I've been reading about economics a bit - the history, the various schools of thought, etc. One thing is clear - it is pretty complicated. AND - it is hardly a science. I see the beginnings of something like a science - ideas tested with actual experiments. But right now, it is mostly a war of words and opinions - a lot like religion! People get religious about their economic solutions, and there is no way to have a rational discussion about it all.
I happened to read two articles about minimum wage which gave me the classic juxtaposition between opposing views. The first one is by Henry Blodgett, and you can find it here:
http://www.businessinsider.com/how-to-fix-the-economy-in-one-simple-chart-2012-8
Mr. Blodgett is a former investment analyst. He is more a journalist than an economist, but he writes fairly knowledgeably about economics and investments.
Share the Wealth to Generate Consumers
His idea is pretty simple. Our economy is primarily a consumer one - that means people buy things they really do not need. And they don't do that if they don't feel they have adequate wealth. Of late, the real incomes of the middle class and lower have been declining. But the wealth retained by corporations is growing rapidly. Companies are making money, storing up profits, and the workers are not. He sees the problem with a simple solution - with a lot of charts to back him up. Corporations should pay more, and have less profit. He says Henry Ford understood that. He paid this workers enough that they could buy one of the cars they were making. He did not have to do that - there was not much competition for that work force - but he did. It was his investment in the rest of us. He made a bit less profit on each car, but the economy boomed.
The problem here is, how does this come to pass? He closes the article on a wish and a prayer, as it were, with a call for companies to pay more. But there are powerful incentives in our system for a company to make as much profit as possible - and no incentive to pay their employees a living wage. It is like the environment. How do we get one paper mill on the Charles River to stop polluting, if that is going to cost that firm more money? The others will compete on price and drive them out of business. The only way to do that is to mandate environmental protections, so that they all have an equal requirement.
How does one encourage employers to pay a living wage? Raise the minimum wage laws? Establish some legal guideline for the worth of positions based on their complexity or training, or productivity? It sounds like a good idea, but tough to make it happen! We have tremendous wealth in this country. Companies like Apple are sitting on hordes of cash - not investing it because of uncertainties. How do we encourage them to invest in the rest of us? Apple doesn't need to encourage more buyers - they can sell all the gadgets they make at huge markups.
Minimum Wage a Bad Idea?
On the other side of this, I also read an article by the Mises Institute on how ridiculous it is to think that we can mandate a minimum wage, or adjust wages in any other way than by the free market. The article is here: http://mises.org/daily/6121/The-Effect-of-WageRate-Interventions.
They publish a kind of ongoing course in the Austrian School of Economics. If you are not familiar with this school of economics, they are pretty much absolute libertarians. Let the market do its work, with the minimum possible human intervention. Ron Paul is a proponent of this school, and most Republicans give it some form of lip service. It is as though God created the free market and we should not meddle with it.
This article argues that it is impossible to legislate wage rates. The market determines wage rates - what people are willing to pay for a good or service, and what wages people are willing to work to obtain. If you get into this mode of thinking, it is pretty seductive. People will eventually figure out what something is worth. If we intervene with legislation we just mess up the efficient working of the market.
There are a few problems with that approach. There never has been a free market. We have managed and regulated markets since the King established the East Indian Trading Company to get some income from all of that trade. And trade groups and industries have been "fixing" prices and wages for centuries. That is why we have things called "anti-trust" laws and labor laws. They have been somewhat neglected in the recent decades, but they clearly had a salutary effect on the market.
Libertarians seem to think that we are all in this together in a communitarian kind of way, and the best outcome will automatically occur if each person selfishly pursues their own personal good. But that really doesn't work! Those folks have lived in these northern climes way too long. In most of the world, everyone is out to get some of yours, not to help you. Northern climates have a bit more of a common goal focus - but it is not universal by any means.
Make the Market Rational
Humans are intelligent. We are not blind adherents to any law of economics. We do not need to descend to the lowest common denominator. We can exercise intelligent control over some portions of our competition for goods and services. We have eliminated child labor and slavery for the most part, which were extremely efficient market mechanisms for producing goods at low cost. We should also establish a livable minimum wage. We will all pay for it, just as we are all paying for the lack of those cheap child laborers. But the price is worth it. If someone is working a 40 hour week, they should make enough to live on - period.
Jobs Disappearing
As our levels of automation increase, it is also highly likely that the actual number of jobs will eventually decline. When all garment manufacturing is being done by that completely automated factory next to the cotton field, what becomes of those entry level jobs? We still generate the wealth, but how do we share it with the general populace so that they can actually BUY the things they produce?
We could, of course, shift gears entirely and tax ourselves to pay people to do really USEFUL things for us - not just to create gadgets and trinkets. That sounds like a wonderful idea - and the Scandinavians might be able to pull if off. They do seem to think that we are all in this together - thank you Red Green.
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