(Article changed on March 11, 2013 at 12:06)
The Minimum Wage Debate: Windows On A Naked Reality
F. Ivan Goldberg
In his State of the Union address a few weeks ago President Obama called for a raise in the federally mandated minimum wage from $7.25 to $9.00 an hour. The response of the Republican Party was as swift as it was predictable: any raise in the minimum wage would destroy jobs, especially low-income jobs, thus hurting the very people it was purportedly designed to help. Raising the minimum wage, they argued, would price low-income wage earners out of the market. Such is the unavoidable implication of the iron laws of economics.
The President's proposal was aimed at the "working poor," a phrase that should evoke shame in any society, but when applied to the world's richest economy it is nothing short of an obscenity. That a person working full time--eight hours a day, five days a week, fifty weeks a year--should find it impossible to put food on the table or clothes on the backs of his children, or is forced to choose between feeding her family or buying medicine for a sick child--can any word other than "obscene' describe such a reality?
And yet that is the reality in America today. According to the US Census Bureau 32% of all working families fall below the poverty line, which, for a family of four, is defined as earning $23,050 a year or less. In 2010 more than forty-six million Americans, or roughly 15% of the population, were taking home wages that fell below the official poverty line. That is the highest number recorded since the Labor Department began reporting this statistic in 1987. And according to the Center on Budget and Policy Priorities, the number of American households living in "extreme poverty"--earning an income of less than two dollars per person a day--more than doubled in the fifteen years from 1996 to 2011. One in every two Americans, or 146.4 million, was classified by the latest census report as either low-income or earning a wage below the poverty line. Half of all workers in the United States earn $500 a week or less. One out of every four wage earners has a job that pays less than $10 an hour. And since the triumph of supply side economics in the Reagan era, low-income jobs in this country have risen by a third, from 30% in 1980 to 40% today.
The degradation of material life is not confined to the lower class; the middle class too has been swept up in an unrelenting spiral of diminishing fortune. According to the Census Bureau the erstwhile middle class is taking home a smaller share of national income ever recorded in our nation's history. 20.2 million of our citizens spend more than half their incomes on housing. That represents a forty-six percent increase just since 2001. Add to this the fact that many of these families are caught in the vice of a debt peonage never seen in this country: in 1989 the debt to income ratio of the average American family was around 58%; today that number is 154%. This means that the debt load carried by the average American family is one and a half times its income for an entire year. And that is just the average; for many it is much higher, especially among the poor: for households earning $20,000 a year or less, their debt burden more than doubled between 2000 and 2010.
Were this the result of a general economic collapse, wherein the blight of plummeting living standards was spread more or less equitably throughout society, it would be sad but understandable. However this is not the case. It is the result of the largest transfer of wealth from the many to the few ever seen in this, or any other, nation. According to the Economic Policy Institute, the wealthiest one percent of Americans has a greater net worth than the bottom 90% combined. And if we can believe Forbes Magazine, four hundred Americans have more wealth than the bottom one hundred and fifty million Americans put together.
To punctuate this litany of mass misery there is one statistic that more than any underscores the growing inequality of wealth and income and goes a long way to explain it. The bottom 80% of Americans owns a meager 4.7% of financial wealth, i.e. have an ownership stake in the productive engine of our country's economy. The top 5% owns 72%. And the top 10% owns 85% of our country's productive assets. It is this, the productive capacity of the nation--its factories and machines, its raw materials and natural resources, its telecommunication and transportation facilities--wherein lies the source of our nation's wealth. You just knew, when President George W. Bush began spouting slogans about America being the "ownership society," that the greediest asset grab in history was underway, and that the ownership of what really matters, the ownership of the nation's productive resources, was being sucked up and siphoned off by a tiny few whose hands held the levers of economic power.
On February 20th Michael Kinsley published an online article for Bloomberg View titled "The Wage-Earner's Case for the Minimum Wage."  From both a stylistic and conceptual perspective the singular feature of the essay is its fundamental incoherence. I mention this not in an attempt to beat up on Mr. Kinsley, whose writings are in the main intelligible, if ideologically narrow, but as a paradigm case of what happens when a social liberal tries to grapple with the contradictions of our political economy.
The essay begins with a juxtaposition of the liberal and conservative views on the issue, an exercise Mr. Kinsley finds ideologically ironic. For the conservative, who stands ready to condemn any government meddling with economic laws, the argument against raising the minimum wage "sends a terrible message about the dignity of work when working full-time doesn't earn you enough to live a decent life." On the other hand, "even a committed liberal who's concerned about the growing income inequality ought to have some doubts about the minimum wage" [since it] reduces employment" by pricing people out of the market."
In the battle between labor and capital (and here Mr. Kinsley, true to his liberal instincts, refers to the antagonistic parties as "workers" and "bosses," thereby hiding the class nature of the opposition) there are, he assures us, two equally legitimate sides of the story, to wit: ""the minimum wage restricts workers as well as bosses: It forbids both categories of economic actors from making a deal they wish to make." Since "no one is forced to take any job" by what right and what logic" he asks rhetorically, " do we step in and say: No, this is a deal you're not allowed to make?"
But above and beyond the questionable validity of the government's right to interfere with the rights of the individual to freely enter into a labor contract, even one at starvation wages, such interference is tantamount to "violating the principle of free markets by having a minimum wage at any level." His good intentions aside, the President's proposal will assure that "anyone whose hourly work is worth more than $7.25 but less than $9 will become unemployable." Such action would be especially onerous to those seeking entry level positions, for "if you can't even start the great game of life until you're worth $9 an hour, the challenge is greater." To which Mr. Kinsley adds in summation, "What kind of favor is this to them?"
To those conservative critics who see in the minimum wage nothing more than "a sop to people who don't believe or don't understand the basic principles of economics," Mr. Kinsley turns his liberal cheek and proclaims that "many government policies violate basic principles of economics and therefore reduce our prosperity," but, he adds, "So what? A prosperous society such as the U.S. can afford to give up some prosperity in exchange for more equality or some other social goal." So while "it's possible that a policy such as the minimum wage might be bad for society," it might nevertheless be desirable since "it's good for the individuals most closely affected by it." Concluding his analysis with a shot across the bow to the critics of a minimum wage, Mr. Kinsley challenges them to "go and tell someone making $7.25 or even a whopping $9 an hour that you want to eliminate the minimum wage for his or her own good. I'm not going to."
Well bully for Mr. Kinsley. His reluctance to kick the lowest rungs of the economic ladder out from under the working poor is matched only by the acrobatic contortions of his liberal apologetics. When all is said and done, the case he makes for raising the minimum wage, for all its ideological meanderings, boils down to a straightforward ethical one: the laws of economics be damned if government policy can alleviate the suffering of our most economically disadvantaged. Other liberals take a different tack: they flatly deny the conservative premise. To this end they point to various states in the country that have raised their minimum wage, with no apparent damage to their economies. They are not, mind you, denying the ineluctable laws of economics; rather they question the validity of the conservative's deduction from these laws that a $1.75 raise in the minimum wage would result in a net loss of jobs. No one, no liberal that is (and certainly no conservative), thinks to critically assess these so-called laws of economics. But this is precisely where the proverbial rubber meets the road. So what do you say we cut to the chase.
Economic laws (granting there are such) are not laws of nature like the law of gravity. They are specific to an economic system. Such laws as the inverse relation on prices brought about by changes in supply and demand, or the law of diminishing returns (a variant of the above), or Say's Law  that supply creates its own demand (an economic conjuring act that forms the cornerstone of supply side economics, known to the public as trickledown economics, but to the monied class as "I got mine, now you get yours") are laws, if laws at all, of a free market capitalist economy.