The Other Too Big To Fail

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There is a lot of talk going around about raising the minimum wage. Conservatives have coalesced around the idea that raising the minimum wage right now is a terrible idea because it will hurt small business. According to conservatives the economy is still far too fragile. Apparently shutting down the government for no good reason will have no effect on the economy but any changes to minimum wage is verboten. Actually that isn’t fair, the GOP shut down the government or rather the house shut down because the most radical third of it refuses to accept the reality that they did not win the 2012 election, and if it weren’t for aggressive gerrymandering they’d all probably be out of job.  But I digress. I will give conservatives some leeway on the hurting small business angle. It is fairly likely that it would be an unhealthy burden on burgeoning small businesses to ask them to increase their overhead substantially to support an increase in the minimum wage. The reason of course is they need to be able to compete with large corporations. As a society we want to encourage small businesses, because as we’ve been told breathlessly they are the engines of innovation. As a result we don’t want to starve that engine. Eventually though these engines grow to a size large enough to be able to support themselves without the need of special kids gloves from the government. At that point when they are reaping the benefit of participating in the largest economy in the world and our government has done everything they could to help them become successful, they should have to abide by practices that contribute to the overall well being of said economy. In other words just because it’s bad for small businesses doesn’t mean it’s a bad idea for large corporations.

The Big Business bubble

What I’m proposing is simple, if  you company staffs more than 1,000 employees you’re no longer small enough to have the government subsidies the cost of your employees. What does that mean? no one under your employ should qualify for any form of government assistance.  In other words none of your employees should earn so little money that they qualify for things like food stamps. This should include franchises as well even though they are technically “individually owned”. Obviously this will make it harder for businesses to expand but it will also make it easier for locally owned shops to compete with the likes of McDonald’s and Target. This is important since companies like these command such a large portion of the economy. Let say the Walton family decided that it is was no longer profitable to operate superstores in the US anymore and decided to up and close shop. What would happen to all their employees? They’d instantly be on the dole, and seeing as Walmart squeezed out all their competitors it would be quite some time for all those people to find new jobs. The workers mostly only earning minimum wage are likely to have marginal to no savings so very few of them would be able to start their own businesses. It would eventually result in an acute recession wherever Walmart shuttered its doors. In other words Walmart is too big to fail, and as such we should do what we can to reduce the impact to the larger economy a large company can have.

But it’s just an entry level job

One  argument I hear in support of  keeping the minimum wage low is that it’s for entry-level jobs. The idea being that it is the young who are generally working minimum wage jobs.  According to the 2011 current population survey conducted by the Census Bureau however, the average age of the minimum wage employee is 34 years old. Despite how much I tried to convince myself of the contrary this month on my 34th birthday we must all admit that a 34 year old is no spring chicken. It’s a fallacy deeply ingrained in people’s imagination because most people’s first job is a minimum wage job then they finish college and got a “real job”. This of course fails to take into consideration changes that have taken place in the last 40 years. in 1979 the same census survey had 47% of minimum wage workers under the age of 25.  by 2011 that number had fallen to 35% meaning the vast majority of minimum wage workers are in fact full grown adults struggling on wages that often times do not keep them out of poverty. While it is true very few college graduates are in these minimum wage jobs it is important to note that there are 18 million children with parents earning minimum wage. For these parents adding the time and expense of going back to school while providing for their families might be impossible. The socialist in me would like to point out that this timeline is consistent with the destruction of unions in this country, but that is another post. The point is the notion that minimum wage jobs are just for people starting out in their career is factually inaccurate. But wait, some of you may be saying, if these people just applied themselves they could be promoted into higher paying jobs. Most minimum wage jobs are service sector jobs which includes things like McDonald’s of course but increasingly its jobs like home health aid. Just like the face of minimum wage is changing so are the jobs themselves.

But… Inflation something something….

I’ve written about my support for inflation many times, and while I’m still in favor of some inflation I understand not all inflation is the same. For a recap though here’s the general reason why I don’t fear the evils of inflation. Inflation generally hurts people with lots of cash and helps people with lots of debt. looking at the landscape of America by a wide margin most Americans fall into the later category therefore inflation will help more people than it hurts. That said how would wage hike inflation fare in this scenario? Well lets look at some of the possible causes of inflation:

  1. Just Printing Money- Devaluing the dollar

  2. Deficit Spending- Increasing the amount of treasury bonds/ potential infrastructure investment

  3. Quantitative Easing- Increasing the amount of treasury bonds/ Subsidising bank deleveraging

  4. Environmental Shocks (ie, energy crisis)- Increasing the cost of goods and services

  5. Increasing The Minimum Wage- Increasing the cost of goods and services

This isn’t an exhaustive list naturally but these are some of the most frequently talked about in the press. In terms of directly helping the poor increasing the minimum wage has the highest potential of having a tangible effect. A popular critique of this though is that the gains in wages would be erased by inflation. In other words it would have no effect. Except inflation rarely effects everything linearly. Take for example a spike in oil prices from an environmental shock. This would effect multiple aspects of daily life, it might cost more to ship things, so the price of food might rise, your heating bill might rise, you will definitely pay more at the pump, but your rent isn’t likely to rise neither is your cable bill. It will certainly have no effect on any current loans you have. The point is while there will be an overall increase in costs it doesn’t necessarily mean all costs will rise. A raise in minimum wage would largely have a negligible effect on housing cost which is a large portion of low wage workers income and therefore the additional earnings would have a positive effect on their lives.

The Big Bad Government

One final thought it’s common wisdom that liberals want to fatten up government and conservatives want to slim it down. Our partisan bickerings are often framed in this context. However what is rarely brought up is compared to what? This is an important context. If we were to take all the government agencies and workers in charge of running New York City, population 8.3 million people, and put them in charge of the city of Des Moines Iowa, population two hundred thousand people, it would be pretty clear that it was too much government. Alternatively if the Des Moines government tried to manage New York City it would be even more clear that this was an inadequate amount of government to manages the issues that face the largest metropolis in the nation. So it is important when we are talking about the size of government it is an implicit comparison to something. Conservatives will often frame it in comparison to small businesses. Which in that comparison government could potentially be large enough to stifle. However Government cannot be sized to the lowest common denominator. Government needs to be large enough to regulate and counteract the largest of influences. My conservative friends will tell me that government should only protect us from external military threats, i.e. national defense. As if external threats from other nations are the only thing that can possibly impinge ones freedoms. Or even that all external threats are military in nature. The trade deficit between us and china has had a monumental impact on our pursuits of happiness. But Walmart has an annual revenue of 469 billion dollars and employs over 2 million employees worldwide. This dwarfs the size and funds of some states. As much as we’d like to believe the rule of law could render that Irrelevant we all know that having that much money allows large corporations the ability to run roughshod over the laws that negatively affect their profit margins. The only thing that we, as citizens, have to combat this amount of control is the fact that the federal government is large enough to counter act the most egregious of corporate take overs. In order to prevent oil companies whose daily profits are larger the GDP’s of most nations we need a large government. The reason is simple, without an effective government counterweight large corporations are only responsible to their shareholders. Government doesn’t just protect our freedom from foreign enemy nations, it protects our freedom from domestic abusers.

 

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