The state of the United States economy on paper is excellent. The stock market is improving by leaps and bounds, our GDP is exploding, and even unemployment is at a reasonable level. However, if you start talking to the common people you’ll get a different story all together. The common people will tell you despite all the news telling you how the economy has exploded they haven’t received meaningful raises in years, they will tell you despite working long hours they still barely have enough to make ends meet, they will tell you despite saving for their kids to go to college their kids still incur massive debt. Why is all of this happening? And depending on who you ask you’ll hear a variety of answers from: the global economy, free trade, immigrants, outsourcing, the trade deficit, government debt spending, administration costs, high taxes, too much regulation, too little regulation, unions are too strong, unions are too weak, weak patent laws, patent laws that are too strong, and the list goes on. While each of these reasons may have a lot of merit of none at all it simply boils down to priorities and intentions.
As a result of the Great Depression the attitude of the government did a complete 180 from the laisse-faire mentality of the 1920s to a more hands on approach to fix and stabilize the economy. Social Security and FDIC insurance were not recovery policies but rather a safety net to protect the American people from poverty no matter the state of the economy. Then new regulations such as Glass-Siegal were written into law designed as a safeguard against the excesses that had crashed the economy. Lastly economic stimulus programs such as the Tennessee Valley Authority targeted the lowest among us to build up the economy from the bottom up. This continued even through Republican presidents like Eisenhower who beefed up social security and raised the minimum wage and Nixon who declared himself a conservative Keynesian, advocated for a basic income, and universal health care. The government from FDR all the way to Carter advocated for a safety net for the poor and the growth of the middle class to create a sustainable and healthy economy that benefited everyone and their policies reflected this. As a result the top tax rate was 70% or higher and income inequality shrunk, union membership swelled, and the wages and work rights of the average American increased steadily through this time. However, during the late 70s the enormous fluctuations in the oil price which was caused by the OPEC embargo and the Iranian revolution along the Federal Reserve’s overreactions to it caused the economy to stumble. This stumble gave way to a new type of economics that valued giant growth above all else and slowly eroded the decades of stable growth that benefited all classes.
Free Trade Recap (vanishing manufacturing jobs, smaller middle class, influx of immigrants, outsourcing, globalization, no transitional training, trade deficit)
Trump has been riding waves of popular appeal with statements that denounce free trade deals such as NAFTA, demonize illegal immigrants as job thieves, abhor the practice of offshoring profits for favorable tax rates, and condemn outsourcing of American jobs. These are the problems that most Americans find much more important than the various social positions Republicans hang their hats upon. However, what stance will actually help the American people not simply inflame them.
As mentioned in a previous article free trade, globalization, and outsourcing are the consequences of a newer global economy. In fact creating free trade agreements where you can guide the process and influence the rules is an enviable position as the world transitions to a new kind of economy. Low skill, high labor jobs will naturally shift away from an advanced economy with a higher average wage and better workers rights to countries lagging behind in those areas. However, usually countries with an advanced economy also have better educated workers or at least the resources to educate their workers so they can take advantage of jobs that require a higher skill level. The United States has experienced an explosion of service industry jobs to take the place of the disappearing manufacturing jobs. While these new service industries jobs either require a higher skill set or at least an equal one the pay for these jobs is sometimes significantly less. Is the consequence of outsourcing low skill manufacturing jobs a shift to the service industry whose wages are decimated by illegal immigration?
The short answer no. Manufacturing still offers a pay premium, but it is negligible in the lower skill levels and only becomes significant when the workers are highly educated which is not the majority of the people in America. In fact due to lack of investment in these new higher skill manufacturing jobs Americans are not ideally qualified to have these new jobs. Service industry jobs, which will be a staple in America for years to come because they cannot be outsourced, simply lag behind in wages because they do not have the strong labor protection afforded to manufacturing after years of union and labor negotiations. Your local barista, fast food worker, retail clerk, and store stocker can’t be shipped overseas, have the same skill and education level of the old manufacturing jobs that have been shipped overseas, and their companies profits have been driving American growth. However, services pay lags behind simply because they do not have the collective strength to demand more. And not because illegal immigrants take these jobs by working for less pay and certainly not because manufacturing is a harder job that requires more skills. In fact some people will go as far as to say that manufacturing enjoys more bargaining power because it is a mostly white male dominated industry while the service industry is filled more with minorities and woman and this discrepancy also perpetuates the gender and minority pay gap for people with similar skills and education. Therefore, training the workforce to transition either to more advanced manufacturing by investing in the education to qualify the workforce in those fields or to service jobs is the first step. The second step is for the workers to have representation that fights for their rights and fair compensation.
Middle Class Then and Now
The age after the Great Depression was called the Great Compression because the wealth of America was drawn back down among the middle class and the gap between the rich and the poor compressed. The rich weren’t so obscenely rich, the poor not so devastatingly poor, and the middle class was by far the largest majority. The inflation adjusted median wage was the highest it has ever been, the inflation adjusted minimum wage was the highest its ever been, government debt was negligible by today’s standards, a high school diploma was suffice for a decent middle class job, and if you decided to go further college tuition was affordable. Now the exact opposite is true. Wealth is concentrating at a smaller and smaller percentage at the top, over half of Americans make less than $30,000 a year, and a substantial number barely make enough to make ends meet. The minimum wage has lost purchasing power, the median income has stagnated, while college tuition has skyrocketed. Manufacturing jobs have left the country, but there has been a boom in service jobs. Also, the stock market is growing by leaps and bounds, yet the everyday American is not nearly as prosperous as before. In a previous article I detailed numerous ways the laws benefit the wealthy at the expense of the poor, but what can be done?
Minimum Wage / Living Wage and an Introduction into Automation
The minimum wage is currently the standard we use to ensure that people are not wallowing in poverty. The idea is that at this wage a full time worker (40 hours a week) can make a minimum amount to support themselves. If the minimum wage is to fulfill its purpose it needs to be raised. Currently the minimum wage is not nearly enough to fulfill that objective. Before taking out any taxes (social security, medicare, or income) working full time at minimum wage comes out to about $1250 a month. The median rent in the United States is currently $934 and assuming you could find rent and utilities for $700 that would be over half of your pre-tax income in just rent and utilities. Then you have to eat, get to work (transportation), go to the doctor every now and then, have clothes, and etc. It is not enough for a single person let alone a single mom. Hence why people work well over 40 hours and require substantial government assistance to make ends meet. Low paying employers even encourage their workers to file for government welfare programs. The Earned Income Tax Credit forces people to work any job to earn the tax credit to supplement you income and if all your time is at work when will you have the time to learn a new skill and advance? Therefore, a simple inflation adjustment is needed to allow the minimum wage to deliver upon its promise to hard working Americans to get a living wage and for American taxpayers not to subsidize business that do not pay Americans a living wage. $15 is probably too idealistic for the entire country, $12 is a reasonable and empirically backed number with broad support, but $10 is the absolute minimum needed to make any meaningful impact.
Opponents argue that this will affect unemployment and increase inflation. Business will have to lay off workers, cut their hours, or raise prices in order to pay for the extra labor costs. This amounts to a fear tactic used to keep the status quo. Recently, overtime rules were adjusted that simply allowed more middle class workers to be paid for the extra time they put in that businesses were extracting from them for free. This was met with strong backlash from the right that swears up and down this will be a major hit to the economy. However, for the large number of middle class workers this is simply earned pay they are now given the privilege to receive. Productivity has skyrocketed and as a result profits have increased but this has not been shared with the American worker. We have had over 30 years of pro business laws and tax structures and as a result inequality has skyrocketed and we suffered the Great Recession. Previously in history after a time of strong pro-business governments that culminated in the Great Depression, the New Deal emerged and government supported its promise for decades. The New Deal was geared towards the lower and middle class, strengthening workers rights, progressively taxing the rich to promote income equality, and as a result the economy boomed and Americans had plenty. The same fears were promoted then, a higher minimum wage would make it harder to hire workers, the resulting inflation will cripple the economy, and businesses could not invest in the future if they paid their workers too much in salary and pensions. Nonetheless, the government pressed on giving more power to the middle class and as a result the economy boomed and the fears that were promoted turned out to be baseless. Likewise, some municipalities have raised their minimum wage as high as $15 in places like Seattle. Even major businesses and retailers such as Wal-Mart have committed to paying higher wages. The results of these wage raises has been increased economic activity and increased productivity. A raise in the minimum wage isn’t so an economy killer as it is a power shift from a 30 year reign of the upper class to the middle class. It has happened before in history and it needs to happen again.
Government Assistance and Negative Income Taxes
Nonetheless, perhaps the minimum wage idea is outdated. With the manufacturing jobs of old disappearing, companies being able to be productive and profitable with far less workers, and the dawn of the A.I. and robotics age maybe it is time for a different technique. As it stands now, businesses have all the negotiating power when it comes to wages. Unions have substantially weakened, government programs supplement their substandard pay, and with the vast amounts of money earmarked for lobbying the upper class can keep the status quo. Also, the notion that you need work to be a good and fulfilled citizen doesn’t fully take into account modern life. For example do stay at home moms need a job to be fulfilled, does a college student need a job to be a good citizen, and is a 27 year old service worker who wants to work a few less hours to serve his community any less of a productive citizen?
Certain circles from both the right and the left have supported an idea of giving a basic income to all. Nixon’s plan the Family Assistance Plan even passed the House before being stalled in the Senate. Had it been implemented families of four with no income would have received about $10,000 in today’s money and it would have been phased out at around $24,000 of today’s money. It has some restrictions, but was a form of guaranteed income and from the conservative right no less. Modern proponents advocate that the income would apply to everyone and would be delivered either in a yearly stipend or as a negative income tax credit. They propose paying for it by eliminating expensive tax deductions like the mortgage, charitable contribution, and capital gains deductions and eliminating or significantly reducing most welfare programs. Libertarians support this form of welfare claiming it is fair because everyone gets this credit (although it is taxed away at higher levels), it is much less paternalistic than the current welfare system which forces you to spend money on what it allocates (food, housing, etc), and it allows people to make adult decisions about what they need. In fact, it is remarkably like Social Security which is basically a guaranteed income for seniors albeit one based on the contributions they have made throughout life. Futurists believe that this will be the only way for there to be enough consumers to buy the things that robots create when we no longer need humans to work.
However, one argument lays a more ideological reason to implement a basic income. For a free market to work people have to be able to choose what they want to purchase or where they want to work. If they don’t like a product they simply don’t buy it causing the business to change or improve its products or services. If the people want extra money a company has to provide a proper incentive either with a decent salary or decent benefits. By forcing people to work, having a welfare system that makes you purchase certain items or live certain places, and so many people living with barely any money they aren’t able to vote with their dollars giving a large percentage of people no say in the market. Their choices are decided for them, if they want to eat they have to work for any wage, under any conditions, if they want to eat they have to buy things the government says is appropriate, and as a result their ability to influence the market is severely limited. In essence the government is subsidizing certain industries with government money or forced labor at the expense of the poor’s ability to choose and usurping the poor’s right to choose which products and services to support. To make up for this the government sets regulations and a minimum wage which businesses also despise. With a guaranteed income the minimum wage would be unnecessary and regulations except those that deal with basic worker safety or the general good could be reduced. A guaranteed income given to everyone gives everyone a basic vote in the market and gives them more power to leverage their labor and time the way they see fit and not the way the government says you should spend your money or your time.
Opponents of a basic income site the usual problems they have against any form of welfare. They say it is a form of wealth redistribution, it is too expensive, it will discourage work participation, and it will hurt the economy. However, there were experiments that were running testing out the guaranteed income in the past and there are ones that currently running right now as well. In India and Brazil guaranteed income experiments have shown that the guaranteed income allows people especially woman more freedom, improves the health, education, and general quality of life of the people in the community, and it increases economic prosperity. Since everyone gets a basic income woman aren’t as dependent on a man’s income to support them and their children and as a result are much less reserved and more assertive in household and community decisions. With money for the essentials they see the doctor more often, buy higher quality foods, and are more willing to invest time in school for both kids and adults. Also since the community has more people with more money, (even if the total amount of money remains relatively the same) more people spend money requiring more businesses who offer more goods and services, who in turn need more people to help create or provide those goods and services which helps build economic prosperity.
As for the stated problems it is a form of wealth distribution; however, it is no different than the current tax structure and welfare system. Currently the welfare system spends about $12,000 per person on average and the tax structure taxes people more for the extra amount of money they earn. A guaranteed income requires minimal changes to the tax structure and a reorganization of the welfare system. However, it would be a universal benefit everyone gets albeit with the poor disproportionately receiving the biggest impact. It is slightly more expensive, but it benefits everyone and can be easily paid for with minimal changes to the tax code and reallocating of the most of the money sent to the current welfare system to it, and the economic and social benefits would more than make up for any extra cost. The experiments ran by the United States and Canada did find a slight decrease in work participation; however, those results are misleading. Mothers spent more time with their newborn children, younger adults spent more time in school, and father worked slightly less hours. Nonetheless, the economy still improved, productivity and wages increased, health costs plummeted, and education levels dramatically improved. It turns out that a less but more productive workforce is actually significantly better than complete workforce participation.
The idea that the only way people can find fulfillment is through a wage paying job is becoming even less true, more condensing, and actually more economically detrimental than before. And with good high paying jobs slowly fading away a guaranteed income offers a viable alternative that improves the quality of life for the lower class and brings us closer to a freer and stronger economy. Allowing people to vote with their dollars, choose how to spend their time, and make decisions without the pressure of basic survival on them benefits not only the poor, but everyone who benefits from this freer and less oppressive economy.
Years of practical Keynesian economic policy brought prosperity and a sense of fairness to all Americans. Unemployment was low, the GDP was growing, and there was a historical low in income inequality. A few bad years caused by over-reliance on a commodity (oil) and knee jerk reactions to dramatic swing in inflation and unemployment lead for a new economic theory to take over. Supply side economics of cutting taxes and regulations to spur growth did indeed lead to growth. However, that growth was slower than it could have been and disproportionately concentrated at the upper class and the upper middle class leaving everyone else behind with stagnated wages. Free trade and globalization in general further deteriorated workers income and ability ot unionize. However, productivity and profits have skyrocketed, and now the workers simply want a piece in the form of wages. The minimum wage is the way we have for over 100 years helped the workers take a share of the prosperity of who they work for and it is long overdue for a raise. Not only can the companies afford it, but by the increased productivity and profits workers now are historically unpaid for what they produce. Nonetheless, perhaps there is a better way for people to live productive lives and be able to survive in the world. Job satisfaction is at an all time low and people feel like what they do doesnt produce anything of worth in the world, yet they work to live. What if that concept was no longer necessary and people didn’t have to work to live. They would work to feel useful, or create things and sell them on their own accord, or work a little to invest in a goal and not their rent. A basic income allows people to pursue jobs and careers and money not to live and survive, but to grow and thrive. We are nearing a point in human history where less and less people are needed to provide more and more goods and services. Automation and free trade have already shown that labor is becoming less and less valuable. Does that mean humans are losing there value or that we should invest money in their basic necessities so they can invest in bring value in the world. Perhaps the time has come to not simply fight for fair wages, and to promote a much smaller level of income inequality, but to push forward and provide a way for humans to find ways to provide value doing other things than simply working to survive. Perhaps it is time for a country to invest in her citizens so they can work to cultivate ideas and services not work for their own survival.