Why Increasing Lower Wages Works, from a Thermodynamic Perspective
Among the many raging debates we’re facing in America today is one concerning raising the minimum wage, and whether it’s good for our economy. First, let me recognize that what is good for our economy can be subjective: depending on your point of view, a different outcome can be considered “good for the economy.” For the extremely wealthy, a system wherein the wealth is siphoned towards the top is a good economy. For the poor and middle class, a system wherein the wealth is more evenly distributed is going to be a good economy. I’m going to make an argument that raising the minimum wage promotes the latter, while low wages promotes the former. And I’m definitely for the latter – in other words, I would stipulate that a healthy society requires the second system, wherein wealth is more evenly distributed, thereby raising up the poor and middle class and benefiting more individuals than the former system which tends to transfer the wealth to the already wealthy.
So, we’re going to need some definitions, especially if I’m going to use a thermodynamic model to help explain this.
First, just what does thermodynamic mean? A thermodynamic system, or engine, is something where heat is being transferred. Our atmosphere is a thermodynamic system – heat is constantly swirling around inside it, going from lower altitudes to higher, and even from lower latitudes of the globe to higher latitudes, stirring it up and moving air with it – we feel it in the wind all the time. A refrigerator is another thermodynamic system, wherein we suck heat out of the inside of the refrigerator and vent it out the thermal coils that are usually on the back of one (there are other methods to vent heat from a refrigerator – those coils on the back of many of them are just the most common). A car is also a thermodymanic engine, where energy is transferred from your gasoline into the motor to make the pistons move, which turn belts to transfer the energy to the axels of your car and then to the tires to make you go zoom.
Heat – as I’ve said in a previous article, heat is just a transfer of energy (usually kinetic energy, or moving things). In an economic system, that energy is your currency, which is (supposed to be) a symbol representing the value of products and services. The transfer of that currency, or money, is heat in the economic system.
Enthalpy – here’s a term that can bend people’s minds. Mostly because, while it exists, and physicists, chemists, and biologists use it all the time to model and (accurately) predict physical, biological, and chemical systems, it cannot be measured. It’s a funny concept that only has meaning when it changes. Enthalpy is, essentially, the potential within a system for the transfer of heat. The more enthalpy a system has, the more likely it is transfer its heat. The most basic equation for enthalpy shows us this: H=U+pV. Where H is the enthalpy, U is the internal energy of the system, p is pressure, and V is volume. So, in most thermodynamic systems, if your energy remains the same, as your volume or pressure increase, your system is more likely to do something to transfer the energy. I’m going to hit on how does and does not work in an economic system in a moment.
Internal energy – the amount of energy already in a system. In our economic system, that internal energy will be existing currency and money.
Entropy – here’s another term that tends to break people. And, interestingly, another thermodynamic term that cannot be measured, but it surely exists, for it also helps us to accurately model and predict our systems. It also is virtually meaningless unless it changes. And while enthalpy will determine whether a reaction, or energy transfer, is likely to happen, entropy will tend to limit them from happening. Entropy, in short, is the number of ways in which a system can be arranged. It’s sometime used to describe disorder, but I consider that to be a misnomer, as it makes people think that all ordered systems have low entropy while all disordered systems have high entropy, which is not necessarily the case. Now, it certainly can represent disorder – take your room, for instance. As things get knocked off shelves and onto the floor, you are increasing the entropy of the room. And as you pick them up and put them back on the shelf, you are decreasing it.
But how does a measure of disorder limit reactions or transfers of energy? Quite simply put, it is because an isolated system CANNOT reduce its entropy without an input of outside energy – in other words, without somehow transferring that entropy to an outside source. Just as when you pick up object in your room, you are actually introducing energy from outside – you have consumed foods that have come from a great distance which give you the energy to pick up that clutter. Without you, all those knick-knacks on the floor would have stayed there. In an economic system – perceived power from wealth and greed for both that wealth and that power are the factors that introduce entropy into the system – just as increased entropy resists transfer of heat in the physical world – increased greed resists transfer of currency in the economic world.
Heat Capacity – the heat capacity of a system is basically how much heat, or energy, can it hold. For an economic system, this would be how much currency/money can you squeeze into one place. Certainly a measurable term in the less abstract physical world, this may not be measurable in an economic system, especially because two factors that don’t exist in physical systems are going to affect it – greed and perceived power.
Temperature – temperature is the measurement of the tendency of an object to give up heat. Generally, as an object gets hotter and hotter, the more likely it is to give up its heat. Usually, as you add more energy to something, it is going to get hotter, and going to become more likely to transfer that heat – a good example is a boiling kettle. As you heat it up, it’s going to try harder and harder to get rid of that heat. First by becoming warm on the outside, trying to “rub up” against the air particles and share it that way, then, once it’s able to produce steam, by blowing that steam out the air hole. For an economic system, the more currency you stuff into one place, it *should* tend to want to give up some of that currency, or transfer it to somewhere else (and that is actually part of the argument of trickle-down economics), BUT, again those factors of greed and perceived power actually step in and alter the system’s behavior.
Okay, so now I think we’re armed with enough definitions to go ahead and continue on with our inspection of an economy and wages.
To do this, I’m going to start with the first system – the one where we set ourselves up so money tends to transfer to the wealthy. This is the one with low wages. And how do those low wages cause a transfer of money to the wealthy? This should be quite obvious. Since wages are paid be a company, and low wages are usually an attempt by a company to increase its profits, and those companies are in turn owned by the wealthy, who are the recipients of those profits, money is transferred towards the wealthy. As profits increase, the wealthy gain more income. The income has to come from somewhere. It comes from the customers of that company. Even if the company is one that specializes in product that serve the wealthy, there will be a chain of companies (the customers of their customers of their customers) that will eventually have their customers who are those very same low wage earners. And since those companies are transferring more of their money to their owners and shareholders via their profits than to their laborers via wages, the money is all siphoning up towards the top. What we have here is basically a refrigerator with a small heat reservoir. The heat reservoir is the place where the refrigerator’s heat is being transferred – usually it’s pretty big since it’s the room in which the refrigerator resides. But in this system, that reservoir is very small. The heat, or money transfer, is being fed through a throttle, or chokepoint (which actually happens in a refrigerator – that’s where the cooling occurs) into a small receptacle – the elite wealthy class. And, thermodynamically, this makes sense. We’re decreasing the enthalpy of the system by decreasing its volume while keeping the internal energy (or money) and pressure (lets view pressure as our taxes here) the same. So the money *is* going to have a tendency to stay at the top. And further, since we recognize that greed is basically the same thing as economic entropy, humans will have a tendency to hang onto that wealth the more they get of it, thus resisting any transfer of it out of the hands of those rich recipients, just as should happen in a high entropy system. This is exactly the opposite behavior as that of the trickle-down economics assertions.
What about the second system, where we have increased wages for the labor class? In this case, we’re keeping the more of the value of labor with its origin, in other words, by paying the laborers more, we’re recognizing more the symbolic meaning of that money, and giving it back to the people who produced it (which seems only fair). Whether or not this actually cuts into profits is debatable. Why? Here’s the fun thing. Now, while we’re distributing the money to a larger vessel (the working class is surely larger than the wealthy class; I don’t think anyone can deny that), in our H=U+pV equation, we are now INCREASING volume, which means we are decreasing enthalpy. Or are we? There are two other equations we can look at to help us see this. The first, is actually a bit more complex, and more accurate, version of the enthalpy equation. It involves derivatives, so might seem a bit complex, but turns out it really isn’t. what we have is dH=C(p)dT+V(1-aT)dp. Where C(p) is the heat capacity at constant pressure, those d’s just mean “rate of small changes in” and alpha is a term defined by the change in volume and temperature. It actually turns out that the entire second half of this equation drops out in many cases (on specific we call the ideal gas), especially as the change in volume overwhelms the change in temperature, which, in big cases like we’re dealing with here, it tends to do so. So *poof* We suddenly have the change in the enthalpy not being effected by the volume at all! So our tendency for the money transfer to happen hasn’t actually been effected by the larger size of the wage earners’ class vs. the wealthy class.
So now let’s look at it from a different equation, one relating entropy to enthalpy. Here we have dS=dH/T, where S means Entropy. Even though those d’s mean “rate of small changes in,” let’s change them to just plain ol’ “change in” to make them a bit easier. So, if it’s just change in, we need to figure out what the temperature is here, because if we figure out the temperature, it will tell us if the entropy, or resistance to the money transfer, here is high or low. Temperature is the tendency of something to give up energy, remember? But how do we know if the temperature of our middle class here, or its tendency to give up money, is high or low (which will help us understand if the entropy we have now created is high or low)? Let’s look at something called the ideal gas law. In it, we have pV=NRT. Ack, more letters! Don’t worry, we can actually ignore “N” and “R” as they are basically going to be constants for us (they represent one constant times the number of things, in this case, moneys, which we have already decided is a constant overall for the whole system). So, what this tells us, is if the pressure of the system remains the same, then as the volume increases, so does the temperature. It has to do so to keep up with the other side of the equation, since the other things on its side are also remaining the same. So looking back at our entropy/enthalpy equation, we see, now that we know that our temperature is increasing since we’re spreading the money to a bigger vessel, the entropy is DECREASING, which means the resistance to the money flow is decreasing. That sounds like an ideal economic system to me! One where the money is transferred freely among the constituents of the system, thereby feeding itself and helping perpetuate the system.
This means the wage earners are going to SPEND those higher wages on the goods and services of the companies for which they work, and thus the companies that serve those companies, and so forth, which will actually INCREASE the income of those companies every bit as much as, if not more than, keeping the wages down would have. Which is exactly the argument of the proponents of increasing the minimum wage.
So, we have seen, quite clearly, that in the two models we have, one with low wages, one with high, the one with high wages actually leads to a stagnant system where the rich end up with all the money, and will resist giving it up, and the other where the money is more equitably distributed, and actually continues to be distributed as the resistance to that distribution has by the very nature of thermodynamics gone down.
Me? I’ll go for the system which benefits the most people. In other words, let’s get those wages for the laborers, service industry, and the middle class high, and keep them there!