Thursday, May 28, 2015

The Virtuous Cycle Created By Raising The Minimum Wage (Thom Hartmann Rant #2)

The following is an excerpt from the Thom Hartmann Radio Program, 5/26/2015, which I edited for brevity and clarity. Thom discusses how raising the minimum wage creates a virtuous cycle.

Thom: If you go back and look at the history of the minimum wage, every time the minimum wage is increased, over the next three years... which is about how long it takes for something like that to work it's way through the economy... what you see are, two things... number one, you see consequential significant economic stimulation. Typically the economy will grow at least 2 or 3 percent, after every minimum wage hike.

Because people with minimum wage have more money in their pocket now to spend. That money then goes into the marketplace and creates demand. And the consequence of creating that demand is that it creates more demand for jobs as well. As there is demand for more jobs, because the economy has been stimulated, the competition [between companies for workers] goes up, which means all wages go up.

Whenever the minimum wage goes up... all the midrange wages all increase by roughly the same amount. There is a very simple economic reason for that which I just laid out.

If minimum wage had kept pace with productivity it would be at $17 an hour right now. If it had just kept up with inflation it would be at $12.60 an hour.

[End Thom Hartmann Rant]

Increasing the minimum wage creates a virtuous cycle that reverberates through the economy, which is why we need a minimum wage that is indexed to inflation.

On the other hand, not raising the minimum wage creates a vicious cycle.

The Capitalist's Case for a $15 Minimum Wage: The fundamental law of capitalism is that if workers have no money, businesses have no customers. That's why the extreme, and widening, wealth gap in our economy presents not just a moral challenge, but an economic one, too. In a capitalist system, rising inequality creates a death spiral of falling demand that ultimately takes everyone down.

Low-wage jobs are fast replacing middle-class ones in the U.S. economy. Sixty percent of the jobs lost in the last recession were middle-income, while 59 percent of the new positions during the past two years of recovery were in low-wage industries... By 2020, 48 percent of jobs will be in those service sectors.

Policy makers debate incremental changes for arresting this vicious cycle. But perhaps the most powerful and elegant antidote is sitting right before us: a spike in the federal minimum wage to $15 an hour. (The Capitalist's Case for a $15 Minimum Wage by Nicolas J Hanauer. Bloomberg Business 6/19/2013).

The plutocrats at the top of the foodchain don't care that they're destroying the American economy. Wealthy people can move anywhere in the world, and there are other markets to exploit. The rest of us, however, are suffering the consequences of their unbridled greed. It is time for us Americans to say NO to the world's oligarchy and do what's necessary to save our economy before it's too late.

Which would be to index the minimum wage to inflation and, more importantly (although these are two very important steps in saving America)... raise tariffs and bring our jobs home. If not we're screwed. America is done.

SWTD Tags: Minimum Wage, Thom Hartmann.

DSB #8

4 comments:

  1. Here's three decidedly conservative points-of-view on raising the minimum wage I have culled from people that I have encountered over the course of my working life.

    Let's start with the most recent. Since most middle-aged Americans and even most young Americans no longer work for the minimum wage, they see an increase as unfair because when they worked for minimum, it was at historic lows.

    Minimum wage does not go up very often. Thankfully Governor Brown in California passed increases for 2014, 2015 and 2016. It's hard to remember when the last California raises were, but I'm going to say in about 2006. At the time, one of my jobs only paid maybe $2.33 better than the minimum of $6/hour. I suggested to my boss since the minimum had gone up $0.75 or something like that, maybe the management should consider bringing up my hourly rate so it would not be so close to minimum again. She said I didn't understand how the minimum wage worked.

    Going way back to 1979, the wage went from $2.65 up to a whopping $2.90 per hour, (I think that is probably equivalent to fifteen to seventeen dollars nowadays), my manager expressed the company position on this quite well. "I'm gonna expect a lot more out of you guys for that extra quarter an hour!"

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  2. Sounds to me like your boss and manager didn't understand how the MW works. Or (more likely I think) they wanted you to think it doesn't work that way.

    Economic analysis from The Hamilton Project says "an increase in the minimum wage tends to have a ripple effect on other workers earning wages near that threshold. This ripple effect occurs when a raise in the minimum wage increases the wage received by workers earning slightly above the minimum wage. This effect of the statutory minimum wage on wages paid at the low end of the wage distribution more generally is well recognized in the academic literature (The Ripple Effect of the Minimum Wage by Melissa S. Kearney: Director, The Hamilton Project AND Benjamin H. Harris: Chief Economist and Economic Adviser to the Vice President, The White House... 2014).

    Note: The Hamilton Project was launched in 2006 as an economic policy initiative at the Brookings Institution.

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  3. In 1968 I was making $1.60/hr. (minimum wage at the time) and my dad made me save 50% of my take home pay for college. I still thought I was doing great.

    BTW, in three years I had saved enough to cover 2 years of junior college.

    Man how times have changed eh?

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  4. Currently the minimum wage is $7.25. If you inflation adjust $1.60 an hour to 2015 dollars you get $11.48 (According to the US Inflation Calculator). Going the other way, if we adjust today's minimum wage to 1968 dollars, the result is $1.06 an hour. Would you have been satisfied with that hourly wage, Les? (that would be 54 cents an hour less, or 3.68 an hour less in 2015 dollars).

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