generate income and appreciate in value.

This argues for neither wage hikes nor cash giveaways (financed by borrowing abroad) but for tighter credit for all individuals and a cultural shift toward saving. Taken together, this means higher interest rates.