The middle class is shrinking. Those in power have run up enormous debts on public credit while shoveling most of the money into private pockets. The corporations that have benefitted from this borrowing binge, meanwhile, leverage the global trade system to transfer their profits beyond the reach of national governments.

Meanwhile, we have been told lies by Democrats and by Republicans, divided into artificial camps and led into debates that are either irrelevant or so dramatically scripted that we fail to realize every choice leads to the same result: the dismantling of the social framework that defined and sustained the opportunity of the last century. National mobilization of resources has given way to radical individualism under a narrative that, in the wealthiest nation in the world, we must always expect less.

In this tumultuous time, we search for a way forward - a new Square Deal for the American people.

Thursday, February 20, 2014

Trading wages for jobs is a dead end.

In a prior post, I pointed out that calling the people who control businesses "job creators" is largely incorrect, and that it is ordinary people like you and me who are the job creators of the economy.  Today, with all of the furor surrounding the CBO report on potential impacts of raising the minimum wage, I think that the subject bears additional discussion.
 
Most of the jobs that get created in a business are created because the customers of the business demand additional services.  The cost of such jobs is borne directly by what they produce for the business.  Far from making a sacrifice in hiring such a person, the business owner is profiting from the arrangement.  The people we call “job creators” get the credit for having the forethought to take our money in exchange for things we want.

To be sure, business owners are not necessarily irrelevant to the process.  Entrepreneurs start businesses because they either see existing unmet demand or believe that they can create demand.  In doing that, they are setting the stage for the creation of jobs, and that—if not precisely the same thing as creating jobs—is an important part of the process. 

Not all business owners, however, are entrepreneurs.  Many large companies, in particular, are run by a professional class of executives.  These people flit from one company to another, aided and abetted by the boards of directors they populate with their friends and predecessors.  Sometimes, they grow revenues at the companies that they run, but their true value (to the extent that there is any) comes from improving profitability by reducing cost.  The single biggest cost that can be cut in most companies is labor, and that is where executives shine: they eliminate jobs, inflate share prices for the moment, and pay themselves bonuses for their brilliance. 

When things go south, and that always do, the executives are “fired” under terms that most workers would regard as payment of more bonuses, and they move through the revolving doors to their next companies, whose directors scoop them up to benefit from their “experience”—or, if the political climate is right, they are invited to express their patriotism and head government agencies.

But sometimes, business owners do create jobs.  When a small-business owner realizes one day that he or she needs someone to do the books and hires a bookkeeper, that business owner has created a job.  That job was created, however, not because of supply but because of demand—the demand that the business owner had for a bookkeeper, the same sort of demand that causes you or I to hire a babysitter or a maid service.  We either need or want the services of others in order to make our lives work (or work more easily). 

A person will obtain at any cost the services that he or she needs, because that is what it means to “need” something.  When it comes to the services that a person wants, it is certainly true that the cost of satisfying a whim plays a role.  The business owner is no different from the ordinary individual in this regard, but it is self-evident that a business owner will shy away from hiring someone he or she would like to have, but does not need to have, if that person costs more than the business owner can justify spending.  That behavior, which is normal and obvious, is what drives the reduction in jobs associated with a rise in the minimum wage.

But here’s the thing: everyone who is unemployed depends on the generosity of others (whether the others be individuals or the general public), and anyone who works for wages that are too low to provide self-sufficiency is left in the same position.  When the public embraces policies like a non-indexed minimum wage that is too low to support a person or a family, what the public is actually doing is subsidizing business owners’ ability to indulge their whims by shifting the true cost of having servants onto the public expense.  That is what happens when someone working full time is nonetheless earning so little as to qualify for supplemental nutrition (“food stamps”) and other income-based benefits: we are all paying for some business owner to have the ego trip of an employee whose services are not self-sufficient to the business (in which case the hiring would occur regardless of wage) but whose services are desirable to the person making the hiring decision.  Trading wages for jobs is a dead end.

We spend far too much time jockeying for the privilege of being servants to the folks who have bought up our democracy, and the dirty little secret is that we don’t have to do that, because, conspiracy theories aside, we actually do have the power to change our public policy.  The reason that the wealthy devote so much effort to buying off the people we put into power is that our votes actually do get counted—for now.  We have every right, and indeed have the obligation, to use that power to bring about changes that are in the public interest.

Don’t buy into the “controversy” over the minimum wage.  A dozen developed nations that have indexed minimum wages, heavily unionized labor, strong environmental protections, and every other boogeyman that the “job creators” tell you will “kill jobs” also have higher employment than we have in America, comparable standards of living, and measurably greater degrees of happiness.  The only controversy over whether it makes sense to trade 500,000 publically subsidized servants to the wealthy for a million people being lifted out of poverty (and off of subsidies) is the notion that We The People have the power to set policy in our own interest despite the preferences of the self-proclaimed optimates of our nation. 

To the people at the top, that is very controversial indeed.

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