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THE MINIMUM WAGE MYTH (PART II)

May 15, 2017

THE MINIMUM WAGE MYTH (PART II)

Nick Hanauer is a “traitor to his class” according to some, except that he isn’t. He is a rich entrepreneur who correctly knows that paying living wages to corporate employees does not decrease but rather increases corporate profits, which defies conventional corporate wisdom. Labor, after all, it is argued, is a cost of doing business and detracts from the corporate bottom line, right? Wrong.

Hanauer wrote a piece for the 2016 Summer Edition of The American Prospect in which he, among other things, tells us that, as I often write, a strong and growing economy depends upon aggregate demand in the marketplace. It does not depend upon brilliant and overpaid CEOs nor does it depend upon any other factor other than demand, without which the economy underperforms, as it is now.

Hanauer breaks the economy down into two general classifications; the real world economy in which employees are paid a decent middle-class income – jobs that provide the income, benefits and security necessary to participate robustly in the economy as a consumer and taxpayer. It is this real economy that drives both production and demand and that fills our tax coffers with the money needed to educate our children, maintain our infrastructure, invest in research and development, fund our social safety net and provide for the national defense.

The other classification is that of what Hanauer calls the parasite economy – where companies large and small cling to low-wage business models out of ignorance or habit or simple greed. This is the economy where tens of millions of Americans work for poverty wages with few if any benefits. Such companies are parasites because it is the real economy that drives consumer demand while the parasite economy erodes it. Workers in the parasite economy are trapped into a cycle of intergenerational poverty. It is not the working poor who deserve our disdain; it is rather the low-wage businesses that exploit them.

Quote from Hanauer: “At best, a worker earning the federal minimum wage of $7.25 an hour can barely manage to pay the rent, buy some groceries, and maybe a bus pass, leaving little disposable income for anything else. No restaurant. No hair salons. No health club or yoga studio memberships, let alone the latest tech gadget or service from one of my companies. Low-wage workers at parasite companies – mostly giant and profitable corporations like Walmart and McDonald’s – cannot afford to robustly consume our products, or most anybody else’s. If demand is high, almost any other obstacle can be overcome. Workers earning $7 or $8 dollars an hour cannot demand most products and services. They can barely subsist.”

To make matters worse, a majority of Walmart workers and hundreds of thousands of McDonald’s workers are on public relief programs. They are on such programs because their wages are so abysmally low even though their corporate owners are billionaires. Sam Walton’s heirs have more wealth than the lower 40 percent of all Americans, and much of that annual return is provided by your and my contributions to the welfare and survival of their employees. What sort of corporate responsibility does that suggest? If we can’t get the Republican Congress to pass a living wage law, then how about totaling what we pay to their employees and presenting them with the bill every year? Why should you and I pay into the overflowing accounts of Sam’s heirs and devisees? While such a plan would not help workers for Walmart directly, it application might convince Walmart to pay their employees a living wage since they can either pay their corporate welfare bill to their employees or the government – take your choice.

Ah, but higher wages would be the ruination of corporate America, say the naysayers. False. The parasite economy is already draining the real world economy for billions, which means that the real world economy (even with their better wages) has less disposable income which thus constitutes a drag on demand. Examples include Washington State and Seattle. Washington has long recognized the fundamental law of capitalism – that when workers make more money, businesses have more customers and hire more workers. So why are small businesses in Seattle booming despite their high minimum wage? It’s because that’s how capitalism works, contrary to the propaganda of low wage aficionados. Former low wage workers in Seattle are now eating at restaurants, getting haircuts and manicures, buying flowers for Mother’s Day.

When the Seattle minimum wage was increased to $15 an hour, right-wing think tanks warned of ruin. They prophesied that businesses would close etc. The opposite happened. The Seattle Times reported six months after the increase in the minimum wage that, for instance, the Seattle restaurant business is growing faster than ever and that celebrity chef Tom Douglas (who had predicted ruin) was adding restaurants to his Seattle empire of eateries. Washington with its high-wage income regime is now number one in the country for both wage and job growth. So higher wages equal corporate ruin? Quite the contrary.

So how much longer are we to wait for an end to the corporate propaganda that higher wages lead to corporate ruin? When is conventional wisdom not wise? When do our politicians recognize that a tepid economy can be a booming economy when demand is elevated, and when do corporate boards and CEOs recognize that higher wages mean higher profits? I am beginning to think that the present system is not solely about costs to corporate bottom lines but that it is about power plays, power perhaps exercised by a fear of return to unions etc. Time will tell. Meanwhile, this is not about some arcane theory postulated by a Piketty or a Stiglitz or an Adam Smith. It is plain as the nose on your face. More money in the hands of consumers equals a bump in demand that accrues to the advantage of all – producers, consumers, less public costs to taxpayers etc., so let’s raise the minimum wage to a living wage level and watch the economy boom for everybody.    GERALD      E

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