Thursday, February 21, 2013

Minimum Wage and Guaranteed Income: A Paradox

Over the past week there has been a remarkable amount of press about the minimum wage, and some going beyond it.  New York Times economist Paul Krugman, as expected, came out for President Obama’s proposed boost from $7.25 to $9.00, denying, as expected, that it would cost jobs.  Absurd.  How many we don’t know, but it makes no sense whatever to say that forcing employers to raise pay would precipitate 0% of them deciding some workers, for their purposes, would be just too expensive.  Steve Chapman, a former solid conservative now bipartisan, wrote in the Chicago Tribune this morning that not only would companies already be paying workers more if it was good for them, but that higher wages would raise prices. 
Most interesting, though, was in Slate by Matthew Yglesias.  This fine and provocative economics columnist agreed that such an increase would hurt employers and cut jobs, and then went on to something I argued for in Work’s New Age:  guaranteed income. 
What Yglesias called a GBI, or Guaranteed Basic Income, would be a permanent solution to the equally permanent jobs crisis.  The case, as I wrote before, can be made with five points:  1) it would prevent a downward spiral in which people would consume less, leading to fewer jobs, leading in turn to even lower consumption;  2) after extraction, manufacturing, and service positions, what’s next would need to be unpaid;  3) in order for markets to work, people must have money to spend;  4) concentration of income into fewer and fewer people means that, given the same average income, fewer goods and services will be consumed;  5) though the cost of such a program would be daunting indeed, much of it would come back from increased tax collections and an end to programs such as welfare, unemployment benefits, the Earned Income Credit, and food stamps. 
Guaranteed income has had a long, though fringe, tradition in economic thought, with advocates from founding father Thomas Paine through senator and sociologist Daniel Patrick Moynihan and conservative economist Milton Friedman.  Its possible varieties could require or not require activity of some sort, and it could vary in amount, from a Spartan survival assurer, as I advocated, to enough to support a middle-class lifestyle.  As for incentive to work, I contended that most people would want things like cars and restaurant meals that a bare-bones stipend would not cover, so there would be plenty of demand for what is and will continue to be a shrinking pool of jobs.  With that, the minimum wage could go away;  if companies wanted to pay people, say, $2 per hour for a position many might enjoy, they could, and they might well find workers for them. 
That is where the paradox comes in.  A higher minimum wage, which of course would apply only to people in areas and with jobs where workers were actually being paid below the new rate, would damage employers already impeded by low demand, and reduce the number of jobs.  When the Florida lottery started in 1988, people called its legal sanction “The Convenience Store Relief Act,” as it helped 7-Elevens and the like a great deal by giving customers new, popular things and getting people in the stores to buy more.  Similarly, and on a much greater scale, a law passing a guaranteed income would help businesses in almost unimaginably enormous ways.  It would allow them to pay their low-end employees less, if that’s all the tasks they were doing were worth.  It would make it cost-effective for businesses to create new positions now unjustifiable at even $7.25 per hour.  It would give them more and more customers who now simply have no money to buy their products.  Perhaps bizarrely, commentators would say later that it was only when we removed the need for people to have jobs that America finally got back to work again.  Positions would find their own level, and the country could even turn into a larger version of parts of North Dakota, with getting a job about as hard as getting a pizza. 
The problem would be the cost, which could get worse as inflation could go up.  But the current situation is not cheap for anyone.  Each 1% of official unemployment costs the federal government $40 billion per year.  The devil may or may not find work for idle hands, but social problems from a lack of jobs are real, becoming entrenched, and spreading broadly.  Could money for everyone be better for businesses than more money for a few?  Odd, but it may be the case, and there has hardly been a more optimum time for Americans to seriously consider unconventional solutions.  When the doors are locked, we may need to get out of the ceiling, and the doors seem jammed well shut to me.      

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