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THE MINIMUM WAGE MYTH (PART I)

May 12, 2017

THE MINIMUM WAGE MYTH (PART I)

One of my favorite areas for study is economic history. Over the past several years I have written hundreds of essays decrying wage inequality and its deadening and ultimately devastating effects on aggregate demand, the final arbiter of prosperity and economic growth. I have identified the beginning of this cancer on our economy with the infamous memo written by Lewis Powell in 1971 to the U.S. Chamber of Commerce outlining how corporations could take over America’s political process. (Powell, the then lawyer for Big Tobacco, was later appointed to the Supreme Court by Nixon.)

Big Business followed Powell’s advice and now owns our political process with their purchase of our politicians, who are eternally hungry for “campaign contributions.” Our bought politicians can be found in all parties but are largely those of the Republican Party, a party now infiltrated by libertarian and other such nihilistic interests devoted to pure greed in the marketplace. In keeping with such interests, the idea of Big Government as the enemy has been packaged and repackaged in various guises of propaganda to provide a (flawed) rationale for the lowest costs possible for corporate bottom lines.

Government under such a post-Powell world exists only to provide a setting for the lowest possible corporate tax and regulatory structure and should spend its revenues only for “defense,” aka protection of intellectual and tangible property rights of corporations. Wages must be kept at the lowest possible level while CEOs of corporations rake in millions per year in wages and bonuses based on stock performance, some or most of such compensation being paid in the form of stock options in order to reduce such CEOs’ taxes by its designation as capital gains rather than by ordinary income statutory standards. The rich are getting richer, the poor are getting poorer, and government revenues are reduced for any programs other than “defense,” all in the name of the evils of Big Government.

After WW II, when the highest corporate tax rate hovered around 90 percent, the economy boomed. Under FDR’s New Deal, wages not only moved in tandem with corporate profits, they moved marginally ahead of corporate profits as a share of GNP on occasion. Aggregate demand from such a fair split of the economy’s performance went through the roof; one-earner wages were sufficient to provide a home, a car and for other necessities for a family. It was the best and fairest split of what our economy ever produced and both labor and corporations prospered. Then came Lewis’s memo.

Lewis’s memo of 1971 did not take effect immediately. I argue that it started taking effect in 1974; most argue that it was later. Some say its effect was not really felt until the 1980s (with Reagan and his “Government is the problem” nonsense). Reagan’s massive tax cuts and deregulatory schemes were echoes of Lewis’s memo put into action, but (as I argue) they had a history in the latter day Nixon-Ford and even Carter administrations. Big Business was on the march, and wage scales were an early and ongoing casualty in their drive to capture both the income and wealth generated by our economy.

Wage inequality began in earnest as a direct result of Lewis’s memo and it persists unto this day. Result? A tepid demand in a listless economy, an economy where even a two-worker family is on the edge of bankruptcy, an economy where increased worker productivity is unshared with the workers and gobbled up in corporate bottom lines, a stratospheric Dow while corporate workers struggle to survive, and a never-ending propaganda line that paying workers a fair and living wage would hamper if not destroy business.

The truth, of course, is that the low wage business model employed by corporations (with the help of their bought politicians) is destroying those who work for them, as I will outline in Part II of this essay. Thus the real economy in which you and I live where we produce and consume goods and services generates some 5 trillion dollars a year in tax revenues to local, state and federal jurisdictions while the parasite economy (corporations who cling to the low wage models) are subsidized by taxes.

Wage inequality is a cancer gnawing at the viability of any capitalist economy, including ours, and it is long since time to end our intergenerational poverty by passing a living wage bill as a minimum wage bill. Can’t be done? It already has first been done, though in a day when a dollar was a lot of money. FDR instituted a minimum wage of 25 cents an hour during the Great Depression. Our present minimum wage is a pathetic joke. We can do much better, and Part II will discuss how this will not hurt but rather help the bottom lines of the parasitic class, contrary to their incessant propaganda. Stay tuned.     GERALD     E

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