At some point when talking about wages in this country invariable someone will make it a point to bring up that if wages increase it will of course increase the cost of goods and services. This is of course viewed negatively because it means less people will be able to afford goods and services. In the short run this is absolutely true. The thing about this is it could be argued that a gradual move towards living wage rates would have a long term stabilizing effect on the economy. It works like this if wages increase to the point that most households could survive on two, or heaven forbid one job including the cost of healthcare, home ownership, a car, college tuition, and perhaps a vacation for a family of four once let’s say every two years then the growth in overall consumption could equalize the loss in profit margins.
|Information culled from InflationData.com|
Ultimately this comes back to our ever present inflation phobia. I don’t mean to minimize people’s fears of inflation, the more I learn about the inflation of the late sixties, and seventies, the more I recognize its decimating effects on economic growth. Still fears of inflation rates above 12% during a time where inflation hovers between 3% and zero are questionable to say the least. In fact as we are still bellow the “crushing” inflation rates of the boom 90s. To be honest moderate inflation like the kind we’ve seen for the last thirty years is a concern only for the creditors whose return on investment diminishes over time.
The problem is our society is structured to optimize for low costs instead of affordability. There is a subtle distinction here in that optimizing around costs rather than affordability leads to sacrifices that are not necessarily useful. How many times have you bought something cheap that broke in five minutes and you immediately thought “well you get what you pay for.” The thing is people are bad and measuring cost. Not only do we fail to include all the hidden costs, we are often easily duped. Don’t believe me the next time you drive past a gas station write down the cost of gas per gallon. I guarantee you’ll write down the wrong number. I’m not talking about the hidden costs that should be included in the price of gas, such as oil spills, gas emissions, and damages to the water supply. I’m saying even ignoring all of that you’ll still get it wrong. You’ll get it wrong the same reason I’ll get it wrong, we all hate fractions. We hate them so much that we largely ignore them, and at the end of every gallon price I’ve seen is a 9/10ths fraction.
Creating a society or culture centered around affordability is no small feat. It requires a commitment to making sure workers have a living wage as long as they complete a reasonable week of work. It requires that people providing imports follow the same labor rules or be subject to severe tariffs used to fund job programs. It takes a fundamental shift in the basic relationship between business and government, and employer and employee. It would be to say you can do business here and you can make a profit, but the people who work for you should be able to purchase what you sell. This harkens back to Henry Ford, who structured his business so his workers were paid enough to buy the cars they made. The result of which was a huge expansion of the car market.
The quest for low cost consumer goods has made TVs, computers, clothes, and a lot of food really, really cheap. Unfortunately it has pushed the wages of the workers needed to create such goods to basement levels as well. The collateral damage being people have a hard time earning enough to afford things that are arguable more important such as homes, healthcare, and higher education. There are many things businesses can do to reduce the cost of consumer goods, but the race to the bottom for wages hurts the very people these businesses want to sell to.