Tyler, choosing facts to fit a model is backwards. Models should be built on observable facts.
Your model for wages ignores the fact that those wages represent much of the means to buy the products and services that drive the economy. Starvation wages reduce consumption of goods and services and shift the some of the real cost of the labor to those of us who have to pay the taxes that provide the government services that make that cheap labor pool possible. This effectively transfers a portion of the real cost of that labor from the employer to you and me. That distorts business decision making and lessens the incentive for managing the business and its labor force efficiently. The interaction of human behavior and business decisions often results in unintended consequences.
Our current tax laws guarantee that the enormous wealth being siphoned from the middle and working classes remains stagnant, circulating in the system of subsidized gambling for the wealthy we call the stock market — doing much less than it ought to create goods and services. During his 2nd term, Ronald Reagan noticed that the return from “playing” this tax-distorted market was better than the return from investing in manufacturing. He was concerned about the long term impact of that disparity on US manufacturing and set up a committee to study the issue and find solutions. Unfortunately, the G. H. W. Bush (for whom I voted) administration killed the committee.
In case you think I’m being a bit too naive, I built and sold one software company, and helped save two others, and am not one of the downtrodden — I build systems that work and have little difficulty recognizing ones that don’t. You’ve probably read Thomas Piketty’s Capital in the 21st Century for which the major criticism has been that it doesn’t address the issue of why inequality matters. As a History minor, my theory is that it matters because when income inequality reaches a high enough level, the resulting economic and social stresses generated destabilize democratic governments to the extent that they devolve into plutocracies and ultimately dictatorships — much as did the the Athenian democracy and Roman Republic. You may have noticed evidence of those stresses in America’s recent political history.
Take a look at Henry Ford’s actions on wages. Many of the leaders at the time predicted disaster and some of his major shareholders sued to stop him. Ford understood that things were more complicated than they comprehended.
