I don’t know how many of you have visited my brother’s blog since he opened it up about a month ago. If you haven’t, it might reward your attention to check it out. Obviously, I’m a devoted reader already, not least because it’s fascinating (to me) at least to see various topics on which the two of us agree and the ones where we are of partially or completely different minds. As a rule, “Bark” is less ambiguous, and more certain, than I am on virtually everything. This makes sense, because he’s a successful veteran of the corporate-travel life and an accomplished musician with an entire slate of great reviews and well-received work to his credit. I, on the other hand, am an itinerant, a manic-depressive, a dreamer, an Emersonian mass of contradictions.
Yesterday, Bark suggested that raising the minimum wage is a bad idea. I agree with his points and his logic, but I also think there is some room for disagreement here.
The first two jobs I had were for less than minimum wage, because I was just fourteen and couldn’t legally work in Ohio except under certain school-friendly circumstances. So I took $2.45 an hour against the minimum wage of $3.35, at a bike shop and then a pizza place, and I used the money to buy bike parts. Even then I could tell that the adults who worked these kinds of gigs were pretty sad people. They drove rusty cars, they wore cheap shoes, they had problems with their teeth. Many of them worked a second job, even back in 1986.
Some of them were capable of greater things — but many of them weren’t. That much was plain, and depressing, to see. It was also plain to see that the system needs those people. That we can’t all work in downtown San Francisco doing solutions architecture or graphic imaging. That there is a pyramid of available occupations and until all the robots arrive, that pyramid will continue to be broader at the base. (And by then, we’ll have accepted the societal worth of “Basic Income” — but that’s a topic for another time.)
You can see the minimum wage chart above, and you can see that wages have been highest during the darkest times in this country’s economic past. Is that correlation, causation, or what? Do higher minimum wages really depress the economy? Do they lead to inflation? You can make that argument with the chart.
In a traditional economy — meaning, the agrarian-industrial, fixed-value-of-money world that has generally persisted in Western history for the past 150 years or so — I think all of Bark’s arguments are beyond dispute. Those wages have to come from somewhere and that somewhere is the pockets of the consumer. A higher minimum wage compresses the lower class, it reduces incentives to work hard and move up, and it encourages people to remain in minimum-wage jobs for a lifetime.
What I’d suggest is that the old rules stopped applying the minute we moved to the new economy. In the new economy, money is printed with complete abandon and mostly handed to the owners of capital. The prices of fixed assets soar, as do the prices of commodities, as the price of labor sags. The amount of money in circulation no longer has anything to do with the established value of available goods and services. It is a legal fiction underpinned by the expectation of continuous further “easing” and financial manipulation.
I’d also suggest that the minimum wage has not been this low, in real terms, in half a century. Forget about the nominal value of a dollar. Look at what minimum-wage employees actually purchase and use. Gasoline cost me eighty-nine cents a gallon when I earned $3.35 in 1989, bagging groceries. Today, it’s $4.09 in much of the country, with a minimum wage of $7.35. So you’d need to earn $15/hour to have the same ability to fuel your car as you had in 1989. What about milk? It’s on an all-time inflation-adjusted high, a full 38% more expensive than it was a year ago. Rent prices are 50% higher, adjusted for inflation, than they were in 1980, and that is a national average; it’s worse anywhere you’d possibly want to live.
Groceries are at an all-time high, even if you don’t go to Whole Foods. McDonald’s prices? About triple what they were in 1989. So that $3.35 minimum wage would need to be $10.05 to purchase the equivalent amount of fast food. If you look at what economists call a “basket” of goods and services that are actually purchased by minimum-wage employees, it’s hard not to conclude that the equivalent of 1989’s $3.35 an hour would be closer to $12 or even that mythical $15/hour. No, that’s not reflected in traditional inflation calculations, but traditional inflation calculations aren’t based on what real people buy; they’re based on financial transactions that have no more relevance to the everyday world of the working poor than India’s Mars mission does.
All signs point, therefore, to an increasingly uneven distribution of wealth in this country. While the Brazilians and Chinese are content to live this way, with only the occasional riot or city-burning as an outlet, Americans won’t stand for it much longer, and a lot of them have guns. Some sort of redistribution, at some level, will be necessary, no matter how repugnant it is on a theoretical or ethical level. There are about thirty million workers in the United States who would be covered by such an increase, and that increase would be (by my back of the envelope calculations) about $10,000 per worker. That’s 300 billion dollars, which sounds like an insane amount of money, because it is. On the other hand, Goldman Sachs earned about $40 billion in profit last year all by themselves. BP earned $20 billion, Microsoft did about that well also. That’s net revenue, after they pay everybody and pay the bonuses.
Another way to look at it: The EIC, which should disappear in a $15/hour world, cost the United States $56 billion last year. Combine that with a net fifteen percent taxation on the increase in minimum wage, and you’re already more of a third of the way towards recovering the money. Which means that the United States Government could directly subsidize a third of the increase in the minimum wage to employers and feel no financial impact at all. What about the impact on Medicaid costs? That’s difficult to calculate, but it would be real money, and Medicaid is obviously way above $200 or $300 billion a year.
Alternately, the return of the financial transactions tax could allow the Fed to subsidize the entire minimum wage bump. How is that different from welfare? Well, it gets people working. Idle hands do the devil’s work, particularly in communities that are already at risk.
Are these anti-capitalist, anti-free-market ideas? Yes, and I’m embarrassed to have them because I’ve always believed in the free market and the power of individual initiative. But what we have as a country isn’t free-market capitalism. It’s a government that already has its veterinarian’s arm buried in the vagina of the economic cow up to the elbow. It’s a government that picks winners and losers in every sector of industry. It’s a government that allows banks to do whatever they want, to risk billions of dollars on schemes that mint millionaires by the hundreds when they work but are backed by the American taxpayer when they fail. It’s a government that propped up Delphi only to have it move its tax base to Britain. We’re living in a welfare state already — and the biggest collectors are seven-figure adventurers whose lifestyles are guaranteed by the middle-class tax base.
As a country, I’m not sure that we can afford a fifteen-dollar minimum wage. But I’m also not sure that we can survive without it.
Thank you for addressing this topic Jack .
-Nate
I think wages would take care of themselves if they weren’t suppressed by rampant illegal immigration aided and abetted by both sides of the aisle.
“It’s a government that already has its veterinarian’s arm buried in the vagina of the economic cow up to the elbow.”
So long as you don’t leave the Ingenieur in said cow. [/cityslickers]
Jobs and marriage and men:
http://www.slate.com/blogs/moneybox/2014/09/24/decline_of_marriage_pew_shows_there_aren_t_enough_marriageable_men.html
The minimum wage debate garners far too much attention. 3% of the workforce makes minimum wage and half of that number is teenagers. We’re talking about an extreme fringe element of the total workforce. Framing the minimum wage as a daunting task master destroying the lives of American workers is a canard created by the Democrat party and aggressively foisted upon the public by it’s eager pals in the media.
“We Democrats are super-duper nice guys who want you to make tons of cash and live a life of leisure. Those a-hole Republicans want you broke simply because they’re mean and greedy. They don’t have hearts you know? True story…..in the cavity where their hearts should be is a giant lump of coal. If you happen to be black, they also want you back in chains, just ask Joe Biden. Remember who’s on your side when it comes time to vote.”
There are thirty million workers in the United States who would be affected by the minimum wage bump. That’s not insignificant.
Very few people make THE minimum wage — after I’d been bagging groceries for 90 days they raised me to $3.45. I didn’t run out and buy a Ferrari 328GTS or anything 🙂
Assuming a bump to $15/hour, I could see 30 million being affected. That’s a huge bump and paying someone off the street with zero skills that amount is bonkers. I’m sure you were a phenomenal grocery bagger, Jack, but that’s a no skill job and I think you were paid accordingly. Probably motivated you to improve your skill set so you could start saving for that 328GTS. 🙂
I agree 100% with your assertion that our economic system has been bastardized and is basically crony capitalism. That’s the result of a massively powerful centralized government that has inserted its tentacles into virtually every area of commerce. The last thing we should be doing is giving the government more power. When you say, “hey government, you effed up the economic system, now insert yourself deeper into the economy to fix the problem.” you’re making the problem worse.
We need to be slashing government in response to these issues. Our government has a self enlargening (is that a word?) mechanism that is truly astounding. Government identifies a problem and steps in to address it. The results are disastrous. In response, it either spends more money on the exact same “fixes” or creates a new program/agency to fix the old program/agency. We need to throw a wrench into this mechanism, not enhance it.
From a theoretical, ethical, and moral perspective, I agree with you.
From a practical, short-term perspective, I think the purchasing power of minimum wage has currently sunk to its lowest level in half a century or more. The effect of absolutely unimpeded immigration from low-wage countries has be considered as a contributing factor to this.
If you can’t buy any more milk or gasoline or food with $15 than you could with $3.35 in 1989, then $15 isn’t outrageous. We all accept that the market has made homes that sold for $75,000 on the East and West coasts in 1970 worth $4m today. The dollar is the problem.
No doubt the dollar is the problem. The printing presses are running at turbo speed. It’s pretty darn scary.
So what is your solution Opaddington? You agree that if people cannot buy as much milk and gasoline than they did in 1989 then what would you do? And please not the Randian let them stand on there own since as Jack said quite a few are never going to be computer programmers etc. There will always be people earning $10-20K which is way less than most of us on here.
I work as a computer technician and I make $15 an hour. My wife makes $15.50 working at an engineering company doing CAD work. These are both skilled jobs we went to university to earn. Now you want to give someone that slaps together hamburgers and/or pizzas for a living that amount. What happens to us when we suddenly drop from lower/middle-class to minimum wage workers OVERNIGHT? You think our employers can afford to just give us a huge $7.50 an hour raise? My work has 4 employees. Hers has less than 50. I was unemployed for about a year before I got this job and my wife was unemployed from the time her previous company went kaput in the 2008 financial crisis and it took her until last year before she could land her job. The job market still sucks. Everything we buy, and I mean everything, will go up a huge amount in price. Now tell me how this story has a happy ending for me?
I’m sure you know this, but I’ll throw out that just because a company says it had profits of $xxx billion for a quarter, that doesn’t mean they have that amount sitting around in a vault. Many large companies are riding a fairly narrow edge of survivability no matter what the P/L says.
So where is that $250,000,000? Surely they have spare cash around, can borrow since they make decent profit and will have the cash flow that over the course of the year they have the money.
As an Norwegian, I’m sure this is not ‘my problem’ directly, and maybe I shouldn’t get involved at all. But yes, you do need to raise the minimum wage. 15$ doesn’t sound at all outrageous to me, but the economy here is compeltely different.
I’m quite sure you don’t want to pay 10 bucks pr gallon for gasoline, 10 bucks for a pint of beer or absolutely nothing to have surgery to screw together two bones in your hand with titanium screws because you re useless at working on cars…(the initial check up, and tri-weekly check up after cost 40 bucks a time though)
I think a lot of people ( especially the ones who make $15 an hour now, like Lucas above me here) don’t understand that their wages would also increase accordingly if people ‘off the street’ were paid that much. You would just have to pay a trained engineer more if he was gonna be bothered to show up. Not to mention all the other positive effects of having more physical money in circulation in the market.
With more and more ‘useless’ workers not making enough money to make a living, you won’t be able to have any quality goods, no matter how good the economists and civil-engineers in the company is. You don’t get skilled workers or good service by deliberately mistreating them.
And btw, Jack, these are not ‘anti-capitalist, anti-free-market ideas’. Henry Ford was a pretty decent capitalist, no matter what people may think , and he made pretty decent money being a ‘socialist’. These are ideas that would help the whole US economy from bottom up to the second tier before the top, (and quite possibly the top too) .When everybody is either rich or poor, the rich will no longer have any customers, and the poor will have their revolution (and as you said, most of them own guns)
A capitalist market controlled economy can not function unless there are actual steps that rise above each other, preferably evenly spread all the way to the top, that you can strive to climb.
When it’s 1% rich people and 99% por people, the poor ones will not keep believeing in’the American dream for long (I think most intelligent people are already starting to doubt it)
Striving for a sustainable market and economy certainly isn’t a communist idea. Just imagine a world where the ony cars available are Mistu’ Mirages and downards, or Panameras and upwards, and nothing in between…That is the world your current leaders are striving for at the moment (and no, I dont mean your politicians, they dont seem to control much anymore)
And PS, offcourse, not all business owners are evil. There are probably as many nice and friendly filthy rich people as there are practical and reliable supercars…
Excuse all the typos, I just hadd to add that, it actually is my problem, because Norwegian industry is struggling because our wages are waaaay to high, because our currency is just too strong compared to mostly all others, meaning we can’t export anything with a profit anymore . ‘Luckily’ that is about to change, unless the oil prices suddenly start rising again (which, potentially could happen, if the socalled ‘Islamic State’ get too problematic )
It doesn’t work that way. The company I work for just about breaks even every year. My wife’s company has been in the red for the last 5 years. With the stroke of a pen, these small companies would go out of business. We would all be laid off. On a small scale that is two small businesses and ~54 people that you just put out of a job. Now expand that nationwide. Where are all these people going to work with unemployment already at record levels? Where is all this extra money going to come from? Worse yet, the mcdonalds and dominos of the world have every reason to replace their people with machinery. Now you’re dumping those people on the terrible job market too.
Look, I’m all for people making more money, poor, middle class, rich, whatever. But they should have to EARN IT. I worked many different minimum wage jobs, I went to college, I’m still paying $200 per month for my college loans. If I wanted a $1 an hour raise I would have to work really hard and prove that I am worth the extra money. You shouldn’t get a $7.50 raise for only having the ability to submit a damn resume.
But all businesses would be on the same level if you raised the minimum wage, and all people would effectively have more money, and thereby more potential customers.
OK, a lot of that will dissapear into inflation, so for a lot of people they still wouldn’t be able to buy much more than they could before, but the differences would be smaller. If a company can’t afford to pay it’s workers, it should go out of business if the market has anything to say about it.
And why should you even bother to go to college, or to submit a resume if you can get the same money from wellfare, or sitting on the street with an empty coffe mug and a three stringed guitar.
And for those afraid of unions, I can guarantee that they would probably also lose some power if workers in general were treated reasonably fairly.
If by “on the same level” you mean “unable to pay their employees and soon bankrupt”, you are correct. Apparently you seem to to think either the majority of companies will just be able to the shake the magic money tree to pay this extra money to their employees. Or you think the majority of businesses in the country should go bankrupt and the majority of people should be unemployed. Aside from the fortune 500, the majority of American companies are small to medium size businesses that will not be able to afford or absorb the extra cost of labor. So I ask you again, how can causing more than half the the companies in the country to go out of business and more than half the workforce (which is already at the lowest numbers in decades) to be laid off be GOOD for the economy?
Well, I can agree that implementing such a massive increase in pay shouldn’t be done overnight. But if people with a college degree can’t make a living in a full time job, how useless is the company they are working for? Do you actually provide a service or product than anyone is willing to pay for? Could you do better with people who weren’t just desperate to survive?
It kinda reminds me of a time where American and British car companies outsourced everything, or just ‘gave up’ because local workers were ‘too expensive’. And then the Japanese started making cars in the US and UK, and made money…loads of money…
The wealthy are getting much more so, more quickly, and at the explicit cost to the rest of us:
http://www.cbo.gov/publication/42729
“income received by the 20 percent of the population with the highest income exceeded the aftertax income of the remaining 80 percent,”
The real purchasing power peak was in 1973 and ever since then the overall trend is that people work harder to afford less. The average middle class worker is making less than they were forty years ago when shown against the cost of goods and services we need. That is food, energy, shelter, education, healthcare have grown exponentially more expensive in some cases over inflation. Worse, lost real income has been further hammered by credit card, auto, mortgage, and student loan debt that further drags down middle class workers.
If it doesn’t feel like this to you, it may be because you and your wife work. For a while that combated the lost buying power. It is certainly why since 1973 the trend lines show “stay at home” spouses has collapsed as a viable way of living for the middle class. But it is no longer a way to “get ahead”. It’s become an accepted baseline necessity, and single earner families are an exception for the middle class.
If we were in a steady state income equality situation since the seventies than the average household income for middle class earners (25% above and 25% below the median income for the country would be nearly double its current $25k and $76k amounts.
I don’t think raising the minimum wage to $15 an hour will do any good so long as the broader fundamentals are not changed. That doesn’t mean we shouldn’t do it, but it should be part of a much more deliberative conversation.
And that’s why I drive a Ford.
Agreed, the mandatory working wife (or working husband, if you prefer to look at it in a way that relieves your liberal guilt) is perhaps the great unremarked-upon change in American life since the Seventies. That, and the resulting misery and depression suffered by the latchkey generations.
I can certainly see this, and I agree with it to a certain extent. I will say that two income families aren’t extremely new. My parents both worked 40 hour jobs as I was growing up… they even did in the mid 70s before I was born. My main issue is that I just don’t see how gutting the middle class by making them minimum wage earners overnight and bankrupting any companies that can’t afford to pay those wages will help the economy in the foreseeable future. Maybe years and years down the line once everything is sorted out, but the increase is just too steep for the system to absorb the shock. It’s the nuclear option. You could maybe raise the minimum wage a dollar or two AND do something else instead of just doubling the minimum wage perhaps.
@Lucas:
The experiment being played out in Seattle should teach us a great deal about the viability of raising the minimum wage. The argument is that McDonald’s, WallMart and any large employer will not leave the city limits if they have to pay a living wage to the people they employ.
However they aren’t doing this all at once, but phasing it in over three years IIRC, and there are exceptions (and challenges) underway. It will be interesting to watch and see whether the glass is half full (bringing thousands into the middle class) or empty (gutting the existing middle class).
This does raise a pet peeve issue. That reason we get to pay cut rate prices for the cheap crap we buy at Wall Mart comes in part from the taxes we spend in order to subsidize Wall Mart not paying people enough to live on. I’d rather see people paid living wages and pay more for at the cash register than give it to the government so they can redistribute it back to the person who just bagged my groceries. Pay them well, reduce government expenses, and spread out the impact so that Wall Mart may A) make a small amount less and B) we may pay a small amount more.
There will be many who will tell you that’s an over simplification and give you lots of reasons why. Many of them will have reasonable points. But, Jack’s right. The state could subsidize and ease the transition as it’s already in the business of compensating via social welfare for the lack of living wages. The growth in food stamps programs is not (mostly) because of abuse, its because people lost jobs and the jobs that replace them pay for shit because we’ve gutted manufacturing out of the country.
Bottom line, if you want to cut entitlements, pay people living wages. I don’t personally see a path forward where this isn’t addressed that doesn’t lead to dire consequences. Neither does this guy:
http://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014.html#.VCYhQf50y70
Latchkey. Separation. Divorce. The rise of ever more sophisticated electronic babysitting devices, it’s a shame. Conservative’s may blame “women’s lib”, but those claims overlook economic realities. People don’t stop raising their own children by choice.
Having
wastedmisspent part of my youth playing white knight to a short string of single mom’s with the extra stitch I can only comment anecdotally. Liberal or Conservative, the ability for a single mother with little professional career and only a high school education to support a child is laughably hard without extended social/family network support.The spiral created is generational and has become an undocumented tragedy that only ends with the movie Idiocracy becoming prophetic.
“You can see the minimum wage chart above, and you can see that wages have been highest during the darkest times in this country’s economic past”
The 50s and 60s were generally pretty good times for the US. At first glance, the chart says the opposite of this.
But what has really happened is that once the inflation of the 70s went into overdrive, the minimum wage has generally been neglected. The primary cause of inflation (although not during the 70s-80s stagflation) is usually wage growth, and we now have monetarist policies that make inflation fighting a priority. The government is more worried about the unemployment rate and inflation than it is about whether you earn enough at the job that you do have.
$15 per hour for bottom tier workers is ludicrous. If you go to your local fast food joint where the burger flippers are now making $15 per hour, do you think the “meal deal” will still be $6? Ditto your pizza, any item at a convenience store, the jeans you buy at the “big box” store, etc. The money is NOT printed by the owners of these, or any, business and has to come from customers. If I suddenly had to give all the laborers we use at our work a 50% raise, do you think I can afford to keep all of them? Will my prices have to go up to meet the increase in cost I now have on each job? And what about the skilled folks at work. Do they now have to get a raise because suddenly the guy that cleans the toilet is making only $1 per hour less? And what about me? I bust ass 60-70 hours a week chasing jobs, coordinating contractors, supplies, schedules and making sure the job is done when we agreed it will be done. Do I get more money now? Yeah, I didn’t think so. Even with all I put in, I’m still middle class, probably on the low side of middle.
Not sure what the answer is, other than the fact that minimum wage jobs were never meant to be a career, but as an entry level position. To look at them as any thing other than that, well sorry but I disagree.
“$15 per hour for bottom tier workers is ludicrous. If you go to your local fast food joint where the burger flippers are now making $15 per hour, do you think the “meal deal” will still be $6?”
maybe fast food should be more expensive. There’s no inherent reason a cheeseburger has to cost $1.
“If I suddenly had to give all the laborers we use at our work a 50% raise, do you think I can afford to keep all of them? ”
do you think you’re entitled to pay people peanuts?
“Will my prices have to go up to meet the increase in cost I now have on each job?”
yes, probably. and so will everyone else’s.
“Yeah, I didn’t think so. Even with all I put in, I’m still middle class, probably on the low side of middle.”
there are people who believe anyone who makes less than $10m a year is middle class.
“Not sure what the answer is, other than the fact that minimum wage jobs were never meant to be a career, but as an entry level position. ”
the minimum wage itself was to try to at least make sure people weren’t being paid a pittance, or in company scrip. the big problem is that minimum wage hasn’t kept pace with inflation.
companies just see it as a cheap source of fungible labor. they don’t care about “entry level” or anything else like that.
“maybe fast food should be more expensive. There’s no inherent reason a cheeseburger has to cost $1. ”
Ok, then carry it over to any restaurant of your choice. If their cost’s rise by 25%-50% can you afford to continue to go at the frequency you do now? Because unless your pay is tied to minimum wage( as many union contracts stipulate) you don’t have any more disposable income than you did before.
“do you think you’re entitled to pay people peanuts?”
We pay folks very competitive wages. Unskilled laborers are $10-$12 per hour, helpers $15-$17, technicians $21-$25, foremen $28-$30. These are average in our industry and hardly peanuts IMO.
“Will my prices have to go up to meet the increase in cost I now have on each job?
yes, probably. and so will everyone else’s.”
And therein is the problem. Ultimately all this money comes from the folks who DID NOT just get a 100% raise . As the consumer, it comes from US. I don’t see why my standard of living has to fall by 30% or more, so that some 17 year old schlub flipping burgers can now make the same money as someone with skills and real experience.
We will likely continue to disagree however these are my opinions. I have been around for 3/5ths of a century and plan to exit the work force soon. Sell the business and go live off the obscene profits I hope to make and let others worry about these things.
Jack,
You are missing the real argument here and that is for the Basic Income Grant (BIG).
Look at it form the big picture perspective- before the industrial revolution (basically form the neolithic age to 1800) at least 75% of the world was engaged in producing food. Then we hit the critical mass and the efficiency curve went exponential and we entered the industrial age which raised living standards astronomically, and as agriculture mechanized we pulled all the peasants out of the fields and into the factories. Now we are beyond the industrial age into the information and automation age. In the post industrial world we need less than 1% of people working to produce food for the rest of us (https://www.youtube.com/watch?v=pVkieJ_Wj64) and soon that number will become a tiny fraction of a percent as food production becomes automated and farms will be run by tech support teams. Soon we wont need more than a handful of people in a factory either, and forget these ridiculous customer service and temp economy jobs altogether. ALL the labor will be done by robots.
So now what to do with all these people? Well for a while we created this bullshit called the service economy as a temporary stopgap. Shitty wages for shitty jobs (call center rep, subway sandwich artist, etc) that are just not yet cheap enough to automate so we could give the dying middle class something to do. This was not going to last forever, even these jobs will be automated away sooner than you can imagine. Let’s cut the shit- the industrial revolution and the middle class it created was a brief blip in history and now we are transitioning back to the way things have always been since the time of the Pharaohs: a small 1% ruling class that owns everything, another 14% below them to run the system, and then everybody else.
And we also need to get real about the fact that “everybody else” will not fit into the information age economy. There will only be 4 professions of the future: economics/entrepreneurship, arts/entertainment, math/science/technology, civil society system administrators. Every other job will be done by automation. It is exactly as you said in one of your TTAC posts- there will be no corvette buyers in the future, it will only be Ferraris and cars for the proles. And then what?
Well as I alluded to above, the solution is right in front of us: the basic income grant. Sure some feel an immediate aversion to the idea of paying people to do nothing because for all of history the meme has been “if you don’t work, you don’t eat”. But after all, what is the point of automation and freeing ourselves from the toil of labor if it isn’t liberating human beings to spend their time pursuing leisure? As the BIG initiative in Switzerland put it ““Imagine you are being born and society tells you, “Welcome, you will be cared for, and asks you what you want to do with your life, what is your calling? Imagine that feeling, that’s a whole different atmosphere.” If basic concerns, such as security, societal ties, and financial resources, are met, opportunity to think beyond oneself is a possibility.” http://www.trueactivist.com/swiss-plan-to-pay-basic-income-regardless-of-job/.
And moreover, let us stop kidding ourselves, we are already on the way there:
http://www.decisionsonevidence.com/wp-content/uploads/2013/01/Government-transfer-payments-as-a-percent-of-total-county-personal-income-2011.png
As of this year, government transfer payments already make up about 19% of personal incomes on a national level.
And even if you have no normal compunction about the idea (but why would you this is just the inevitable future we are heading towards: https://www.youtube.com/watch?v=h1BQPV-iCkU), some might immediately raise practical implications, such as who would pay for this?
But this is the really beautiful part, because just recently as Central Banks became our new overlords, they were able prove with the great behavioral finance experiment of 2008-now that debt (at least for countries with reserve currencies) does not matter. Japan has a debt/gdp ratio of 300%+ and its 10yr bonds are at 0.51% right now. In fact, they can literally be delisted for all intents and purposes and on some days do not even trade in the open market. Not only does debt not matter, but we have discovered governments are free to print as much money as they want so long as their central banks keep money velocity in check. Don’t take it from me by the way:
http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity
Debt is not debt, the Fed owns 43% of all UST bonds over 7 years in duration http://www.minyanville.com/trading-and-investing/fixed-income/articles/peter-tchir-treasuries-yields-fed-ecb/7/14/2014/id/55539. Any “profit” off those bonds is returned right to the Treasury lol. Markets do not set interest rates anymore, central banks do. As long as you have dollar reserve status and believe me the US has it, foreign CBs buy American paper because it backs their own currencies:
http://ftalphaville.ft.com/2014/08/01/1915282/all-aboard-the-us-flow-merry-go-round/
http://www.treasury.gov/ticdata/Publish/mfh.txt
We could print the money out of thin air tomorrow and give every American adult a BIG of $3k/month to go and enjoy life. It would give everyone what they wanted, conservatives would get less government (this would eliminate and replace all means tested programs which are a mess because they evolved separately), and at the same time liberals would get nothing short of a complete social safety net. The only thing we would need to do to make this happen is accept that to help control money velocity the Fed will need more tools to remove money from the system- that is where taxes come in. There are only 2 taxes that are truly fair and progressive- consumption (VAT) and land taxes since they tax only those who are the end beneficiaries of the rest of society’s labor and land which is a common resource (see Thomas Payne on this very subject). The land taxes are also necessary to make sure that all the new money handed out doesn’t simply get absorbed in higher rents. So if you are willing to create a system for the central bank to keep inflation under control by agreeing to new taxes (which could also completely replace income taxes), then there is nothing stopping this from working in theory.
Hey! I *did* mention Basic Income in the post! 🙂
Haha, fair enough jack you do deserve props for bringing it up, I just meant in the sense we could literally skip the discussion about minimum wage altogether, because the concept becomes a total anachronism the minute we start discussing the BIG, because then people would be “free” to work, and they are then also free to work on whatever terms are agreeable to them, if they are provided for.
By the way Jack, I wonder if you even know how right you are when you say: “What I’d suggest is that the old rules stopped applying the minute we moved to the new economy.”
Wait until you see what happens when CB’s finally succeed in eliminating cash! This is what most people do not understand yet, the information age changed many things, but nowhere was this greater or more unseen than in the digitization of money itself, this is one of the biggest game changers in human history. Once cash is gone and all “money” is 1’s and 0’s in the grid, and you are no longer able to keep money under the mattress, there is nothing to stop the Fed (or any other CB) from setting negative interest rates on your checking account. Imagine the implications of that… Central planners will be completely capable of herding consumer behavior any way they deem appropriate according to economic modelling. But it will also make the BIG possible and incidentally the two concepts go completely hand in hand.
The BIG would a better solution, and it’s not so far from what we are practically doing in Europe , except it is heavily bureaucratized, and requires that the recipient of the money do almost as much work as the bureaucrat who hands them over. If we thinned out the bureaucrazy we have over here to a reasonable level (like we could with the BIG) unemployment would go sky high, so I think implementing it would be strongly discouraged by a lot of people, as it probably would over there too, but by conservaties who is afraid that it’s against Gods will (‘God’ being Mammon in this case)
Aslo, to comment on both yours and other peoples when it comes to automation: Whenever a young man is replaced by a robot, you are effectively govong his job to three asians instead (one guatemalan that builds the interface, one chinese to build the robot, and one indian for tech support/programming)
Now on short term (three months is all that is important to most economists and middelmanagers) world scale this isn’t so bad, because a lot of earlier ‘low-cost’ countries get a share back some of the wests wealth (which we most likely stole from them in the first place) but, eventually they stop being low-cost countries.
And the information recolution has gone so fast that most people themselves are soon not able to keep up. The population growth in industrialized countries is more and more because people don’t die anymore, and less because we actually reproduce.
The full automation of the whole world to get it on the same level as the west could happen faster than people used to think, but the sheer amount of people it will leave in the ditch will be so massive that ‘Morlock’s will outnumber ‘Eloi’s by lot more than 100 to 1. How long it will take before they just eat us alive is uncertain, but we will not be able to fight back as soon as our machines (built at the lowest price, by the lowest paid workers, with the cheapest parts) stop working properly…
Well, first of all- “If we thinned out the bureaucrazy we have over here to a reasonable level (like we could with the BIG) unemployment would go sky high” is a bit of a fallacy because once you have the BIG, “un”employment no longer even exists, does it 🙂 ? I certainly get your point (at the moment the bureaucratic sector in Europe IS a form of welfare itself) but consider that you CAN thin these jobs out because many of these former bureaucrats will now be BIG recipients themselves… and don’t worry about government jobs, that will be one of the only growth sectors over the world for the next 50 years, BIG or not…
Secondly, I think you have it backwards, “Whenever a young man is replaced by a robot, you are effectively govong his job to three asians instead (one guatemalan that builds the interface, one chinese to build the robot, and one indian for tech support/programming)” The way you have written it, it sounds like I have created 3 jobs by automating 1 away. That is not how it works. One robot can replace dozens of workers and give you way higher output (efficiency and quality control goes way up) and I can assure you interfaces are NOT made in Guatemala (the irony of that is they would only be made there even theoretically for cheap Guatemalan labor, which the robots themselves now replace…), the world’s most sophisticated robots are designed and built in the US, Europe and Japan:
https://www.youtube.com/watch?v=hLB2WuPMel0
https://www.youtube.com/watch?v=qj8XGJIE5X8
https://www.youtube.com/watch?v=e9geaPrEW3E
Thirdly, this-> “but the sheer amount of people it will leave in the ditch will be so massive that ‘Morlock’s will outnumber ‘Eloi’s by lot more than 100 to 1. How long it will take before they just eat us alive is uncertain” is just the wrong approach. Think about it, if everyone in the world (including even Africa) is freed from labor because robots are doing all the work, then population standards the world over will adjust eventually to the same scale everywhere. Its the same pattern in every country, the post industrial family shrinks, if we bring automation to the 3rd world and raise their living standards (guaranteed to happen eventually) then the entire world will eventually be at the 2.1children/family standard. As far as the Elois and the Morlocks, the future will simply be about Elois (the 1% who own everything) bargaining with the Morlocks (the people who are not useful to the future economy) over how much of a BIG to pay them.
This is your future as a Morlock, doesn’t matter what country you are from:
It’s great to see this level of thoughtful discussion going on here. Thanks, everyone!
Check this out Jack:
http://www.foreignaffairs.com/articles/141847/mark-blyth-and-eric-lonergan/print-less-but-transfer-more
As a somewhat ludditian bluecollar worker, I don’t think it will work out that nicely (and I admit, I had a complete brainfart writing Guatemalan instead of Malaysian , sorry about that) The process of building interfaces and robots is still not fully automated, and so far it’s cheaper to have them built by low cost workers than it is to have that process done automatically here in the west (do you by any chance own a smartphone? ) So, in effect, each time a job is automated here in the west, more jobs are created in the 3rd world.
And with the younger generations (especially in the cities) are living a life that are more and more distanced from primary functions like food production (how many people do you know that has seen a cow or a tractor or backhoe in real life ? )
And you would be amazed if you knew how many processes that are vital to society that are not yet (fully) automated, even here in the west.
One solution that can work for a while, since we ‘virtual’ money has been mentioned, is just deleting the money in the first place. What you maye have forgotten is that since we ‘discovered’ the negative effect of pollution, we started moving all the trash and pollution that we used to have in the west to 3rd world countries that didn’t have regulations. The 3rd world will soon enough no longer function as a food and natural resource warehouse for us. We are already starting to eperience problems getting enough raw material to build our ‘green’ cars, not to mention magnets.
Offcourse you are correct about our bearucrats technically already being on wellfare, but even with the current system we are running out of money here in Europe (Norway not yet completely included, but we aren’t in the EU) and that if the BIG was implemented it wouldn’t be that much of a difference, but I’m afraid it never will be, for the reasons already mentioned.
PS, using Wall-E as an example is brilliant btw. Just remember that the guys on the spaceship are the Elois, ( I can’t remember how many people could fit on each ship) and the ones left on earth were Morlocks…
This movie is also incredibly ironic (if you have a dark enough sense of humor) considering how much trash have been produced and sold in it’s aftermath (just think of how much of the trash Wall-E is compressing that used to be Wall-E happy meal toys….)
Hi Jack,
The problem is the minimum wage is a blunt instrument that tries to solve two unrelated problems at once. It’s like trying to order a Miata…with third row seating.
One problem is entry level workers. By definition they have no experience, and generally few if any marketable skills. We’ve already seen what happens to this group when you jack up wages and regulations; its called Europe, where youth unemployment hovers around 25%. In Spain, its 50%. And that’s all the time, not just during recessions.
The problem here is something economists call displacement. People generally engage in linear thinking-raise wages X, raise prices Y to pay for that, and it’ll all work out. Now think of how you actually spend your money. If you’re absolute fav food is steak, which is $5/pound and you eat it 5 days a week, are you going to buy as much when it’s $10/pound? $50? $100? At some point chicken starts looking real tasty. And lobster, for that matter. So you displace steak with alternatives.
Or think of it this way: We all think the Miata is a terrific car. What would we think of it if it cost the same as a Boxster?
And that’s the exact same things businesses will do: When a Miata costs the same as a Boxster…they’re going to buy Boxsters.
Or in this case, robots. At $5 an hour, teenage hamburger flippers are cheap. At $15, suddenly
Or self serve. The sit down restaurant at SeaTac closed as soon as the minimum wage was raised to $15/hour, then reopened as a self-serve cafe.
So, OK, that’s the first problem, and it seems pretty straight forward. So why are all those folks in this thread talking about people who can’t pay their mortgages? How many teenagers have mortgages?
Well, that’s the second group: adults who have fallen on hard times or are re-entering the work force. And that’s the problem: what helps this group hurts the first group, and visa versa. What’s needed is a SEPARATE solution for this group, perhaps through the tax code such as the Earned Income Credit.
Hmmmm….missed a tag somewhere. Sorry. Doesn’t seem to be a way to edit it.
cjf
“The process of building interfaces and robots is still not fully automated, and so far it’s cheaper to have them built by low cost workers than it is to have that process done automatically here in the west (do you by any chance own a smartphone? ) So, in effect, each time a job is automated here in the west, more jobs are created in the 3rd world.”
This is just a temporary phenomenon. In economics this concept is called the great divergence (http://en.wikipedia.org/wiki/Great_Divergence) and is simply the result of the fact that some countries made the quantum leap into industrialization before others. But at a certain point, every society on earth will reach a post industrialized state (watch how fast Africa will do it- a matter of 3 generations or less). You don’t honestly think we will need 3rd world labor in the future when robots are far cheaper and more efficient than even Guatemalans (or Malaysians), do you?
To try to explain this as succinctly as possible: the current off-shoring of labor (and yes also pollution) is simply done because economic decisions are made at the margin. Therefore *at the moment* it is still cheaper to have someone in China (actually even China is being ditched for Vietnam, Cambodia and Africa now) produce a smartphone than to have a robot produce that same smart phone in Europe or America. But in just 2 generations or so (your grandchildren) China (even North Korea) will not have any competitive advantage over the industrialized world, because labor costs will no longer factor into economic decisions AT ALL. Because labor costs will be a small fraction of a percent (just the few staff needed to supervise and maintain these highly sophisticated western made robot factories) and in the future factories will simply be located wherever energy is cheapest and taxes are the lowest for the owners, NOT where labor is cheapest, as they are currently.
In the future you will see factories clustered around cheap energy sources, for instance see how Iceland is already being used for cheap geothermal energy and cool air in order to run server facilities: http://www.businessweek.com/articles/2012-03-28/iceland-data-center-hub
“you would be amazed if you knew how many processes that are vital to society that are not yet (fully) automated, even here in the west.”
well, you might be amazed as to how the majority of them will become automated within a very short time (20 years from now), many menial jobs will completely cease to exist. Speaking of food production, seriously take a look at this, this movie was made in Austria 10 years ago, imagine how far we have already come since then! https://www.youtube.com/watch?v=pVkieJ_Wj64
As far as pollution, well maybe I am an optimist but I believe this too is simply a matter for technology to eventually address. There is no technical reason why we cannot find a way to put robotic labor to work there too- in cleansing our air, purifying the water, and of course the idea of “garbage” and “waste” will be a thing of the past. The contaminants we cannot deal with on the planet (nuclear waste) can eventually be disposed of in space if necessary. Do not underestimate technology, in your lifetime, you will likely see computing speeds surpass that of the human mind:
http://singularityhub.com/2012/11/01/the-race-to-a-billion-billion-operations-per-second-an-exaflop-by-2018/
But back to the point, the question is how do we get there from where we are now? And right now we are still dealing with a question right on our doorstep: how do we help society adjust to the fact that the middle class will disappear within our lifetimes and how can we stop the massive income inequality that is currently growing threatening to disrupt our plans for a future of utopia of permanent retirement for everyone. The only real answer to that is the BIG.
And by the way, Im glad you appreciated the Wall-E link, that is a true vision of the future there, and of course I want to add that although it was not shown (this was a playful kids move after all), I can guarantee you those ARE the Morlocks you see there. The Elois are out of sight, they are the ones that own the spaceship and everything on it and they control the robots that provide for the Morlocks. And just like in real life, Morlocks are simply there to provide a constant ore of attractive women for the Elois… (of course the Japanese are working round the clock on sex robots, but for the time being Elois are pretty fond of Morlock women @ $2000/hr). Eventually of course, the Elois might be overwhelmed by the robots themselves, but that is more a topic for Kurbick than Wall-E and fortunately you and I will be long dead by then. For the moment lets focus on eliminating poverty through the miracle of omnipotent central banking with the BIG, no?
Oh man, if you guys could really see how the dollar actually works… America has what in economic terms is called exorbitant privilege (nice summary here but better data than conculsions -> http://fofoa.blogspot.com/2012/04/peak-exorbitant-privilege.html), and Americans are the luckiest people on earth to have it. To sum it up as briefly as possible, because the US won both World Wars, the entire world had to go off the gold standard and onto the dollar standard. The rest of the world is so dependent on America printing dollars it would defy your imagination.
In fact, guess what America’s greatest export is? If you guessed scrap metal/paper, you were very close but wrong. The answer is empty shipping containers:
http://static.incrediblecharts.com/images/2012/201203_container_traffic_net_empty_la.png
How you may ask is this possible? Cheap crap washes onto American shores day in day out from other countries and we can just maintain a negative trade balance forever? Well that brings us back to our friend the USD, which is all kidding aside, America’s actual number one export. The part about the empty containers is exactly why America is in the position to export inflation to other countries to begin with.
You see, by *definition*, a net exporting country (like China) cannot issue a reserve currency to the rest of the world only a net importer (like the US) can export currency. It works like this, by definition, a reserve currency:
1. It must be liquid, i.e. marketable in size and in any global market.
2. It must be stable enough to hold its value and liquidity during crises.
3. It must be available in size, i.e. hundreds of billions of dollar equivalents must be available to grease the tremendous global needs for reserves and liquid means of universal exchange.
4. The nation issuing the reserve currency must export the currency in sufficient quantities to act as a reserve currency. Nations can only export currency by running trade deficits, i.e. exporting currency in exchange for goods and services supplied by other nations.
In other words, any nation running trade surpluses cannot issue a reserve currency. China currently runs a trade surplus of $285 billion annually, which simply means it imports currencies in exchange for goods and services sold to other nations.
The US’ deficit goes straight onto China’s (and the rest of the world’s) balance sheet. In December 2000, China had around $60bil in US paper, today it has close to $1.3trillion. Why? It’s very simple- because China exports billions more every year than it imports and the ONLY asset on earth available in sufficient quantity to give China something to put on the other side of its balance sheet is US “debt” (which is of course a total misnomer). This also gives China the privilege of pegging its currency to the USD as it deems appropriate.
As world trade grows, so MUST US debt to supply the system with liquidity. Conveniently of course, this also allows the US to print all the money it needs to run a military machine that by itself represents a 3rd of TOTAL global military spending and is at least 4x as much as the next biggest spender (of course, China, and 10x as much as the 3rd biggest Russia). This enforces the USD’s acceptability at gunpoint and will for a long time to come. The Pentagon by the way, is the world’s largest landowner.
And the entire global FX system is built on this (America exporting modest inflation in return for the world making all your shit at Target prices for slave wages), and all you guys have to put up with is a pre-announced inflation target of 2-4% per year:
“The process by which EM reserve managers accumulate USTs to depreciate their currencies, allows them to extend their own domestic money supply and thus to spread wealth around domestically. It also creates opportunities to develop more export businesses. This sort of local currency extension would not be possible without ongoing accumulations of dollar reserves which back the credit/money supply created.
The subtle difference therefore is that UST accumulation — by means of earned dollar revenues — supports EM currencies in a way that allows these central banks to issue more of their own money against them.
…
The point to understand here is that emerging market central banks are not really in control of their own currencies. Dollar inflows from exports or investments keep currencies supported, but eventually the currency appreciation kills your export competitiveness. The emerging market central banker is then in a bind, unable to depreciate the currency! It’s like subscribing to a euro system of your own volition. Without a constant source of cheap US dollar liquidity, the whole thing would collapse in on itself.
In short, the whole thing arguably only works providing the US is prepared to keep adding enough dollars into the system to ensure those debts can be serviced. If it is prepared to do that, however, what you end up with is an implicit dollar floor on all foreign exchange currencies.”
http://ftalphaville.ft.com/2014/08/01/1915282/all-aboard-the-us-flow-merry-go-round/
**Jack your thread system on this page doesn’t seem to allow more than a few indented responses in the conversation chain, it kicked my last 2 posts down here as separate entries.
WordPress! It’s worth what you pay for it! 🙂
kk, just thought id mention it fyi… 🙂
I found your replies in the end anyway 😉
Even though you make some well founded answers to all my doubts about how we can keep developing forever, I still think we are very near the edge of an insustainable growth, that will fail no matter how many options we could have to ‘fix’ it, or how much technology we can build. you do raise the point of low cost not being low-cost for very long at the rate we are outsourcing jobs, and there lies the first obstackle. We will run out of cheap labour before we have automised all the processes contiuation of the constant progress will need. And we can potentially run out of natural resources before everything is automised. Unlike you I see Wall-E as a very very dark ‘utopia’. The humans survived because they left earth, in spaceship we will never have the resources to build in the first place.
And upon their return, they move around in gravity even better than astronauts that have ‘only’ spent 6 months in space, while exercising daily. These people left earth for 700 years, and had apparently lost out a bit on the exercise part.
And when they returned they dicovered all their cheap (Buy’nLarge) tech had completely fallen apart except for one stubborn robot (there was probably something wrong with him, so in real life he wouldnæt have left the factory), so they had a massive task ahead of them to ‘fix’ earth before it could be even remotely habitable.
I do hope at least parts of your vision is realistic, and some of it is possible by just removing money alltogether (which I assume from your lecture on Dollars is quite possible to do, in practice, if anyone really wanted it), and make sure all people work for the same goal (the last part won’t happen until our generation is far gone at least)
The Free Market has always been bounded by government regulations. Otherwise, you have anarchy. Functioning markets have rules - and the best functioning markets have fair rules.
Milton Friedman predicted the basic income/end of work 100 years ago. Its inevitable.
And I would posit that up-waging manufacturing jobs is what created the middle class in this country. Up-waging service jobs will be what preserves it from disappearing. The vast majority of human history was characterized by a very wealthy few and a very poor many. We’re sliding back towards that condition.
It starts with a simple problem: People don’t agree on what the desired outcome is. People are fighting for different results. The solutions to many of our most pressing problems are at hand, they’re proven and well known, but they get misrepresented by the proponents on each side of an economic battle. The problems are political, the solutions are economic and they go together hand in hand like a big cuddly Venn diagram.
You used the term “repugnant” to describe redistribution and I’ll explain why I believe you should re-examine that.
Redistribution happens naturally, all the time. At it’s heart, it is simply the result of the exercise of power between different stakeholder groups in an economic relationship. While the sources of power are different, there is no natural law that decrees one is superior to the other.
This country was founded upon a change in the power relationship between stakeholders. Does belief in the divine power of monarchy still carry much weight today?
We must accept that the only laws governing stakeholder power relationships are the ones we humans create and agree to be subject to. These are shifting sands. We tweak laws, introduce technological change, our social consciousness evolves … As these changes occur, wealth is redistributed as the power to acquire that wealth changes. This is redistribution and it’s natural. It’s the results of conscious decisions we make, not some fantastical notion of a natural law or entitlement.
We have to accept that we have a responsibility to ask tough questions and make tough decisions about redistribution. Some will do better, some will do less better, but overall we all win. This is the social contract that underpins representative democracy. Yes, that representative democracy where everyone complains, and things are never perfect and someone’s always fucking up or not deserving or not pulling their weight … but overall it works in it’s own kind of ugly way.
We know that excessive redistribution of wealth to a small minority has a naturally occurring countervailing power - the directly proportionate increase in size of the stakeholder group that’s excluded. The value of democracy and redistribution choices are not thwarting the power of the market or crushing capitalism. Quite the opposite, it provides the framework and lubricant for all of these forces to interact without boiling over too much or too often.
So, let’s be a bit more cheery about redistribution. Let’s use it properly and consciously make quality decisions. Don’t worry about chicken little - the economy won’t break. The economy will be strengthened - it’s proven, demonstrated and beyond dispute, just peel away the propaganda. Oh, and please slap your brother if he writes another piece economic or political drivel again!