So, the argument goes something like this: If you raise minimum wage, corporations will pay for that cost by raising prices, thereby increasing inflation, and we'll all be poorer for it as everything gets more expensive. The problem isn't wages, but inflation. Therefore, we should not increase minimum wage.
It follows, that it's necessary that some people work full time yet live well below the poverty line because otherwise, if we raise their wages, they'll end up even poorer because everything will costs so much more - right? So, we're actually helping people by maintaining a lower wage for them and letting them choose between heat or food. We're awesome!
I don't buy it.
Check out this video. It's worth it to watch the whole thing even though it's 25 min.
The counter-argument: If we raise minimum wage in corporations that are profiting, they will see a slight reduction in profits, and the CEOs will take home a little less. Raising prices is NOT a necessary result of raising wages. Yes, that's right. I think the company should eat the loss, and a recent Business Insider article agrees. The video shows that in States that raised the minimum wage, "Across the board rigorous research makes it very clear that business have been able to afford the wage increases."
AND, the increase in wages stimulates more spending from a ton of people who can now actually afford a luxury or two. Maybe even a hamburger. So, overall, the increase in spending counters loss from actually paying people a respectable, living wage. It's not a matter that nice corporations ate the loss for the good of society, but that corporations didn't experience a loss. They can maintain profits by increasing the number of people who can buy their stuff.
The one line near the end of the video makes a different point that's equally important. Since there are too many variables to have any certainty with respect to precisely what one company will experience when they raise wages, we have to stop looking at it economically and start looking at it ethically. It's just wrong to pay people a wage that forces them to work more than 40 hours/week in order to meet basic survival needs.
I always go back to Rawl's veil of ignorance assignment on issues like this: If I were to create a society in which I didn't know which position I'd end up in, would I maintain that some people can be paid less than is enough to survive? Because that could be me. And, in real life, right now, if something happened to me, it could be my kids. Full time workers shouldn't have to live in poverty - especially not so others can maintain their standards of ridiculous excess.
I watched Robert Reich's film last summer on a camping trip. I woke up in the middle of a pitch-dark night and couldn't fall back asleep. I tried a movie on my phone to lull me into a coma, but this was the wrong one to choose.
Reich's film clearly explains how we've gotten into this economic pickle, and he offers solutions to get ourselves out. Here's the film (90 minutes), and my synopsis is below. It's about the U.S., but much of it applies to Canada as well, so I use "we" throughout.
The (corporate controlled) media has created the illusion that the U.S. is poor, and we don't have any taxes to pay for anything, but that's a myth. The U.S. is very wealthy, richer than it's ever been, but it's just no longer sharing the wealth in a way that can support itself.
The media also contributes to the problem by spinning any attempt to discuss income inequality into a conversation about class warfare - which, apparently, is a topic to avoid. Jon Oliver gets at this issue very well and in only 14 minutes (with jokes!):
We have the same disparity now as we did in the 1920s - just before the great depression. Policies that benefit a few at the expense of the many, according to Oliver, get passed because we've been brainwashed to believe erroneously that we, too, will end up in the upper echelons with the very wealthy:
"60% believe our system unfairly favours the wealthy, but, and here's the key, 60% also believe that those who work hard enough can make it. Or, in other words, 'I can clearly see this game is rigged, which is what's going to make it so sweet when I win this thing!'"
Federal estate tax is created to tax anything over 5 million, and is on the verve of being abolished because people think it might apply to them one day. The problem with inheritance is it keeps the wealth circulating in few hands, and the poor have less chance of every getting out of poverty. Marx was on the problems of inheritance, but from the other end. He warned about the error of dismantling inheritance first while leaving the economic system intact:
"The disappearance of the right of inheritance will be the natural results of a social change superseding private property in the means of production; but the abolition of the right of inheritance can never be the starting point of such a social transformation."
And we're back to Reich.
The Class Struggle
Reich and Oliver agree that, like cinnamon, a little inequality is a good thing, but too much is dangerous. Reich uses a graph that looks like a suspension bridge, with the peaks - the danger points - in the 1920s and now. In 1928 as in 2007, the top 1% took home more than 23% of all income, and the middle class stagnated. That's what too much inequality looks like.
The middle class is imperative to a healthy economy. The rich buy very little proportionate to their numbers ("a person making a thousand times as much money, doesn't buy a thousand times as much stuff"), so we count on the masses to keep shopping. A good economy will support the middle class and the poor who will create jobs by spending money. But they are struggling too much to survive for them to shop any day except, of course, Black Friday.
Policy Changes in the Late 1970s and Early 1980s
There's no such thing as a truly free market. There are always governmental rules necessary to run things. The real question is who do the rules benefit and who do they hurt. Middle class wages rose from the late 40s until the late 70s, and then flattened out.
The best book to understand this period of history, for my money, is The Shock Doctrine. Naomi Klein outlines in detail exactly how the US, UK, and Canada (under Reagan, Thatcher, and Mulroney) changed the economic system with worldwide repercussions. From the film: The tax rate on top earners dropped from 70% to 28% under Reagan. In the late 50s it peaked at 91% under Eisenhower for top earners, which was set at incomes over $400,000 (about $3.5 million in today's money). That was dismantled in the name of equality: Why should some people be taxed higher than others. But that confuses equality and equity.
The financial markets were granted more power as governments moved to deregulate the market, so they engaged in more excessive behaviour. Labour unions declined (often by force) which mirrored a decline in the middle class share of income. And globalization and technology added to the destruction of the middle class.
Where a company's headquartered means less and less. We can outsource jobs which undercuts wages of workers in the US. And automation has reduced the need for as many employees.
On the positive side, we have more cool stuff that's cheaper, and CEOs and financiers are much richer. But CEOs raised their own salaries as they fired workers. When companies depend on shareholders, there's a growing pressure to increase profits, which plays out by pushing down wages and benefits to the bare minimum. But then they have fewer consumers available to buy their products, so they have to widen their market worldwide, make products that self-destruct, and encourage people to buy crap they really don't need.
What Worked in the Past
Policies that were around from 1947-77 (Keynes' economics) worked for the general prosperity of all.
Higher education was a priority, and universities expanded.
Labour unions were strong, and more than a third belonged to a union.
The middle class bought more, so companies could hire more, providing a stronger tax base for governments to invest more in people.
Today tuition is rising as the government is taking money out of education. Infrastructure is crumbling and becoming dangerous. There isn't a tax base to use to fix the problems because we've lowered taxes on the very wealthy, shipped jobs overseas, and flattened middle class wages so they no longer keep up with inflation. If the wealthy don't pay their fair share, and the middle class doesn't have enough to pay tax on, then there's less revenue for social services like public education and health care. Then tuitions go up, and the population becomes less educated, and, globally, less competitive. In the 1960s, tuition at Berkeley was free. In the 1970s, it was $700 in today's dollars. Now it's $15,000/year.
In the 1980s, we coped with declining incomes for a time by introducing double wage families with more women in the workforce. Families worked longer hours, taking on second and third jobs. And we borrowed money with fewer restrictions on loans - that, to some, seemed like a good idea at the time, but later blew up. Now the coping mechanisms the middle class used are exhausted.
The Effect on Democracy
Inequality is a problem for democracy too. When so many resources accumulate at the top, there comes the capacity to control politics through wealthy lobby groups who give the maximum amount allowed to election campaigns. All politics have shifted to the right, so that Reich maintained the same views, but shifted from a Republican to a Democrat over a few decades. (And some of us NDP supporters are left without a truly leftist party to back.) High inequality brings with it a high degree of political polarization with politicians disagreeing for the sake of disagreeing instead of working together for the good of the country (like Howarth rejecting a very left-leaning budget). For $300 million, you can buy a president. We can't have government on an auction block.
Here's an illustration of how lobby groups work:
There's a polarization of citizens too. Losers of a rigged game can get very angry. These trends of society pulling apart are very dangerous. Reich sees fights on the Berkeley campus.
Solutions
The economy does better when everyone does better, and history is on the side of positive social change. There's no "single magic bullet," be we need to mobilize, organize, and energize other people, from what I gleaned from the film, to...
shop locally - avoid automated check-out line, on-line shopping, or anything that reduces jobs
decrease technological use in manufacturing to increase jobs for the working class at home which will increase wages, increase shopping, and increase our tax base
put tax money into infrastructure to decrease risk of collapse and create jobs
support union creation and maintenance
convince the government to invest in education, skills, and infrastructure
regulate corporations to prevent companies from being allowed to deduct executive pay
raise the tax rate for the very wealthy to increase the tax base which will allow for more money in education and health care
But the question, as always, is... how do we get from here to there? I can do the shop locally thing, and support unions, but everything else seems horrifically out of reach.
