How Conservatives Who Block Minimum Wage Hikes are Destroying the Economy
It was good to see President Obama calling on Congress to raise the federal minimum wage to $9 an hour from $7.25 and to automatically adjust it with inflation in last Tuesday’s State of the Union Address. Given today’s massive income inequalities, it was the bare minimum the President could ask for. As a new paper by Emmanuel Saez explains, the income gains to the top 1 percent from 2009 to 2011 were 121 percent of all income increases. How did that happen? As Naked Capitalism’s Yves Smith notes, it happened because incomes to the bottom 99 percent fell by 0.4 percent.
Seen in that context, the President’s proposal, aimed at increasing the earnings of millions of cooks, janitors, aides to the elderly and other low-wage workers is small beer, but still highly unlikely to make it through today’s plutocrat-dominated Congress. Even though federal income taxes are still marginally progressive, most Americans have had no significant after-inflation wage increases since the early 1970s. At the same time we've seen redistribution of income (and wealth) of biblical proportions toward the top. In recent years, toward the toppest of the top – the so-called 1 percenters.
At the current pace of redistribution, it won't be long before we realize the dystopian vision of H.G. Wells’ The Time Machine, comprising a celestial dwelling Eloi, who live in elegant futuristic dwellings and do no work, and a cave-dwelling group of Morlocks, who live in darkness underground, operating the machinery and industry that makes the Eloi’s paradise possible.
Although many seek to justify this growing income inequality on the fact that the “1 percenters” are the entrepreneurs, the dynamic risk-takers, who create the employment for the rest of us, the truth is rather more prosaic. The real job creators are the bottom 90 percent, including those right at the bottom rung who would benefit from a minimum wage--consumers, those who spend nearly all of their income on real goods and services and hoard very little of it. And truth be told, without spending there are no sales; without sales there are no profits; without profits there is no demand for workers; without demand for workers there is no job creation; and without job creation there is no recovery!
A minimum wage is but a small minnow in an ocean of deficient aggregate demand – that fancy term economists use to describe society’s collective spending power. The response against the minimum wage invariably starts with the proposition that unemployment is a “supply side” problem and that raising the minimum wage somehow creates additional supply side barriers which impedes the ability of the one percenters to hire more workers. That allows them to define neat equilibrium solutions which lead them to tell our policy-makers in Congress that wage cuts and pernicious welfare-to-work remedies are required to cure mass unemployment. This myth allows them to make the leap – if unemployment is a “supply side” problem then increasing the minimum wage will not help, especially given (so goes the story) that most of them are scroungers sucking at the teat of big government via food stamps and welfare. Yes, it is true that lower-income people receive food stamps and the like, but that's because the legal minimum wage is far too low to feed a family even if the bread-winner works full time.
Just whose fault is that? Well, mostly conservatives who block minimum wage hikes. The fantasy is also extended to suggest that a modest provision of unemployment benefits allegedly increases the attractiveness of leisure, which allows these “scroungers” to relax on the beach, or sit on their couches drinking beer and watching TV all day courtesy of the hard-working people at the top.