SharedThought

In the latest round of a dialog with The Therapy Sessions concerning raising the minimum wage, Therapy Sessions makes the point that raising the minimum wage would be like turning up the heat when its hot. I’m not quite sure how that’s analogous, but let’s assume his point is that indexing the minimum wage to inflation would create and unending escalating wage rate that would bankrupt American companies and also cause widespread pestilence and famine (maybe that last part’s an exaggeration).

First of all, inflation is not a problem in the current economy. In case Therapy Sessions hasn’t been paying attention, deflation happens to be the bigger concern at the moment. Here’s a snippet from a June 3, 2003 article on Forbes.com:

Long-dated Treasuries surged on Tuesday after Federal Reserve Chairman Alan Greenspan’s remarks about deflation inspired speculation that the central bank might buy longer-dated Treasuries to pre-empt deflation.

I think Therapy Sessions also missed my point about passive income vs. wage income. I identified capital gains tax cuts, dividend tax cuts, and estate tax cuts as evidence of the Republican party’s favoritism of passive income. I did not say that a tax cut is passive income. The underlying event that is receiving the tax break is the passive activity (asset sale, dividend receipt, inheritance).

I grant Therapy Sessions point about Social Security increases being different from wage increases. However, my point is that nobody opposes the annual cost of living increase for Social Security on the basis that it has an inflationary effect on the economy — even though the Republican party has long argued that government spending is a leading cause of inflation.

Therapy Sessions glossed over my point about Federal wages. Federal wages have a greater dollar impact on the national economy than minimum wages do, yet Therapy Sessions diminished their relevance by citing how small an effect $199 billion has on a $10 trillion economy. I would make the same point back. If minimum wages account for a substantially smaller portion of the national economy (less than $125 billion annually), why worry about the inflationary effect of a cost of living adjustment?

Finally, my reference to James Surowiecki’s article was not for validation of my argument in favor of indexing the minimum wage to inflation. I was referring to his support for the minimum wage as the driver for trickle-up economics. Here is the relevant portion from the article:

One answer to this would be just to let the free market sort it out, to let the tens of millions of negotiating sessions between employers and employees determine the prevailing wage. And in general, of course, that’s the best course and is what we do for everyone above the minimum. But what having a minimum wage does is, in the simplest sense, determine the baseline from which all those other negotiating sessions begin. It therefore has a necessary cascading effect, helping to boost wages across the board.

Contrary to what Therapy Sessions implies, minimum wage jobs aren’t going to go to cheap-labor foreign countries if the wage-rate increases. Minimum wage jobs are predominately service oriented jobs that cannot be exported in the way manufacturing jobs have been. Increasing the minimum wage (and tying future increases to the cost of living) will ensure that those at the bottom of the economy receive some of the benefits they have worked to bestow on everyone else.

The Minimum Wage III by SharedThought, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.

This entry was posted on Thursday, July 24th, 2003 at 10:05 am and is filed under Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.