Ideology is Expensive

Here’s another entry for my growing pile of public policies that cost more money than they purport to save. (Of course, the more illuminating question is: who bears the costs and who gets the savings. The answer to that question explains a lot.)

According to the Economic Policy Institute,

“.. if the minimum wage were boosted from its current level of $7.25 per hour to $10.10, as proposed by the Fair Minimum Wage Act of 2014, more than 1.7 million Americans would no longer have to rely on public assistance programs. This would produce $7.6 billion per year or more in savings for the federal government, according to the study.”

The report noted that approximately half of all people earning under $10.10 per hour–or some 11.9 million Americans–receive some form of means-tested benefits from the government. That would include benefits like the Earned Income Tax Credit, food stamps and other forms of welfare.

We the People pay for those benefits. Walmart, McDonalds and other major low-wage employers don’t. The money companies save by paying their employees poverty wages goes directly to their bottom lines. The arguments for continuing to have taxpayers subsidize the (very handsome) profits of such employers is that, if the minimum wage were to be raised, these companies would choose to raise prices rather than (horrors!) see any erosion of those huge profit margins.

Maybe.

I don’t know about the rest of you, but I’d prefer paying an extra nickel for a cheeseburger, and putting that 7.6 billion dollars per year toward something that advanced the common good. I’d rather repair our crumbling infrastructure, educate our children, develop a vaccine for Ebola…there are lots of priorities I’d place ahead of subsidizing the continued wealth of the Walton family and McDonald’s shareholders.

13 thoughts on “Ideology is Expensive

  1. These big money companies are the 21st Century version of carpetbaggers who overran the south following the Civil War, further beggaring the defeated while filling their coffers with the proceeds. The primary difference is that, at this time the defeated are nation-wide; the minimum wage and low income earners and the jobless.

  2. Would respectfully disagree with wholesale condemnation of folks who went South after the Civil War. Some were profiteers; many were not. The work of the Freedmen’s Bureau and establishing public education for all while attempting to rebuild from the effects of war AND create a more diverse economy are daunting tasks. That they were tried in the face of unremitting hostility by the white power structure is courageous.
    But, of course, the South after “Redemption” WAS such a shining example of societal progress and careful care of the public weal.

  3. “The arguments for continuing to have taxpayers subsidize the (very handsome) profits of such employers is that, if the minimum wage were to be raised, these companies would choose to raise prices rather than (horrors!) see any erosion of those huge profit margins.”

    You’ve singled out the weakest argument against the minimum wage. Because of the need to compete on prices, companies can’t always simply pass along higher labor costs to consumers by raising prices. I don’t buy that prices will automatically go up. What will happen is that, with a higher minimum wage, you’ll have a decrease in entry-level employees hired and the ones that remain employed will have their hours cut. In the fast food industry, you’ll see modernization to eliminate cashier jobs, people being replaced by machines. You just can’t wave a magic wand and eliminate a basic law of economics, i.e. the more something (labor) costs the less people (employers) will buy it. Undoubtedly the study you quoted simply assumed that the same level of employment, and same amount of hours worked, would continue after the increase in the minimum wage. That’s not realistic.

  4. I’m sorry, I just read the methodology on the study. In their analysis, they not only assume that raising the minimum wage won’t cost jobs, but that it will create jobs. Yes, the author is relying on the repeal of the basic law of economics in his analysis.

  5. The concept of privatized profits and socialized risk is in play.

    Our public policy is that we don’t want dead people on the streets, nor risk the spread of their diseases nor want to put up with their whining or suffer from their crime should they decide to solve their material problems that way. We authorize and pay our government to therefore maintain a support platform to take care of making sure that all of those problems are avoided.

    But capitalism sees the labor that those people could contribute and the goods that they could buy and hears cha-ching. Opportunity. They are already getting paid for doing nothing. Why not get them to do something? It would be slavery recreated.

    Of course slavery is illegal. But paying a sub-subsistence wage is not. It’s like taking candy from children. Tax payer money free for the taking.

    Do you think that these capitalists hate welfare? Not on your life. It’s manna from heaven. What they want are heavily government subsidized semi slaves.

    Welfare plus low minimum wage. If the minimum wage were raised to subsistence level then business would have to make sure that their businesses offered customer value higher than it’s real labor cost. Marginal business would drop out, but we wouldn’t miss it. It was not worth the cost. But the owners of those businesses would.

    Of course it’s all a sham the way we do it. Lazy people and capitalists benefit from the game. But it allows those who have only limited capacity to contribute to live with dignity. That’s valuable in my opinion.

    It is worth it.

  6. Maybe the problem in the types of services and goods that are offered. I know how this sounds, but it seems to me that markets are created for so many unnecessary and useless products and services, and they are successfully marketed to the zombies in front of the television. Maybe consumerism is not all it has been represented to be. Is there a way to grow the economy and provide wages without having to rely on obviously ineffective products like hair removal and weight loss products? Maybe society is just in the death spiral?

  7. Even Fox News has recognized that real-world experience differs from the belief that a higher minimum wage will depress job growthhttp://www.foxnews.com/politics/2014/07/19/job-growth-picks-up-in-states-that-raised-minimum-wage/

    A number of studies have rebutted that very simple cause-and-effect belief, pointing out that it might well be accurate IF ALL ELSE WERE EQUAL–but in the real world, all else isn’t equal. When poorer people are paid more, that added buying power translates into increased economic activity; increased demand drives job growth.

  8. In areas where they already have a higher minimum wage, NONE of the dire predictions have occurred. Imagine that. Lets DO IT. Time to give America a raise.

  9. My daughter years ago worked as server in a Restaurant. Servers have even a lower Minimum Wage then $7.25 an hour. If she decided bring us home a treat, like a Malt or Milk Shake a food and beverage tax would be paid on the sale. This tax went into the deep pockets of the CIB, which could then be used to build the Mega-Billionaire Owners of the Pacers and Colts a Stadium. There never seems to be a shortage of tax dollars to support Crony-Capitalism.

    What is truly appalling to me is that minimum wage jobs have become so numerous. One reason is the virtual gutting of our Industrial Base through outsourcing.

  10. Paul Ogden, an economist you are not. Higher wages will create greater demand for goods and services, and ultimately create more jobs that pay above poverty wage levels. It is a win-win for everyone, except possibly the stock holders of the slavery corporations or as Pete wrote – the companies that offer products/services with little-to-no value will close and businesses that succeed will find that they need to offer better value to stay in business.

  11. Speaking of checking out the literature, you will find that job loss following minimum wage increase is a myth. A 2013 survey of the U of Chicago’s Booth School of Business showed leading economists agreed 4:1 that the benefits of raising and indexing the minimum wage outweigh the costs.

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