I Think We Could Stand A Bump In The Minimum Wage

I don't know how many of you have visited my brother's blog since he opened it up about a month ago. If you haven't, it might reward your attention to check it out. Obviously, I'm a devoted reader already, not least because it's fascinating (to me) at least to see various topics on which the two of us agree and the ones where we are of partially or completely different minds. As a rule, "Bark" is less ambiguous, and more certain, than I am on virtually everything. This makes sense, because he's a successful veteran of the corporate-travel life and an accomplished musician with an entire slate of great reviews and well-received work to his credit. I, on the other hand, am an itinerant, a manic-depressive, a dreamer, an Emersonian mass of contradictions.

Yesterday, Bark suggested that raising the minimum wage is a bad idea. I agree with his points and his logic, but I also think there is some room for disagreement here.

The first two jobs I had were for less than minimum wage, because I was just fourteen and couldn't legally work in Ohio except under certain school-friendly circumstances. So I took $2.45 an hour against the minimum wage of $3.35, at a bike shop and then a pizza place, and I used the money to buy bike parts. Even then I could tell that the adults who worked these kinds of gigs were pretty sad people. They drove rusty cars, they wore cheap shoes, they had problems with their teeth. Many of them worked a second job, even back in 1986.

Some of them were capable of greater things --- but many of them weren't. That much was plain, and depressing, to see. It was also plain to see that the system needs those people. That we can't all work in downtown San Francisco doing solutions architecture or graphic imaging. That there is a pyramid of available occupations and until all the robots arrive, that pyramid will continue to be broader at the base. (And by then, we'll have accepted the societal worth of "Basic Income" --- but that's a topic for another time.)

You can see the minimum wage chart above, and you can see that wages have been highest during the darkest times in this country's economic past. Is that correlation, causation, or what? Do higher minimum wages really depress the economy? Do they lead to inflation? You can make that argument with the chart.

In a traditional economy --- meaning, the agrarian-industrial, fixed-value-of-money world that has generally persisted in Western history for the past 150 years or so --- I think all of Bark's arguments are beyond dispute. Those wages have to come from somewhere and that somewhere is the pockets of the consumer. A higher minimum wage compresses the lower class, it reduces incentives to work hard and move up, and it encourages people to remain in minimum-wage jobs for a lifetime.

What I'd suggest is that the old rules stopped applying the minute we moved to the new economy. In the new economy, money is printed with complete abandon and mostly handed to the owners of capital. The prices of fixed assets soar, as do the prices of commodities, as the price of labor sags. The amount of money in circulation no longer has anything to do with the established value of available goods and services. It is a legal fiction underpinned by the expectation of continuous further "easing" and financial manipulation.

I'd also suggest that the minimum wage has not been this low, in real terms, in half a century. Forget about the nominal value of a dollar. Look at what minimum-wage employees actually purchase and use. Gasoline cost me eighty-nine cents a gallon when I earned $3.35 in 1989, bagging groceries. Today, it's $4.09 in much of the country, with a minimum wage of $7.35. So you'd need to earn $15/hour to have the same ability to fuel your car as you had in 1989. What about milk? It's on an all-time inflation-adjusted high, a full 38% more expensive than it was a year ago. Rent prices are 50% higher, adjusted for inflation, than they were in 1980, and that is a national average; it's worse anywhere you'd possibly want to live.

Groceries are at an all-time high, even if you don't go to Whole Foods. McDonald's prices? About triple what they were in 1989. So that $3.35 minimum wage would need to be $10.05 to purchase the equivalent amount of fast food. If you look at what economists call a "basket" of goods and services that are actually purchased by minimum-wage employees, it's hard not to conclude that the equivalent of 1989's $3.35 an hour would be closer to $12 or even that mythical $15/hour. No, that's not reflected in traditional inflation calculations, but traditional inflation calculations aren't based on what real people buy; they're based on financial transactions that have no more relevance to the everyday world of the working poor than India's Mars mission does.

All signs point, therefore, to an increasingly uneven distribution of wealth in this country. While the Brazilians and Chinese are content to live this way, with only the occasional riot or city-burning as an outlet, Americans won't stand for it much longer, and a lot of them have guns. Some sort of redistribution, at some level, will be necessary, no matter how repugnant it is on a theoretical or ethical level. There are about thirty million workers in the United States who would be covered by such an increase, and that increase would be (by my back of the envelope calculations) about $10,000 per worker. That's 300 billion dollars, which sounds like an insane amount of money, because it is. On the other hand, Goldman Sachs earned about $40 billion in profit last year all by themselves. BP earned $20 billion, Microsoft did about that well also. That's net revenue, after they pay everybody and pay the bonuses.

Another way to look at it: The EIC, which should disappear in a $15/hour world, cost the United States $56 billion last year. Combine that with a net fifteen percent taxation on the increase in minimum wage, and you're already more of a third of the way towards recovering the money. Which means that the United States Government could directly subsidize a third of the increase in the minimum wage to employers and feel no financial impact at all. What about the impact on Medicaid costs? That's difficult to calculate, but it would be real money, and Medicaid is obviously way above $200 or $300 billion a year.

Alternately, the return of the financial transactions tax could allow the Fed to subsidize the entire minimum wage bump. How is that different from welfare? Well, it gets people working. Idle hands do the devil's work, particularly in communities that are already at risk.

Are these anti-capitalist, anti-free-market ideas? Yes, and I'm embarrassed to have them because I've always believed in the free market and the power of individual initiative. But what we have as a country isn't free-market capitalism. It's a government that already has its veterinarian's arm buried in the vagina of the economic cow up to the elbow. It's a government that picks winners and losers in every sector of industry. It's a government that allows banks to do whatever they want, to risk billions of dollars on schemes that mint millionaires by the hundreds when they work but are backed by the American taxpayer when they fail. It's a government that propped up Delphi only to have it move its tax base to Britain. We're living in a welfare state already --- and the biggest collectors are seven-figure adventurers whose lifestyles are guaranteed by the middle-class tax base.

As a country, I'm not sure that we can afford a fifteen-dollar minimum wage. But I'm also not sure that we can survive without it.