If the minimum wage is raised, is this an overall good or bad thing? Will it inhibit business? What should we make of tax rates to very wealthy individuals, or to the poor? Most importantly, can we decide whose “expert” opinion is correct?
This paper will provide a simpler explanation of how each of the relevant individual components work, as well as an overall framework of understanding, so we can make sense of the interrelations. Essentially, we will be “connecting the dots”
This is not merely meant to shed light on the dynamics, or even to improve our ability to interpret economic data. We have major socio-economic problems, in growing wealth disparity, stagnation of middle class wages, the entrenchment of poverty, geographical areas of endemic unemployment, etc., and these are exacerbated by destructive policies that we enact, which are in line with certain economic theories we follow. It is vital to properly diagnose the causes of the symptoms, and see how to create better solutions.
After laying some groundwork of understanding, I’ll go into an in-depth explanation of a stimulus proposal that could have major positive effects on the status of these problems. The reasoning will be more apparent after becoming acquainted with this framework.
The strategy will call for creating a massive works program, on a significantly grander scale than we have previously considered. It would (necessarily) be much larger than even the one presented by Hillary Clinton during her candidacy.
It is exactly in the nature of its magnitude that this program can have a major, and qualitatively different impact than other similar proposals. Because this will require significant costs and effort, we must make the arguments that much more unequivocal and compelling. Therefore, the mode of action will be made very apparent, showing how each module would likely have a specific and more assured result.
Despite the expense, the likely benefits to the economy’s vitality will be equally as evident, and accomplished within an expeditious timeframe. The costs of not pursuing proper measures have already been much more damaging, and will continue to hobble our financial strengths until fixed.
I will systematically address the major objections, and will also present an in-depth, itemized explanation of funding. By paying for salaries in a manner that is largely cost-neutral, there will be minimal negative impact on the budget. This will help greatly to mitigate concerns about the program’s expense.
We urgently need to have this focused conversation, at one table, and come up with real solutions! We should not put off in dealing with these major problems, because of not having sufficient will or direction to act!
TWO ESSENTIAL CONCEPTS
Enough Good Jobs at Good Wages… The target goal is to create a sufficient number of jobs for our workforce and at an acceptable wage so that, within a normal workweek and at current cost-of-living standards, it pays adequately to support an individual or small family.
This solution also needs to have widespread geographic penetration to be of real consequence, by then providing jobs to communities that otherwise have no prospects for employment, and an opportunity to build up a local economy.
Finally, these jobs should pay adequately to provide for some amount of additional expendable income to save or to spend. This will play an important role in achieving an economic solution.
Why is this so important? Because other than providing expected assistance for the sick and the elderly, or for the small percentage of people who may unfortunately choose to avoid work under any circumstances, government and society will always shoulder more of a burden than necessary, if willing, able-bodied individuals can’t find work at a living wage. If people can’t reasonably make ends meet, they will need extra support, adding weight and not lift.
As well, having some spending money provides a key economic injection that is necessary to properly drive demand, and balance the economic pyramid. If this money is instead put towards savings, it succeeds in making headway towards this other problem. Currently, many Americans have no retirement savings at all.
Can we stimulate this amount of quality job growth from within the private sector alone? If not, are there other acceptable ways to approach the problem?
The Most Important Dynamic… There are three distinct entities to keep in mind concurrently and throughout, in how they influence each other: the business owner/business sector, laborers, and the government/taxpayers. They interact to compose “the bigger picture”.
These players are involved together in a system. Whatever set of rules we decide upon has tradeoffs, giving priority and benefit to one versus the others. Current taxes and regulations put business at the top of the hierarchy, which is based on our tacit belief that this will yield the most positive results systemically in the end.
This relies upon the theoretical presumption that the “job creators” initiate commercial activity, which leads to employment, wages, spending, and demand, thus providing the motive force that continually powers the engine. Therefore, government ultimately benefits through increased tax revenue, and the reduced weight of assistance.
I will explain how and why this actually leads to an unfavorable balance that is not equilibrated properly, ultimately making conditions worse. By reconfiguring accordingly, we can achieve a much more optimized, harmonious balance, where each part of the system gets nourished properly.
THE CONSTELLATION OF DIFFICULTIES
There are several key factors that have varied influence on our combined system of businesses-individuals-government.
Although some of this material is basic, it is important to include all these elements as part of one complex, so there needs to be at least some minimal explanation of each. It is in their working as an ensemble that is most relevant.
There is no strict logical sequence in how they’re presented. It is just important to get the gist of how they interact and set things in place. Again, we are attempting to connect the dots.
– UNDERPAID WAGES
The Cycle of Poverty… People who earn the current minimum wage, or moderately above it, cannot make a reasonable living income within a standard workweek.
With insufficient pay, there is no alternative but to seek overtime hours, or to have a second job, leaving almost no time in the day for anything else.
How does this play out for the individual? A parent would not have sufficient hours in the day to give proper attention to their children, leading to their increased likelihood of delinquency, crime, or drug use. Since income problems are a leading cause of internal tensions and divorce, the incidence of broken families rises. There aren’t enough time or resources for them to work on increasing their marketable skills or education, preventing upward mobility. General stress levels rise, which in itself diminishes health and mortality. Hopelessness to ever unravel these difficulties becomes the accepted reality, and infused in the psyche.
This is, by and large, a nearly unsolvable puzzle. There is simply no sense to blame the poor for having inherent character flaws, if any population of generally average people could not resolve these problems. Pointing to the exceptional person as an example of success is not relevant, and is misleading. Those individuals are, by definition, not comparable to the average.
By scapegoating this class, we not only wrongly diagnose the problems, but also damage society by spiritually demoralizing people, while thinking ourselves above them. Most people in the United States who are outside of this demographic are simply unaware of their comparative privilege.
The way we structure our society should do exactly the opposite. But as it is set up now, we actually reinforce the conditions that enhance the effects of accumulated advantage or disadvantage.
This also puts enormous weight on the shoulders of government to handle the varied problems that result, which might not be necessary the case in an otherwise more elegantly engineered system.
Minimum Wage Statistics… Although the discussion of wages typically revolves around this set point, it underestimates the problem by ignoring the large number of workers who earn only moderately above that amount, and therefore still have similar difficulties. The gauge of poverty offers a simpler and more pertinent focus, by shifting the discussion to that of a living wage. According to that sorting of the statistical data, roughly 47 million people earn under the current poverty threshold!
This will be a more pertinent perspective in thinking about this material.
Would Setting a Minimum Living Wage Alone Solve The Problems?… It is worth taking a moment to consider this question.
Assuming a sufficient increase could be enacted, and disregarding other problems that could arise, this would still not come close enough to resolving the related economic issues.
Mainly, unemployment would still be too high, and also this change would not have any significant effect in places where regional unemployment is the key issue. The challenge again is to create enough jobs, have them be geographically diverse, and have them be adequately paid.
There are answers, but we’ll have to delve further.
How the Bottom Limit in Wages Is Determined… It’s important to reflect upon how wages are set, why they fluctuate, and if free market self-regulation necessarily brings about a positive and healthy result economically.
Pay scales are determined, in largest part, by the processes of supply and demand, which is enough to understand for our purposes. Computer code writers receive higher salaries, because they are essential commodities, and because there are too few of them to meet the demand. In contrast, unskilled laborers are nearly always in oversupply, and therefore earn the minimum.
Notably, if there were an insufficient supply of low-skilled laborers, their wages would rise, up until the point that was practicable for a business.
High skill level is a quality that is differentiated in itself, and therefore subject to these same factors. In other words, a business may or may not have need for a highly qualified worker. A nuclear engineer will be forced to sweep floors, depending on market conditions.
Cost for labor is naturally one part of the calculation done in the course of operating a business, but this also represents merely a line on a spreadsheet. This can be set despairingly low, if the needs of the person aren’t taken into account. This is why a minimum wage is necessary, which is in itself a market intervention. The government here is acting in the place of a union.
In the Great Depression, with the great oversupply of workers, most people would accept the lowest pay that would still put food on the table. But pay nowadays would fall to lower levels if regulations weren’t in place. We do not need a full on collapse in the economy for this to happen.
This is the essential piece of information to note. If the supply-demand ratio is within a normative range, the free market treats the laborer acceptably, since both sides have leverage. If a company does not treat its workers properly, they can simply go elsewhere.
But with significant excess in the supply of labor, the free market does not ensure workers a living wage or acceptable conditions. It doesn’t consider the “person”, but instead efficiently discovers the bottom limits that a worker will accept in order to survive.
The situation almost always exists where this class of people can be pushed to accept subpar wages, placing the onus on government to handle the shortfall with some form of assistance. The person typically falls into the cycle of poverty, and with more weight than lift in the system, society inevitably degrades.
For the economy, since pockets of excess labor crop up in various sectors and regions often and unpredictably, this creates unavoidable weaknesses in stability. If these conditions are sufficiently widespread, the likelihood of a recession is greatly increased.
THE ARGUMENTS AGAINST RAISING THE MINIMUM WAGE
The Problems That Would Result… While the arguments in support are obvious, the following are the major ones that come up in protest. Afterwards, we can consider their validity.
They are as follows:
- It would elevate the cost of operations, thereby reducing profits and perceived value.
- Companies may be forced to downsize or close, rather than expand.
- This would then reduce job availability, worsening unemployment numbers.
- Aggregate buying power would also suffer, feeding into the negative cycle.
- Cost-push inflation would result, from a lowered supply of products and services due to less production, and the rise in operating costs being passed to the consumer.
- Pressure would result to raise wages across the board, since B’s job, of perceived greater value than A’s, would also want an increase in salary. This exacerbates all of the above problems.
- These effects may lower stock prices, depressing wealth of asset holders, putting additional downward pressure on the economy.
- Households often have more than one income. Therefore, earnings are underestimated, and the need for a wage hike is overstated.
- Students typically work at these jobs, it is asserted, which deserves to be accounted for differently.
- The market itself does the job of regulating wages simply, naturally, and cost-effectively.
- A single, national wage would not take into account the variances between state and regional economies. Trying to properly set levels artificially would be inherently inefficient, and come at significantly elevated cost.
In sum, most of these reasons are based upon the same essential logic: Businesses response is, “Of course, we would if we could. But we can’t (because ___ )”.
EVALUATING THE VALIDITY OF THESE REASONS
Many of these aforementioned arguments have some compelling legitimacy. Most are based on the rationale that systemic damages would result, being markedly worse than the gains achieved. Pleas for raising wages are rebutted by some combination of the above responses, and so the conversation ends.
But the picture is more complex. Yes, these reverberations may happen. But leaving the conversation at that also means we are acquiescing to keep the status quo, which should be an unacceptable response as well. It ignores the flipside of the reality. We currently have a crippled state of affairs in society, and the tradeoffs have to be seriously considered. The whole outlook has to be evaluated, and a proper analysis of the results from one model to another must be weighed.
Therefore, the answer to these rebuttals is simply to come back around and insist, without question, that matters are not tolerable and that solutions must be found. It must not be left to continue as is!
Maintaining a predominantly laissez-faire attitude towards the free market nearly inevitably leads to the results we have, with too many underpaid jobs, too many in poverty, and government needing to lend support. More expansion only results in more of the same.
This predicament is only avoided in the case where an adequate availability of jobs matches demand.
Unless it can be shown how the private sector alone could provide the sufficient employment numbers to stabilize these matters, a discussion of some form of interventionist policy is the only realistic answer.
Would Raising the Minimum Wage Negatively Affect Businesses, Job Growth and the Strength of the Overall Economy?… In the aftermath of the Triangle Shirtwaist Company fire, where many female workers lives were lost, the tragedy triggered legislation to be enacted that shortened the workday and workweek. As well, a number of fire safety and other precautions were mandated for businesses to follow.
These new regulations raised operating costs significantly. Although most business owners certainly did not want the burden of these changes and were worried about their profitability, it was politically impossible in the wake of the fire for them to object.
But what happened to the economy? Did businesses collapse under the weight of these new costs? Obviously the answer is no. Yet before this tragedy, owners foretold of certain collapse. Some of them may have genuinely worried about the effects of these increases on their viability, but no doubt protests were also fueled by the desire for profit.
Similarly, Upton Sinclair’s book, “The Jungle”, brought to light the horrific practices used in the meatpacking industry. The forced imposition of regulations at that time offers a parallel example. These improvements would not have happened otherwise. Businesses often put profit ahead of other concerns.
These changes have been, in fact, a reason why our economy is stronger and more advanced than in some other countries, where labor conditions may be comparatively poor. Certainly, regulations or minimum salary standards can be set to excessively high levels, which would then prohibit healthy business expansion. But otherwise, offering decent wages and protections serves an important purpose in elevating the quality of life for average citizens.
In this light, it’s easy to understand that an acceptable floor has to be set.
But as we have continued to lower the bar, if only by not slowing matching the rate of minimum wage increases with respect to inflation, we continually get used to a new normal, and these sensible protections come further under threat. Demonizing unions, by labeling it a “right to work” issue, for example, re-frames the argument in a way to benefit owners. Because jobs are scarce, laborers can be played against each other in this way.
It is like the frog in the boiling water. We are gradually walking backwards, not forwards!
For another much more extreme example, consider the South in the aftermath of the Civil War. When slavery was ultimately abolished, and the plantation model was no longer sustainable, these owners were financially devastated. They lost their free labor force, and even more importantly, much of their long-term wealth, that was defined by the worth of the slave.
It was morally reprehensible, and its inevitable collapse was only a matter of time. Still, for the plantation owners to survive, they had to change their business orientation entirely. For those who were flexible enough though to move forward and adapt, possibilities appeared. Many of these owners eventually expanded into manufacturing textiles, which remained a thriving industry, became merchants, or professional tradesmen like doctors or lawyers.
Most importantly though for our deliberations, despite this incredible hardship the South and the future viability of commerce did not crumble! Yet before the war, abolishing slavery was an absolutely unthinkable proposition sure to bring about economic doom.
Finally, consider the re-emergence of Germany and Japan as global business powers after WWII. Support from the Marshall Plan alone simply does not explain this recovery to any satisfactory degree. It was due in largest part to their acceptance of fate, and the spiritual resolve to rebuild their countries.
In all these cases, commerce managed to thrive despite incredible obstacles. Any plans we’d consider would present nothing near the challenges described here.
Mega-Businesses That Rely On Low Wage Workers… This presents another very valid concern. These businesses provide millions of jobs, looking at both fast food chains as well as high volume – low priced retailers, and are a mainstay of our economy. Any significant changes in wage regulations pose a threat of consequential disruption, both in the volume of employment they provide, as well as in their ability to manage operating costs and stay in business.
Increasing pay for these jobs puts additional pressure to raise salaries for workers at higher levels, exacerbating these problems.
As well, it would create similar concerns for the many smaller businesses that rely on low wage laborers. They also provide a large number of jobs for the economy.
But this must also be assessed in balance, looking at the picture that has resulted from adopting this economic model. In the longer run, the allure of this huge volume of jobs has come at a greater and unforeseen cost of an ever-increasing class of underpaid workers. Since this forms the bottom foundation of the wage pyramid, everything else is also built on top of it.
Consumers do benefit from cheaper prices, but taken along with the tradeoffs, society arguably gets the much shorter end of the stick.
The problem is not necessarily that these jobs and their wages exist, but that our economy does not produce enough suitable employment opportunities otherwise. People then have no choice but to take work at substandard pay. The oversupply of labor and limited regulations allows this to happen.
Remember that in previous generations, the mom-and-pop store was able to survive, and also contributed a large share of employment. So the benefit of a net increase in jobs from then until now is questionable. The relevant indicator is whether or not the average consumer has more buying power now as they did then. Perhaps walking backwards towards this model is one way to walk forward.
This would be one of the most challenging aspects to manage in making a transition.
The Paradox of Profits… From an owner’s point of view, this systems management approach makes no logical sense. They have a company to run, which is all involved with the basic mathematics of calculating their costs, maintaining operations and trying to maximize profits. This is the case whether they are in business for themselves, or for the benefit of shareholders. They may legitimately pay employees as much as they can manage, amongst their other costs. Any wage hike regulations puts a squeeze on them, and jeopardizes the whole reason for their being in business to begin with. For them, this thinking is obviously flawed.
This is where the communication breaks down between the business community and the more liberally minded. Both are right, but more importantly both are wrong. And neither side wholly understands why.
The problem comes when we play this out broadly, looking at the whole picture in aggregate and over the longer term. When businesses throughout the system, by and large, think in this way, it naturally leads to a point where too many laborers can’t make ends meet, and the flow of activity at the lower levels of the consumer pyramid is staunched. The poor become an increasing burden for government, and both they and people up a few steps in class spend as frugally as possible. Demand no longer sufficiently powers the economic engine, and these forces conspire to cause society to begin breaking down.
This process gradually creeps up the economic ladder, causing an ever-increasing portion of wage earners to struggle.
The larger corporations, especially those that rely on a sizable number of underpaid employees, have the clout and a natural incentive to either look the other way, or to aggressively lobby politicians to tweak regulations in their favor. They see nothing wrong with the status quo.
It is this process that saps the energy out of the economy, and this has happened more and more in recent decades.
So business, in understandably acting naturally to wring profits out of the system, slowly asphyxiates itself. We have to act to a degree in contradiction to our reflexive beliefs in order to solve this. If this process is properly understood, it is to everyone’s advantage to alter this dynamic.
Trickle Up Spending… If we instead made efforts to adequately fund and fortify the lower strata of society, this would bolster “trickle up spending”, offering a missing and essential tool to trigger expansion. Having some disposable income creates the spending that supports a new business, which supports the next, and so on.
The strength of this effect is arguably magnified as we go up the pyramid, since each more successful owner up the ladder not only contributes with business-to-business activity, but also has the possibility of having greater expendable wealth to fuel consumerism. The person who owns a hardware store will not be as wealthy as the hardware distributor. In effect, we are still supporting the “job creators”.
This is the obverse to that of trickle down spending, which weakens as it progresses. This will soon be explained further.
It is well understood that money in the hands of average people offers a nearly guaranteed spending stimulus, as opposed to the rich, who typically squirrel away excess wealth. They are likely to invest in assets, which does provide other benefits, but not in needed retail activity.
The eventual outcome of empowering the lower classes by having them be adequately supported would be to have an economy that is more vibrant and stable, with a steadier flow of consumerism. Businesses would benefit from a higher volume of sales, as the market becomes increasingly filled with enabled consumers.
By basing the system on this dynamic instead, we would have the best of both worlds. Wealthier people would still be wealthy and spend similarly, continuing the trickle down activity. Modest cutting here would not alter this. A person with $50 million would not markedly reduce their spending if they instead had $45 million.
Practically Managing a Transition… Since increased costs of operations would almost surely lead to some level of reduced profit for businesses and inflation for consumers, as owners use methods at hand to compensate for these changes, it is important that everyone understand the necessity of this transition, and its long-term benefits.
This would involve people coping psychologically with the waves of transition, as the economic landscape would sometimes shift worrisomely. So the previous explanations have been made to support the rationale for the undeniable necessity of change.
To aide in this process, it should be understood by all that we can anticipate certain phases in the course of these changes being made, so they are not as shocking. For example, some amount of inflation, while controllable, can be expected. Negative news is likely to precede or happen concurrently with more positive news. The truly optimistic picture will fill in more and more as time goes on.
This also will need to be practically handled, using adroit management of the economy to minimize fluctuations. One method, for example, might be to temporarily ease tax burdens on small businesses, so that changes in operating costs would not be as dramatic.
Explaining possible methodologies here would involve too many variables, depending on the timing and strategic path chosen, but should be closely monitored and discussed by experts.
One major benefit of my proposals would be in their ability to possibly sidestep some of the more challenging transitional difficulties. This will become clearer as the program is laid out.
– HOW SUPPLY-SIDE ECONOMICS FITS IN
The concepts of supply-side theory have especially steered our orientation and regulatory framework since the advent of “Reagonomics”. Despite heated argument, this has remained the dominant outlook.
What Drives Investment And Expansion… The primary assumption underlying this theory is that providing more wealth and incentives to businesses and the wealthy will spur production, initiate orders, and therefore strengthen the solidity of labor and government by creating jobs.
In addition, higher supply triggers lower prices, increasing demand and energizing investment.
But this wrongly assesses the hierarchy of motivations that spur business expansion. Decisions are based primarily on the perceived strategic benefits of a deal. Increasing wealth, by reducing taxes or lowering interest rates, provides little additional incentive. For any owner, these are afterthoughts. By sweetening deals in excess of what’s stimulative, government gives away money with no benefit. This essential mistake costs taxpayers billions upon billions, which in addition get channeled away from needed social investment.
The Importance of Supply AND Demand of Products and Services… There is some plausible logic behind supply-side theory, which can appear to support its position. But there is confusion about the extent to which this is so, and when to utilize it, which leads to its misuse.
When there is strong confidence and solid aggregate demand in place, some minimal nudging, by use of incentives, may encourage a slight increase in activity. One example of its proper use might be to offer a brief window of opportunity to take advantage of, where lowered interests rates were available only for that short time. In this case, the psychology of the “sale” can be used to spark business investment.
Again, as a general rule though, strategic opportunity is the essential driver of activity. Prohibitively high tax rates and stiff regulations would inhibit expansion, but otherwise it is not an issue.
Telling circumstances appeared during the recent, intensive recession, where activity slowed to a halt. This happened in great part because there was no incentive for business investment with such low demand on the horizon. While lending also froze, this was a separate and less salient issue. Even if lending had proceeded without inhibition, such minimal anticipation of opportunity would still have halted investment. Even if offered at 0%, no entrepreneur wants to tie up liquidity.
Supply-and-Demand is a symbiotic relationship.
Trickle Down Spending… This process undeniably happens, and so a case for it is made. But again, this is a partial truth that is tragically misleading.
The very rich, whether businesses or individuals, can only realistically spend a relatively small portion of their income, and then pile the rest into investments, increasing personal wealth. So as a spending stimulus injection, it is largely wasted. Relying on this strategy to such excess has distorted the profile of wealth distribution to obscene levels.
Additionally, as this money trickles down to support business at lower levels, each earns successively less and less profit, until the trickle effect weakens to the point where the buying power is minimized. Generally speaking, the yacht salesman will never be as wealthy as the person who’s buying the yacht, and so on.
The Unfair Redistribution of Wealth… It’s argued that the real motivation comes from envy and resentment. There is no substantial plan to fix the real causes of poverty, so it is simply a punitive measure against rich people, borne out of frustration.
Also, the problems of the poor they feel are not their responsibility, and are in reality the result of some character flaw or lack of drive on their part. On top of this, they already pay much more than their fair share in taxes.
Although this paper has hopefully spoken to these points, there is a partial sense to the defense. If it can’t be shown how the existence of wealthy people actively inhibits those who are struggling, the rationale is weakened.
The more pertinent question to be answered is how the status of poverty can be substantially improved by enabling people who are struggling.
But in the end, basing our economy on this model has naturally redistributed wealth accordingly over decades. Some amount of reallocation, if only for this reason, would be “fair”.
If any further justification is needed, the most egregious redistribution of wealth in recent memory happened as a result of the 2008 financial crisis!
AN ALTERNATIVE SOLUTION
The material up until now has been meant to lay a foundation in support of the following proposals, and also to defend a general view of economic thinking.
Although this program is predominantly in line with standard Keynesian theory, the sheer scale is much grander than we would normally consider, which is an absolutely essential component to its working to maximum degree. Reducing its size would reduce its positive effects profoundly. Smaller programs of this type have been rejected, so it was necessary to present concepts upfront that supported a specific viewpoint.
The enormity of its size will allow it to function in importantly different ways. Its mode of action will be more apparent in the upcoming material, when its dimensions are also taken into account.
– WAIT A SECOND!
There Are Many Private Sector Jobs Available… A case can be made that, in fact, many job openings currently exist. Employers argue they have lots of positions for workers, but people are not available with the appropriate skills. Statistics vary, but the number is as high as 5 million jobs. So perhaps the solution instead should be to focus efforts on re-training the labor force.
Here is the problem with this thinking. Assuming this statistic is close to correct, we still don’t have a plan of action to practically educate people, along with the necessary expedience. A clear path would have to be explained of how to get from point A to point B, which takes into account a person’s limited time and resources. They would also have to be able to realistically make a living in the interim.
This position has also been put forward for many years. The fact that the issue remains a talking point says in itself that answers have not been found.
My proposals would offer the opportunity to enact such a re-training program, by giving people the requisite spare time and, hopefully, the necessary means.
In any case, it would be prudent for the business community, possibly in collaboration with government, to step up the development of these plans.
Concerns About Robotics and AI… Perhaps we are ignoring one of the biggest elephants in the room. Will we ultimately have to re-invent capitalist society, if too many jobs disappear? Isn’t this the real problem we should be attending to?
The answer is no, and this is why.
In the likely case that this becomes more and more the inevitability, then this program will offer much more opportunity for a transitional period. The jobs I’ll outline will not be replaced as quickly, whereas the threat of employment for manufacturing or truck drivers seems fairly imminent. This presages huge disruption that we are simply unprepared to handle. There are 3.5 million commercial truck drivers alone.
A partial solution for managing this transition in the mid-to-longer term could be to support more private small business job growth. These owners are a major driver of employment, and are also much less likely to rely on robotics or AI to conduct their business, as compared to the bigger companies.
It is certainly an urgent concern that is rightfully the subject of in-depth discussions which are being held more and more frequently now, but we should also be aware that our socio-economic difficulties existed well before this looming concern of a technology takeover. We still had poverty and unemployment back then. It is too simplistic to think that these problems arose from this trend alone, or that resolving it substantially would be the answer to our problems.
A Guaranteed Minimum Income… This is currently a hot topic, which is indicative in itself of the impending need for answers.
Whereas a GMI would be an alternative, the plan that follows offers a much more positive route. Wages would be high enough to ignite consumerism, constructive work would be done, and a healthier spiritual way of making a living would be possible. People do not function well psychologically in circumstances where they get reward without effort.
– A SOCIO-ECONOMIC MODEL BASED ON LIVING WAGES
After presenting the following hypothetical scenario, I will explain how this is all very possible to achieve, and cost-effectively as well. Because of the material that has already been explained, this can now be put forward summarily.
The premise is quite simple…
Consider the situation nationally where there were an ample number of jobs, especially at the lower end of the income spectrum and in geographically isolated areas, so that any willing and able-bodied person could find work. The minimum pay scale for these jobs would provide a sufficient living wage to support a person or small family within a standard workweek, and with a small amount of money left over to spend as well.
That’s it. So then, what could we reasonably expect as a result of these conditions?
Being able to work at one job, if one opted to, would open up a number of possible life changes. There would be adequate time and resources for arranging proper child day care; time to spend with family, or for personal pleasure; the ability to contribute a share in taxes, and to support consumerism. They could choose to acquire new skills or knowledge, thereby improving job prospects and upward mobility. The quality of life, both for the person and in the broader social context, would be happier and less stressful. Criminal activity, and its victimization would likely diminish. Wellness would improve, lowering healthcare costs. Fewer family breakups due to the stresses of insufficient income would also reduce the collateral problems and costs. Children might advance further in school. A person could possibly start saving towards retirement.
These are all things that the cycle of poverty denies people.
With respect to governmental operations, revenues from taxes would increase, while expenditures for various assistance programs would be lowered. There would be some reduction in crime, which would lower the costs and burdens put on prisons, courts, and police.
Since previously poorer and more maligned people would pay more in taxes, societal resentment toward them would be reduced. A national healthcare program might be more feasible. The social security program’s finances would be shored up.
It is generally accepted that 70% of our economic activity results from retail spending. Increased consumerism would bolster activity on the bottom of the economic pyramid, improving its vibrancy and stability. Over 50% of private sector job growth comes from small business, so employment and expansion from here would be optimized.
What would all these benefits be worth, in real savings as well as in having a more positive society?
– HOW THIS COULD FEASIBLY BE ENACTED
In order for this to be more than just wishful thinking, a clear set of proposals must be presented that takes account of the assorted challenges.
The following concepts are politically and economically contentious. But everything here has precedent. While daring, there is nothing that is outside of standard methodology. They also have the benefit of appealing to common sense reasoning. There are no charts or graphs, or convoluted thinking behind it.
There is no other plan to my knowledge that attacks these problems more broadly. It shows how we can create jobs, and at acceptable wages; directly handles challenges of geographic stagnation; triggers increased private sector job growth; minimizes assistance programs; addresses minimum wage issues; and transitions realistically from any minor abuse of welfare to workfare instead.
Any alternative plans should equally deal with these key problems.
– A GOVERNMENT PROGRAM TO FUND MILLIONS OF NEW JOBS
The general plan being put forward is for a greatly expanded government works program, similar to that of the W.P.A. under President Roosevelt.
There will certainly be objections, and I will go over each of them. But first, consider some key advantages this would offer…
– This kind of job growth within the private sector by itself, numbering in the millions, would take years to achieve, even assuming an above-average growth period. By this supplemental means, we can come closer to that ideal goal of abundant employment availability, and it can happen more assuredly and expeditiously.
– Many more individuals would have a genuine livable income, while at the same time reducing the need for government support.
– We might actually make a significant dent in the problems of poverty, which has, at best, improved only nominally over decades. In order to have a chance to substantially move the needle, the number of jobs as well as their having geographic penetration is necessary.
– Once the program was in place, we could quickly adjust the supply and demand ratio of workers as needed, including by region, helping to normalize wages nimbly and speedily.
– We can reduce unemployment in places where there is no practical hope of doing so otherwise, and likewise re-invigorate communities. An area that has been blighted by the loss of a singular factory will not likely recover otherwise.
– Issues of time lag due to red tape or logistics of implementing “shovel ready” projects can be virtually eliminated, once things were up and running.
– It directly addresses concerns of limiting the abuse of welfare.
– The economy would receive a stimulus injection of increased retail spending.
– It would step up the pace of making badly needed infrastructure improvements.
– Needs that don’t offer sufficient private sector business opportunity would be filled, like healthcare outreach or neighborhood revitalization.
One other immeasurable benefit would be to less often ignore issues because they conflict with our employment needs. We disregard environmental warnings that we would take very seriously otherwise, for example, in exchange for the promise of a thousand jobs.
“It is difficult to get a man to understand something when his salary depends on his not understanding it”. -Upton Sinclair
THE MAJOR OBJECTIONS
This is Socialism… Although this may seem like an obvious threat of socialist expansion, that would be a marked misperception of its fundamental strategy and purpose.
It is rather meant to work in conjunction with capitalism and to assist in solidifying its vibrancy, by creating a hybrid employment creation mechanism that supports and works as a supplement to the private sector. In reality, it assures the ongoing stability of capitalism, by fortifying this central pillar of the economy. Business contractions, and the reverberations from reduced spending activity, would be less keenly felt, since a rise in unemployment would not be as completely outside of our control. It provides a major new arrow in the quiver.
It is not meant to wrest control from private business. The more that the commercial sector is able to produce jobs at acceptable wages and in sufficient numbers, the less that this program would be needed. This dual system would provide a much better fortification against instances of recession.
This paper foremost posits that unemployment and low wages are not only key determinants of systemic damage, but perhaps also the first dominoes to fall in the process of deterioration, creating a feedback process that pulls everything down into a negative spiral. Reversing it proactively can begin to effect repairs. Relying on the private sector alone to do this is, at best, more sluggish and unsure.
By lowering the instances and pockets of unemployment or wage shortfalls to the extent possible, this crippling process does not have as much of a chance to take hold.
Funding… One of the major objections will be in regards to funding. This program would seem evidently much too expensive at the outset, and therefore dismissed as impracticable. But this is not the case. It will make an insurmountable hurdle seem at least plausible.
The approach I will use will be, for the most part, to pay for this program in a cost-neutral manner. Each million jobs will be offset by cutting the equivalent in expenditures elsewhere.
In other circumstances, where some costs are anticipated, these will have to be evaluated on a case-by-case basis, weighed against the expected personal or societal improvements, possible future returns-on-investment, or presumptive savings. But the flow of expenditures will primarily remain within the control of government.
This itemization will only cover the cost of salaries. The actual projects themselves will again have to be considered as to their perceived value. Repairing roads, bridges, and tunnels, for example, would be very costly, but is arguably an absolute necessity to invest in, in order to stay globally competitive.
– An Itemized Breakdown of Costs… To simplify the math, and using a national average, a generous approximation of a good living wage at the lower end of the pay spectrum is $35K/year. Therefore, allocating $35 billion would pay for one million jobs.
(Providing a range of salaries, from $30K to $40K for example, would give additional flexibility for more valued jobs. But for simplicity’s sake, we will use the first number).
A current reasonable approximation of unemployment is about 20 million people, which takes some account of those who have given up with an active job search. The variance in these claims ranges wildly, but this seems like a fair estimate.
For a benchmark of job creation, we’ll average private sector growth over the past 24 years under Presidents Clinton, Bush, and Obama. This comes out to about 1.6 million jobs per year, or 13 million during an 8-year term.
1) We currently spend about $40 billion more on SNAP payments – food stamps – than in 2005. In addition, this increased markedly from the few years before that. By lowering unemployment, we could presumably reduce this cost to near 2005 levels. This wouldn’t reduce current net spending, but it is at least a clear allocation of funds toward a specific goal. Currently, the SNAP program only goes towards maintaining the status quo.
2) Making calculations against welfare expenditures is a trickier matter. In stable economic times over the long term, we’ve allocated about 2.5% of GDP towards this. Currently, that sum is well above $400 billion.
The vast majority of this cost cannot be reduced, because it goes to help the sick, the elderly, and other deserving persons. It is a myth that this program is mostly wasteful spending.
But, while much of this outlay is fixed, 18%, or $72 billion, goes to supplement working families’ income. Therefore, providing better employment and wages for these people would directly reduce this burden.
There is some overlap with this expenditure and those of the SNAP program that have not been calculated here, but that can be taken into account later.
Although we could arguably recoup the loss with nearly dollar-for-dollar in savings, applying only half of this money towards funding our employment program would pay for another million jobs. As well, a small share would come back in the form of taxable income.
Additionally, moving people over to better paying positions would free up those lower-paying private sector jobs for more appropriate workers, like students, semi-retirees, or guest workers. So, there would not necessarily be any great loss of employment as a result of this, or disruption to the private sector. This is a crucially important aspect of this program that will be more fully elaborated upon at the end.
If this module of funding turned out to be clearly beneficial, there would be leeway to increase the allocation, and therefore the number of jobs paid for.
3) Unemployment benefits can present a similarly confusing calculation. But looking at it simply, the annual expense is split between the federal government and each of the individual state governments, according to need. If instead of paying out the combined state and federal support of about $35 billion annually, we would instead use this money to fund employment, this would pay for another one million jobs.
An out-of-work person would still need adequate time to put towards a regular job search, but there are many scenarios that could be managed by making the program flexible. Part-time employment would be an option, for example.
This expenditure may again come back to us dollar-for-dollar in reduced spending.
4) The average national cost of incarceration for an individual is approximately $31K. In the United States, the current prison population is over 2 million persons. If they instead were guaranteed a job at acceptable pay upon release, we could expect at least some reduction in recidivism, since the inability to find employment is a leading contributor to this. Each person here would nearly pay for his or her own salary.
We would also be fulfilling a key function of prisons, by increasing the likelihood of returning that person successfully into society after serving their sentence.
There would be other important collateral benefits. It would alleviate the strain and costs to the judicial system. Any reduction in crime also reduces burdens on police, improves neighborhood conditions, lowers crime statistics, and cuts down on victimization. It would lessen the number of family breakups coming from the pressures of imprisonment. This represents many billions more in savings that we’ll put aside in our calculations. But this should provide food for thought.
(This module would only function properly as one part of the larger jobs program. As a stand-alone measure, it would provide an incentive to commit crime, since that person could be assured of employment upon release).
* So far, we have funded the salaries for three million jobs, not including any from prisoner reduction.
5) Our defense budget is currently over $600 billion annually. Many statistics support the belief that we vastly overspend on this. Our allocation amounts to more than the next eight or so nations combined. As well, we spend about three times more than our next competitor, China.
Re-directing just $35 billion of this to our jobs program would translate into another one million jobs. And, putting even a fraction of this towards bolstering TSA screenings or improving policing methods, for example, would be an alternative way to improve our national security profile.
6) Although raising taxes on the wealthy is a major hot-button issue, this is another source of funds that we need to look at.
One main purpose of the upfront explanation was to provide a clear analysis of how the problems arise, and with this program to present a specific plan towards repairing them. We have the purposeful goal of re-aligning the system to function more vibrantly. This is not an aimless use of funds, or a redistribution of wealth borne out of envy. The effects would be relatively minor, in historical context.
To put things in perspective, David Stockman himself explained in a 2012 interview that even they understood the need to raise taxes for badly needed revenues when faced with a deep recession back in 1982.
This amounted to the equivalent of $150 billion, in today’s dollars. The current political atmosphere makes this unrealistic to expect. But, raising half this amount with a moderate tax hike would fund another two million jobs. With the same equivalent in revenue as they raised back then, this tally could be upped to four million!
In response to anticipated protests, consider this, quoted from 2011, during the heart of the recession…
The tax rate for Americans earning a gross adjusted income of $1 million or more averaged 24.4 percent, up from 23.1 percent in 2008, that’s still lower than the 28.5 percent rate they paid in 2002 when President George W. Bush was in office.
… 235,413 taxpayers who reported earning seven digits or more in 2009 took in a total of $726.9 billion — yet 1,470 paid not a penny of income taxes.
There are many other statistics to support justification for this purposeful, moderate raising of taxes on the rich.
* As of this point, salaries for six million jobs have been paid for. If we were more aggressive in our funding allocations, it could be as many as nine million.
7) Without getting into specifics, the estate tax is another area where revenue could easily be found. In fact, fewer than the wealthiest two of every 1,000 estates nationwide owed any of this tax at all in 2015, which garnered about $19 billion in revenue.
The Tax Foundation’s position is that it is a very inefficient way of raising funds, because of administrative costs. Eliminating it, they argue, would result in creating about 140,000 new jobs.
But for this same amount, we could immediately fund the creation of half a million jobs! Here is a rationale for being more aggressive with this, not less.
If additional funding is needed, this is another area in which to find it.
8) Somewhere in the course the plan’s unfolding, we can anticipate reaching a critical point of combustion, where the private sector gains enough confidence to invest in expansion, thus adding jobs on its own. This will inevitably be the case, during even a deeper recession, if the numbers generated offer sufficient renewed confidence in buying power.
Small businesses account for a very large percentage of employment creation. With all of these factors working together, this may already be enough to trigger the private sector growth engine and stabilize the economy.
9) If there is even greater need, similar methods of discovering and reallocating additional funds can be used. Government might even see fit to allocate some funds toward this, without requiring the cost offset. Compared to our annual budget, funding an additional million jobs comes at relatively small cost.
Keeping a program like this always in place allows for its ability to be scaled up quickly when necessary, providing a tool of assurance for the general public, as well as the private sector, that nearly any economic downturn due to related factors can be managed more deftly.
Confidence is everything!
This is Redistribution of Wealth… There are other relevant thoughts on this subject worth pointing out here, in the context of interventionism.
In response to free market purists, the truth is that we have meddled with this all along. Government (the rule makers) have allowed a privileged group of players (the rich and powerful, via lobbying and influence) a seat at the same table, giving them influence to tweak matters in their favor (rigging the game), creating effective monopolies and dynastic wealth. It is a plutocracy, and in many ways a criminal one, driven by a pay-to-play system of incentives.
To simplify the reasoning for government’s justified role in supervision, we can think of the processes of commerce as analogous to a massively elaborate form of the game, “Monopoly”. When played in the living room for fun, someone who loses can go in the other room to watch television. In real life though, the consequences for this person can be drastic.
If society’s version functioned “perfectly”, it should be possible to initiate play and return a thousand years later, to discover that the results were positive and perpetual. Intervention would not be necessary. This is clearly not the case today, and calls for examining the situation holistically to find out the causes and solutions.
The truth of the matter is that we have done a poor job of socio-economic engineering. This calls for a courageous re-evaluation of theory and methodology.
It Will Be Politically Impossible For This to Pass… This is a prominent objection that deserves appropriate examination. It would be very difficult to sell these proposals under any circumstances, and more so in light of the current state of political affairs. However, there are ideas that may be leveraged in support, which gives some cause for optimism.
First, there is little debate in most circles that we have deep economic problems. But finding a way to make sense of the economic landscape, or seeing any way to appreciably change its status was not apparent, so the arguments ultimately went nowhere. However, with this playbook in hand, many of these issues will hopefully have been clarified, therefore providing a powerful tool for communication.
This also has a very populist appeal. The concepts here can be translated into simpler form, allowing it to be disseminated to a wider audience. With current forms of viral communications, it is possible to build broad grassroots support quickly, and with people who would be less easily swayed by misinformation.
This plan has the additional feature of providing strategies that can be implemented quickly, offering definite, fast relief.
For these reasons, politicians on all sides can have more confidence in presenting this information unflinchingly and to convince their constituents of its reasoning, while not feeling as much risk of losing support from their voter base. On the contrary, offering these populist solutions should give them wider approval.
Since there is a clear plan, backed by solid reasoning, the wealthy themselves may perceive it as less of an attack on them out of resentment, reducing the likelihood and intensity of their defensive reaction. There may actually be in support of it, motivated from good will, if the mode of action is convincing.
The following are brief rebuttals to other likely objections…
– We Can’t Spend Money We Don’t Have! – To allay concerns, a cost-neutral outline of funding was presented first. But most projects in themselves will not be cheap.
Regarding expenditures and the national debt, the value of the investment and the low available borrowing rates are important factors. It is an apt truism that, “you have to spend money to make money”. Budgeting austerity, if necessary expansion is the medicine called for, can be disastrous policy. This has been evident with many statistics resulting from the European approach during this recession.
Consider the costs of the national highway system. But it has been the lifeblood of our economy ever since, creating vast wealth for businesses and individuals, as well as for government’s operations. For another example, New York City invested a great deal in revitalizing Times Square, Grand Central Station, Penn Station, and expanding policing, resulting in much greater profit from tourism dollars.
In the early 1800s, Governor DeWitt Clinton of New York got state approval for building the Erie Canal. Despite tremendous opposition, Clinton persevered.
Once built, in connecting New York City directly to the Mississippi River by water, it became the vital port for the transmission of goods. This one thing single-handedly created the city as it is today.
The collaboration between government and private business in these endeavors have historically had the most impacting results.
Economic expansion is perhaps the only way that we can solve our long-term debt problems. This, along with proper budgeting after firm economic footing has been achieved, is the proper way to proceed.
(Insert Thomas Aquinas quote here)
– There Will Be Massive Inflation! – Since costs for this program can be largely controlled, depending mostly on the approval of individual projects, overspending should be less of a concern.
Push inflation, triggered by increased operating costs from broad wage hikes, is a legitimate problem to confront. But, as I’ll soon explain, this plan allows for a way to handle this problem very positively, and is a prominent feature in support of it.
Finally, more robust national employment can lead to increased aggregate demand, and demand-pull inflation. However, we would not protest having full employment coming from the private sector. Why would attaining that goal in this way be different?
– Taxes Will Rise Alarmingly! – The ability to keep costs under control again should allay this concern.
In fact, the opposite may happen in the long-term, if a more distributed tax base spreads the burden more evenly.
– Government Doesn’t Do Jobs Well. The Private Sector Does! – This is both true and not, and the reasons are generally misunderstood.
First, the private sector is not some miraculous success machine. Businesses fail regularly. For every agency in government that has poor results, we can find many more private enterprises that function similarly.
Government also has exemplary successes. The Armed Forces, or DARPA, are two examples.
Subpar performance can also be the result of inadequate funding. The SEC and EPA are two arguably illustrative cases of this cause.
There are certainly genuine problems. Government-structured employment typically does not have competition as a motivation. Also, workers are not generally evaluated properly for performance, and too often have little possibility of losing their jobs. But these are flaws that can and should be fixed.
When outcomes are poor, the causes have to be properly analyzed. It is inevitably a problem of systems engineering.
The solution for “bad government” is not “no government”!
– This Will Be a Worthless Expenditure on Wasteful Jobs – My proposals necessitate creating jobs with authentic value. By putting minds to the problem, more and more opportunity for this can be found.
To give just some ideas, we could expand construction on infrastructure; create taskforces to revitalize neighborhoods; improve healthcare outreach; reinforce homeless and mental health services; provide child daycare; expand a national and international emergency response corps. And staff will be needed to properly run these operations.
Brainstorming will be necessary to expand this program. But this is well within our capacity to do, with just some amount of creative and intelligent thought.
A WIN-WIN-WIN. SOLVING SEVERAL PROBLEMS AT ONCE
Generating such a marked increase in employment availability should be enough to affect the balance in labor supply, and therefore indirectly pressure owners to raise wages, in order to retain their necessary workers. Otherwise, they risk losing a valued employee who might opt to take a better paying government position. This makes headway towards solving our minimum and living wage issues, while circumventing the use of imposed regulations.
We will also have made growth and income prospects a possibility in more isolated areas, where no opportunity was foreseeable before. Having local individuals who would now be earning a fair income gives new businesses a reason to open. This begins the virtuous cycle, where the private sector provides jobs of its own, even in more isolated areas.
Still, as already acknowledged, many large companies rely on low-wage workers in order to make their businesses viable. The need to raise wages would also add pressure to increase them more broadly, and affect a lot of other small companies that rely on a cheaper labor force. So significant disruption to the private sector is a real problem.
Additionally, whatever gains we made in lowering unemployment could be offset by resultant job losses from regular businesses that downsized, nullifying this benefit of the program.
Cost-push inflation is yet another consequence that is fair to expect, which also would be exacerbated by the forces of broader wage hikes, therefore worsening other related conditions.
However, for these problems, there possibly is a remarkably simple solution that addresses them at once. This will result just as a matter of course, with no additional intervention being necessary. So rather than being an applied solution, it is instead a foreseeable positive consequence happening naturally as a result, that should alleviate concerns and instead add optimism and support.
The job vacancies would be, by and large, for low-skilled laborers. As it stands now, the unemployment rate for teens, college students and semi-retirees is also too high. So there is already an ample supply of workers available right here, happy to fill these positions. Since they would presumably be people less dependent on their salary for full support, there’d be less pressure to raise pay than otherwise.
With less of a wage hike being necessary at this bottom level, pressures for across-the-board pay increases would be reduced. This, to a great extent at least, would alleviate the concerns about increased operating costs, reduced profits, job losses, and inflation.
This offers considerable advantages compared to the likely results from a more aggressive minimum wage uptick, which is being strongly considered.
And finally, if there were sufficient need for additional laborers to fill positions, it could pave the way for a legitimate guest worker program, having less political pushback and resentment from citizens feeling that they’d be taking “our jobs”.
Guest workers having this “legal” option would give them increased motivation to enter and leave the country legitimately, reducing the volume of undocumented workers.
But if this element was not considered desirable, the program could merely be scaled back.