TOWARD A REALITY ECONOMY : MINIMUM WAGE HIKE — AND MORE

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^ new regulations governing big bank trading almost in place : Treasury Secretary Jacob Lew announcing

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Twice, since Here and Sphere’s inception last May, we have editorialized in favor of raising the legal minimum wage. To those editorials I refer you, if you’re interested : you’ll find them in our Archives section. Today, however, I want to expand upon the economic realities and policy choices that command our support for raising the minimum wage substantially. I understand that economic talk can be boringly statistical. But would you prefer exciting talk that was false or a fantasy ? After all, we’re talkiing the family’s income here; so I hope that you and I can be real for a while ? “Yes,” you tell me ? Good. Now for some facts :

1.Many political economists recently have written about the rapid increase of income inequality in America. Money is flowing ever faster to the top 1 % of earners and away from the bottom FIFTY (50) percent. Today the top 1 % of earners take in ten times greater a pecentage of America’s entire national income than it did fifty years ago. If current increase rates continue, the top 1 % of earners will soon control more income than the bottom SIXTY percent.

2.Incomes for the bottom 60 % of earners has barely grown at all in the past 30 years. That of the top 1 % has increased almost 100-fold. (Former Clinton economic adviser Robert Reich recently opined on this point. His column is well worth reading.)

The trend I have outlined has serious implications not just for the bottom 60 percent of earners bit for the entire economy. People whose incomes aren’t growing much at all can’t grow the economy without taking on more and more debt. The advent of credit cards in the late 1970s began a splurge of plastic money that eventually grew the spending economy by a full 20 percent of GDP. That splurge was the only reason that most Americans were able to grow their spending and thus grow the economy. But that splurge ended abruptly in 2008, and total credit card debt has fallen in almost every month since. Because credit card spending constituted 20 % of America’s 2008 GDP, a fall of merely 10 % in total credit card debt shaved a full 2 % off total GDP. Little wonder that since 2009 our economy has grown a slow 2.7 %; and little wonder that with consumer spending — which totals 2/3 of the ENTIRE economy — not growing at all, job growth has been slower than needed.

So the questions are ; ( 1 ) how are we going to get most family incomes growing again ? ( 2 ) how are we going to grow the economy fast enough so that businesses need to hire more people ? and ( 3 ) how can we assure that these new hires will benefit the economy rather than impede it ?

To these questions the Republican party, ever since the Bush ’43 years at least, has had one answer only : lower taxes for everyone. For most of us, so that we can spend more; for the top 1 %, because they are businesses owners, and the more money that business owners have, the more jobs they will create.

The first part of the GOP policy — lower taxes for most of us — did not work beause the added money in most of our pockets was far outstripped by the rush of income to the top 1 %, by price increases, and by credit card debt payments. The second part of the GOP policy was false to begin with. Businesses do NOT create more jobs because their owners have more money. They increase jobs because there is increased consumer demand for their products and services. If businesses see more money come in, while demand for their offerings barely grows, they put that money in the bank. They don’t invest it in new plant or research. They park it.

Today this huge accumulation of “parked money” — economists estimate it at FOUR TRILLION dollars (!) — overhsngs our economy like a mountain of tumors. And there it will stay, until the factor that totals TWO THIRDS of our entire economy — consumer spending — picks up significantly.

Parked money robs the economy in two ways. First, it does not spend and so generates no hires. second, it attracts money and financiers to its management : and reecently that has meant using parked money to speculate in trading markets, in search of arbitrage, the most useless of economic events. “Arbitrage” is simply the differences in the value of money in one place, or one time — or both — rather than another resulting from inefficiencies in communication. At the time of the Napoleonic wars — 200 years ago — when the Rothschilds first realized that profits could be made in arbitrage by acquiring information more rapidly than their trading rivals, arbitrage forced the world’s money markets to work together : out of which our present, world-wide economy has developed. Today, however, the inefficiencies that profit an arbitrageur are slight, and the huge amounts of money chasing them a damaging diversion from uses of money far better for the people who live in this arbitraged economy.

What is needed now are ( 1 ) to flow money back into the paychecks of consumers and ( 2 ) to tax the advantages of arbitrage so that investment of money now parked becomes more profitable than arbitraging it.

It really is that simple. We do the ( 1 ) by increasing the minimum wage so that full workers don’ need public assistance to make ends meet and can even earn enough to participate in the discretionary spending economy ; by banning so-called “payday loans” and other loan schemes that prey on the survival conditions in which many of us live; and by assuring workers paid sick leave and single-payer health insurance, so that most of us don’t have to stress over life situations that deflect our work vigor and enthusiasm. If we then do ( 2 ) , we make it clear to those with large money that it benefits them to invest it, not park it, and to hire — and pay decently — knowing that everyone who is hired can then become an effective consumer of what invested money produces.

The more of us who are able to consume effectively, the stronger the economy. One reason why this is so is that someone who earns 50 times as much as another doesn’t spend 50 times more money. He or she spends maybe 30 times more. The rest of the money is saved, either out of prudence or because after one has bought one’s luxury stuff there isn’t anything else to buy. For most of us, however, almost every dollar available needs be spent, on necessities and on things useful to a normal life, such as a smarter suit of clothes (so that one looks successful, which is often needed in the businesses world) or a newer car (which won;t need repair down time any time soon)>

The above is, more or less, the economic policy of today’s Democratic Party. Apologists for the GOP policy sometimes call Democratic economic policy “socialism.” It is nothing of the kind. It is simply smart commercial regulation, an application of capitalism to the real deal rather than to what isn’t real at all. Which is why we prefer it.

Not to mention that paying full time workers a decent and useable wage is the right thing to do.

—- Michael Freedberg / Here and Sphere

Author: hereandsphere

Here and Sphere is an online journal of news, opinion, reviews, advice, & bits n' pieces of everything else - from HERE to SPHERE...... Co-founded by Michael Freedberg, a long-time Boston Phoenix journalist, and Heather Cornell, a South Coast Massachusetts columnist and editor.

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