Curative Wages? Debatable, at Minimum
Illustration by Ainsley Christofferson
As Albert Einstein might say of this current minimum wage debate, “It’s all relative.” What seems to be good economic policy, though, is transformed by the gravity of 535 members of Congress, and 50 independent-minded states, 29 of which have already raised the floor beyond $7.25 an hour. What is the right amount? What constitutes a “living wage,” or perhaps phrased more ideally, what do humans truly need to live a healthy, enjoyable life?
In 1938, Franklin Delano Roosevelt, a patrician forever legislatively targeting the “common man,” signed off on the Fair Labor Standards Act, which at that moment, assigned an $11 per (44-hour) week, 25 cents per hour wage to all workers of businesses engaged in interstate commerce, roughly 20% of the U.S. workforce. While several of FDR’s acronym-laden plans for defeating the Great Depression were declared unconstitutional by the ever-orbiting forces exercised by the U.S. Supreme Court, the minimum wage eventually survived a gauntlet of prior court rejections to become the law of the land.
In the 72-year progression of minimum wage rates, however, the highly subjective federal increases have been based on aggregated data, not necessarily properly tempered with regard to geography, task, and rates of inflation. Questions abound, and the recent proposal by President Biden to raise the federal rate to $15 per hour has many small business owners, among others, concerned about their ability to compete given higher labor expenses during this pandemic-ravaged economic period.
To provide even more gravity (and gravitas) to the discussion, Bob Litan, former Wichitan, and Brookings Institute Senior Fellow, faces off with former Love Box Co. General Counsel Bob Love to propose ideas and solutions related to the minimum wage debate. Read both contributions as you shape your opinions about pending legislation, and respond (editor@candor.news), with your thoughts.
The Minimum Wage Should Be Set at the Poverty Level, Vary By Location, But Allowed to Rise with Inflation
By Robert Litan
The U.S. first adopted a national minimum wage in 1938 – of just 25 cents per hour. Since then, instead of just allowing the minimum to automatically adjust with inflation, Congress has intermittently raised the minimum 12 times, the last time being in 2009, when the floor was set at $7.25 per hour, equivalent to about $9 per hour since with adjustment for inflation.
In fact, most states have raised the minimum to at least that level and several states – including Florida, Illinois, Massachusetts, and New York -- as well two cities (Seattle and Washington, D.C.) – either already have set the floor at $15 per hour or it will rise to that level gradually over the next few years.
This is federalism in action, as it should be. Costs of living and average wage levels, reflecting average productivity (revenue generated per labor hour), vary across states and cities. So should the minimum wage.
What’s the case for a national wage floor – above which willing states and localities can go? The technical economic justification for any minimum wage, state or federal, rests on the notion of “monopsony” – where a single buyer has no competition and able to suppress wages below employee productivity -- just as a monopoly, a single seller, is able to jack up prices for goods or services well above marginal cost and an allowance for profit. In each case, in principle, government intervention is warranted to limit the distortion of the market.
Labor markets, however, are highly localized. Only smaller cities in rural areas are likely to be dominated by one -- or possibly two – employers needing entry-level labor. Accordingly, the monopsony argument is a thin basis for imposing a national wage minimum.
The better case for a national minimum wage is both political and moral: it is simply inhumane for employers to pay full-time workers less than poverty-level wages. Meanwhile, higher wages, to a point, can reduce employee turnover, which can offset the impact of those wages on the financial bottom lines of employers.
At the same time, if the national floor is set too high – well above worker productivity in various low-cost locations around the country – it will induce employers to hire fewer people or lay off some existing workers, which also should be morally or politically acceptable.
Ultimately, therefore, where to set the minimum wage is an empirical matter. What nationwide floor is the “goldilocks” level – enough to lift wages sufficiently toward or ideally at the poverty level, without an unacceptable decrease in employment?
Shortly before he died, one of the leading experts on the subject, Princeton’s Alan Krueger penned an op-ed in the New York Times in 2015 reporting the academic consensus (reflecting the average of all the numerous studies on the employment impact of various minimum wage levels) on this question: at $12 per hour, if phased in over several years, the net effects on employment would be minimal . Adjusted for consumer inflation since then, Krueger’s estimate today comes in around $13, also phased in.
Taking account of Krueger’s suggested phase-in, the recent proposal by West Virginia Senator Joe Manchin – the critical tie-breaking vote in the Senate – to raise the national floor to $11 per hour, indexed to inflation thereafter , is not that far off Krueger’s 2015 estimate. Manchin also has asserted that every Senator – Democrats and Republicans -- wants the national minimum wage increased above the current $7.25.
Even if he is right, it is not clear there is sufficient Republican support – in particular, 60 votes in the Senate to survive a cloture vote – to support the $11. But if there is, Democrats should take that deal – it’s much better than the status quo – as long as the floor is indexed, which should end the national minimum wage being a perennial political football. Of course, minimum wage politics can continue at the state and local levels, which is totally consistent with the federalist nature of our government and with varying labor market conditions and costs of living across the country.
The Lessons of Student Debt Continued: The Minimum Wage
By Bob Love
Many symptoms … one disease
“The so-called symptoms of disease are manifestations of an inherent principle of the organism to restore healthy function and to resist offending agents and influences.”
― Herbert M. Shelton, Getting Well
As you may recall, in The Lessons of Student Debt, we proposed that US student debt was just one among many seemingly unrelated sociological and ecological symptoms of an advanced and pervasive monetary cancer known as the Federal Reserve Banking System [FRBS]. We argued that the FRBS is using US$ [reserve] currency counterfeiting to levy a hidden tax on global wealth held as currency [including wages and savings globally] which falls regressively on global Labor as an economic class. As such we were reluctant to address unpayable US student debt as an isolated symptom without first properly diagnosing and prescribing a treatment for the underlying global disease … you don’t put bandaids on cancers.
For those of you who read the argument closely, you will also recall its claim that JM Keynes named the underlying disease “currency debauchment” in a linked attachment … to which we referred by its common appellation of “counterfeiting”.
A diagnosis and a super-symptom
Well, in another tense moment for American democracy, a new symptom … or rather a super symptom [that includes student debt] … is now in debate [again] among those same senseless bureaucrats who will decide the fate of US student debt: the US minimum wage. It seems a lot of families [even in America] cannot manage to “live” on their wages and savings these days … sound familiar? Maybe their toddlers should take out 70 year, government-guaranteed loans to cover daycare costs [with 3x square meals and transportation included] while the parents work multiple jobs to put a little fast food on the table and still pay the rest of the family’s bills including an FRBS-subsidized mortgage on the house [they could not otherwise afford] where the pets live and the people sleep? [Let’s think out of the box for solutions!]
Seriously, most Democrats [even those who campaigned on this] seem to agree with Republicans that an increase in the minimum wage [to address Labor’s increasing poverty] cannot be properly addressed right now in the promised bill authorizing another $1.9 trillion of new counterfeiting for emergency relief of the “temporary poverty” resulting from Covid.
But here’s a scary thought: what if these Democrats and Republicans are wrong? What if the “poverty” being faced by Labor and Small Business is neither temporary nor a result of Covid? What if this rising poverty is systemic to FRBS-enabled and hidden-tax-funded crony capitalism as we previously argued? Fool me once, shame on you. But fool me twice, shame on me. [Again, to understand the link between Fed counterfeiting, crony capitalism and Labor’s impoverishment, go to the FROTH blog.]
Now almost anyone with a grain of common sense would at least suspect that non-living wages and unpayable student debts have a cursory relationship and possibly a common cause. In fact, as we argued, student debt [whether payable or not] is just one specific symptom of Labor’s general and worsening impoverishment. So with the issue of the minimum wage now coming into view, it is time to expand Keynes’ description of currency debauchment.
“The process [of currency debauchment/counterfeiting] engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. ... [It] impoverishes many [while it] actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers,", who are the object of the hatred of the bourgeoisie [small business owners], whom the inflationism has impoverished, not less than of the proletariat [Labor].... By combining a popular hatred of [profiteers] with the blow already given to social security by the violent and arbitrary disturbance of the established equilibrium of wealth which is the inevitable result of [currency debauchment/counterfeiting], these Governments are fast rendering impossible a continuance of the social and economic order. But they have no plan for replacing it.”
Here Keynes properly elevates the diagnosis of “currency debauchment” by describing it as “systemic” and naming its super-symptom ... the “arbitrary rearrangement of riches” [which includes the rise of student debt]. This elevation is critical to connect the plethora of seemingly unrelated symptoms … such as minimum wages and student debts … which result from this single systemic cancer.
Your cancer is terminal … but we can offer you life support
“You know as well as we do that right, as the world goes, is only in question between equals in power, while the strong do what they can and the weak suffer what they must."
― Thucydides
“It is easy to be conspicuously 'compassionate' if others are being forced to pay the cost.”
― Murray N. Rothbard
But Keynes goes even further and claims that the diagnosed cancer is sociologically terminal if untreated … in the sense that it renders normal life impossible without permanent “intervention” to provide “life support”.
This intervention is known as the “welfare state” … which some hate because they believe they are being forced to pay for it … and others love because they believe they are not. However, the welfare state is largely funded by the same hidden wealth tax on currency [ie. wages and savings] which ultimately funds every other fiscal deficit [federal, state and private] in the modern world. So you see, the “benefits” paid out by the welfare state to those on the very bottom of the heap [who cannot earn a living wage] are extracted equally from all Labor [employed or not] globally without discrimination. Who did you think paid for the welfare state?
Thus, a certain economist named Mises has argued [in Liberty and Property, Section 6] that Keynes’ “currency debauchment” always gives birth to a permanent “welfare state” precisely because it prevents Labor from earning a living wage. The welfare state merely redistributes poverty among the already impoverished … it never redistributes wealth. [Thucydides was right … the old folks usually are if you can wait long enough]. And the minimum wage [like student debt forgiveness] is just another form of life support by the welfare state.
Now who’da thought a little counterfeiting to make end$$$ meet could cause so many complicated problems for so many simple, unsuspecting, hard-working people?
The future of welfare … no work required
But the minimum wage is one of an old, tried and failed set of non-solutions that have never worked [no pun intended] to solve the myriad systemic problems arising from Labor’s impoverishment under crony capitalism … which is exactly why it has to be periodically “raised” … just “up the dosage” … “more is better” [even if it is not working] … right?
I travel through the Seattle airport district and recently, within months after the district passed a $15/hour minimum wage, McDonalds used low interest FRBS subsidized loans to purchase and install automated customer kiosks in all its area restaurants and to layoff the attendants [who could not afford to live in the district without rent controls anyway]. You get the idea. The welfare state is complicated … because it involves “centrally plan” an entire economy.
A higher minimum wage is just a bigger bandaid being proposed to treat a spreading cancer. And on this even progressive Democrats are in agreement [if you watch their actions instead of listening to their campaign lies]. Indeed some, like Andrew Yang in a shocking attempt to be honest in politics, have already moved on from the failed welfare policies of the past to propose a 21st century welfare state “life support” system called Universal Basic Income … no work required, just income for everyone [rich and poor alike so nobody feels stigmatized] … because they see the “handwriting on the wall” for Labor and the Middle Class under subsidized and robotized, crony capitalism … and you can’t have the wage-slaves dying on you … they are needed [for awhile?] to consume all the stuff the capitalists’ robots can produce.
So what about the minimum wage?
So, it seems, the questions of “student debt” and “the minimum wage” are not simple, isolated problems that can be “fixed” within the existing system after all. Both are symptoms which, if properly diagnosed, lead us back to the same massive and fatal systemic cancer [with even more generalizable symptoms for those patient enough to search them out] that will soon result in one of two things:
the official death certificate of Labor and the Middle Class or
putting them both on enhanced and indefinite “life support” [aka counterfeit $timulu$] in some future, exaggerated form other than isolated student loan forgiveness or minimum wage increases.
I, for one, have already made my peace and provision that I am not to be put on artificial life support … because that is not the way I wish to “live”. So I guess you already know where I stand on the matter of raising the minimum wage to address systemic poverty among the world’s working poor. Right?
First excise the monetary cancer.
Then “the system” will rapidly reform itself by common people using common sense to provide liberty and justice for all !!
PS. This cancer WILL be papered over with more counterfeit US$
We live in a period of rapid degeneration. By massively counterfeiting the US$ currency … the world’s reserve currency and thus the most basic social medium of information and exchange ... the FED has become THE “global super spreader” of sociological disease, disability and death to Labor and the Middle Class worldwide … and thus to the Family itself which is the only proven foundation for stable social structure short of slavery.
And yet, it appears increasingly clear day by day that the large majority of Americans can no longer imagine any alternative to the welfare state so long as the Fed’s “helicopter money” drops are direct deposits into their bank accounts … long term consequences be damned. They have learned all the wrong lessons from their suffering and must face their doom misinformed.
Any restraining notions of fiscal and moral responsibility are no longer politically or socially credible due to abuse by political parties and neglect by religious institutions. It appears the American mind must now face its own psychosis. There is no other option once a people has rejected its moral obligation to be intelligent.