Poverty: don’t treat the symptoms, treat the disease

From Chris Rhomberg, sociology professor at Fordham University, is this editorial “We Forgot to End Poverty“. In the season of Toys for Tots, soup kitchens, and in-the-spirit-of-Christmas altruism, it’s important to figure out why the United States still has tens of millions of its people living in poverty. As he writes:

Both sides attempt to “reform” poor parents to push them into the low-wage labor market, but neither side questions the failure of that market to provide families a secure way out of poverty.

Even as unemployment edges downward, millions of Americans remain poor, exposing a basic flaw in the TANF approach: the lack of jobs that pay a living wage.

It comes down to this: there are two ways that welfare ceases to exist. Either poverty is eradicated and people no longer need state assistance, or welfare is gutted or transformed without dealing with structural problems in labor and education. The United States with the bipartisan welfare reform bills in the mid-1990s, assistance was capped and shortened, continuing to shrink in its scope and amount in the past two decades. This would make sense if welfare reform was getting rid of poverty, but it hasn’t. Escaping poverty requires jobs that don’t exist and wages that are not offered- plenty of people in poverty work full-time.

Source: http://www.nj.com/njvoices/index.ssf/2011/09/census_us_poverty_rate_broke_1.html

So policy needs to keep in sight the major social problem. If the goal is to reduce welfare, make it cheaper and more efficient, you can do that. But that requires a narrow view that ignores why welfare exists in the first place. Never lose sight of the core problem. Welfare is the symptom of an underlying illness. To erase welfare does not cure anything, merely remove a way that we are reminded of poverty’s extent and persistence.

The new activists

At 6am Thursday morning I joined about a hundred others in downtown San Diego in a protest and picket around a McDonald’s, supporting fast food workers who walked off the job in their fight for union rights and a $15 an hour minimum wage.

Protestors march through downtown San Diego in remembrance of Eric Garner.
Protestors march through downtown San Diego in remembrance of Eric Garner.

Friday evening I joined a couple hundred others in a march protesting the killing of Mike Brown and Eric Garner by police.

Two things linked these two actions. One was that in the middle of various chants about justice and wages (“Que quemos?” “Quince!” “Cuando?” “Ahora!”), people joined in the now-legendary “Hands up, don’t shoot!” chant.

The second, and more substantial similarity, was the presence of many first-time activists. Fast food workers are usually underrepresented in labor actions, as those with disposable income and flexible schedules can be the most involved in justice movements. But thousands have participated in strikes and walkouts, despite corporate pressure. At the police march there were many people of color that had experienced discrimination and intimidation, but had been involved formally. And in both marches- children, some a third my age.

Three members of Socialist Alternative at the December 4, 2014 protest for $15/hr minimum wage. UnspokenPolitics author is on right.
UnspokenPolitics author is on right.

I am not a professional hellraiser, but I do go to meetings and participate in actions. There is a core of activists, and we all know each other. However, justice will never be found by that small group. Regular workers need to liberate themselves. So to see new activists joining the fight is encouraging. Political protest is stale in the United States- we are not in the 60s radicalism or the all-but-in-name wars between unions and the government. Fresh faces will bring about real change.

Occupy also had an injection of new activists. The homeless, establishment Democrats, political but apathetic college students. This continues, and over time they become effective members of a movement.

As a member of the Socialist Alternative branch in San Diego said, many of us are new to radical politics. Many have no real grasp of what socialism is, or how to organize a labor action. These times are where we cut our teeth and learn how to succeed. There is no substitute for experience, and as people attend meetings, go to marches, and read the news and literature, they become smarter and stronger. We need all the help we can in this unjust world.

Fast food poverty wages: a tax on everyone

In a few hours I’ll join in a series of protests, for December 4th will be the latest set of strikes by fast food workers. In around 150 cities at least some workers will walk off the job, joined with the low-wage workers in major international airports. The past 18 months has seen a dramatic change in the national discussion on wages. $15 an hour was viewed as a pipe dream. Yet with the election of Kshama Sawant in Seattle, running with $15 as her central policy goal, and an overwhelming majority of San Francisco voters voting in favor last month, things have changed. The debate in Washington about small, incremental increases that may not even keep pace with inflation has been overshadowed by the idea of radically higher wages that lift hundreds of thousands of people out of poverty.

These strikes will have the same conservative criticism, in particular that these companies cannot absorb higher prices, and your favorite items will see a sharp price increase.

I’ll break this down into the simplest form I know. Higher wages will increase item prices, but in a given industry that will hold true across the board. A hamburger costs an extra dollar, but all restaurants will face the same reality. This isn’t an issue for bottom-rung workers because they have more money to spend, and in fact their wages will usually increase by more than the prices do. Workers in Seattle will be going from about $9 to $15 plus inflation. Prices are not going up by two-thirds.

But won’t people just above the minimum wage have problems? No, because one of the fundamentals of the labor hierarchy is that wage hikes at the bottom echo throughout the system (PDF). If $10/hr workers go to $15, $14/hr workers in different jobs will go to $19, or something similar. Wage increases for the working poor are good for everyone.

The most crucial thing I want to get across is that we all pay for the current wage levels in fast food restaurants. Fast food workers received about $7 billion in government assistance because their wages fall below what is needed to survive. All taxpaying people in the United States subsidize these low wage policies. Unlike paying more for a burger after a higher wage law passes, this cost is not optional. We can choose not to eat at McDonalds (and really, why would you?) , but taxes are compulsory.

Almost all situations like this boil down to this: the economy is complicated. Groups like Heritage want to scare the public with the specter of high prices, but that ignores positive effects from higher wages, and current costs that we pay for low wages.

Finally, I want to speak out about the civil war among labor in this country. Many people look down at fast food workers. I understand that. But what happens to them will affect you- especially those in the lower echelons of the labor hierarchy. Strikes are inconvenient (oh lord, the BART transit strike in the Bay Area got tech workers into a frenzy), but there will never be an empowered working class unless the bottom has strength.

Turning the tide: the fight for a $15 minimum wage

Income growth distribution. Source: http://news.good.is/beg-borrow-steal/econographic#%21/2

There is a war going on in the Pacific Northwest. It has garnered some national attention, and cities across the country will be influenced by the result. Which side wins, and whether they get most of what they initially wanted, will ripple across the nation.

Seattle is debating a $15 minimum wage.

This is an extraordinary fight, because it was linked to an extraordinary campaign. Kshama Sawant, a member of Socialist Alternative, defeated a sixteen-year Democratic incumbent to win a seat on the Seattle City Council. I’ve written about Sawant several times (here was my pitch prior to the election), and her success is one of the biggest events in the American left since the McGovern campaign. The whole campaign was tightly bound around a single campaign promise- a $15/hr minimum wage.

Her victory, against the grain of traditional Seattle politics, indicated that popular sentiment was on the side of her campaign and the organization she helped found, 15 Now. Seattle is joined by San Francisco in pushing for a ballot initiative. The engine is Seattle though, with over a year of constant campaigning. Pressure has given the proposal wide political acceptance, even among business-friendly Democrats.

The split between worker productivity and worker wage increase
The split between worker productivity and worker wage increase

The argument is straightforward. Since the end of World War II-era price controls, worker productivity has increased substantially, but since the Nixon Administration is no longer matched by increases in wages. This era has also been one of sharply rising costs- education, healthcare, rent. I’ve drawn a grasp with permanent markers to give you the result. No, seriously:

A simplified graph of wages vs. costs since 1970
A simplified graph of wages vs. costs since 1970

The minimum wage isn’t tied to inflation, so it buys far less than in decades past. Increasingly, those that make minimum wage (or close to it) no longer have a living wage. They can’t afford to raise their kids, or live anywhere near where they work. Thus they rely on two things- credit and welfare. There are plenty of people working crazy hours yet still in the economic strata to require welfare to make basic ends meet. Without a strong wage, the taxpayers are footing the bill for underpaid workers.

There are two broad concerns at play in Seattle. The first is about the minimum wage as a whole- that it kills business, competitively, leads to unemployment. I tackled these broad issues last August here. I found there to be a lack of solid evidence that the minimum wage is a great harm to society- people often say that it is, but they’re relying on the standard (typically called ‘neoclassical’) model, which actually isn’t that accurate. We’ll return to that thought.

The second are the specifics of the wage increase. Basically, who has to increase to $15 and by when? Originally the idea was an increase from all businesses immediately. The version that’s being filed and will probably get voted on soon has a three-year lead-in for small businesses and nonprofits. $11, then $13, then $15.

In terms of a debate, the place I’ve found with the most content dedicated to the issue is The Stranger, Seattle’s sweary alternative newspaper. They strongly endorsed Sawant (dedicating an issue to making a case for her), but they’ve been releasing editorials in pairs- one advocating for an exception, one against. Currently, four pieces on the minimum wage are in the “most commented” section on the front page.

This is a bitter fight. Big businesses (especially those for which most of their staff make under $15) are fighting tooth and nail- and sometimes use small businesses as a front to advance their own interests. There is clear evidence in leaked documents. This is nothing new, but it’s important to pay attention.

While not anything close to an expert, I’ve taken enough college economics to have a decent grasp of minimum wage mechanics, as one of the basic aspects of the labor market. There has been quite a lot of misleading statements- and one would assume that if San Francisco and Seattle ultimately succeed, they will pop up again and again as the fight moves to other areas.

A number thrown out in the debate is 60%- the increase from the current state minimum wage of $9.19 to $15. Often the proposal is said to be a “60% increase in labor costs.” That’s not even close to true. What’s important to know is that essentially no business pays every worker minimum wage. If they did, it’d be 60%, but if people are making $10.50 or $12.75, it’s a lot less than that. Also there are plenty of workers who make over $15 in a given enterprise who won’t see any increase- at least directly.

$15/hr protestor in New York City. Peter Foley/EPA

Another issue is distorting costs. While labor costs are important, they sit alongside the cost of land, rent, licenses, legal and financial assistance, and of course whatever a business sells. The best read of The Stranger editorials is this one by bar owner Andrew Friedman. He got an overwhelming pushback by commenters, including several who work for a small business. As an accountant stated, if their firm raised all employees to $15 it would be a 4.33% increase in costs. There’s a big difference between 60% and 4.33%. While all cost hikes will affect total costs, labor is not all of a businesses’ costs.

A proposal has been made to include “total compensation”. A series of essays go back and forth starting here. What’s wrong with $15/hr total compensation? Well, a few things. It allows the employer to include (and overvalue) other non-wage benefits. Given the rapid rise in health care costs, this could easily eat into the actual wage earned until there is no rise at all. And it gives employers a great amount of power- they figure out the costs, they determine what total compensation is. You can’t make a good argument for wage theft because the wage has no solid meaning anymore. It’s just part of the total compensation soup.

The reality is simple. Large corporations, that employ a huge amount of minimum wage workers, are skating thanks to government subsidy of their business (sweetheart tax deals, plus tax loopholes) and government subsidy of their workers. The end result is incredible US corporate profits. A move towards a $15/hr minimum wage is recognizing that there is no disaster for American corporations if labor starts closing the gap between what it produces and what it is ultimately paid. It’ll throw a wrench into the economic idea that profits must constantly rise and increase- the system where shareholder concerns are much more pressing than labor concerns. But that sort of escalating system also causes destructive market bubbles, so maybe it needs a wake-up call.

Source: http://qz.com/192725/what-another-record-year-of-corporate-profits-means-for-the-us-economy/

I’m tired of people making hackneyed economic arguments that don’t have a solid foundation beneath them. The dangers of a high minimum wage are a meme, perhaps exacerbated by the fact that most introductory economics courses are strongly slanted to that conclusion. As I pointed out in a rebuke of Alex Berezow’s ill-suited attack on Sawant, many journalists and pundits don’t cite anything more complicated than N. Gregory Mankiw- often just leaving it at ‘common sense’.

Serious discussion is due for the minimum wage. Each month brings new depressing confirmations- income inequality is soaring, it’s reversing decades of gains by the middle class, people are getting wrecked by increased costs and don’t have the money to save, invest, and eventually retire. When a movement emerges that actually offers a potential solution, efforts must be made to understand it from their perspective. US journalism tends to start from the perspective of how a new policy will affect corporations.

Perhaps they should think of how the lack of a new policy current affects workers and families.

Kshama Sawant’s socialist response to Obama’s record and promises








Is the minimum wage harmful? Probably not.

The issue of note in the past few weeks has been the minimum wage, especially as fast food workers are becoming more vocal about how untenable their lives are making just north of seven dollars an hour. Some outlets have pointed out the potential price hikes if a move was made to a $15/hr wage, and there has been a chorus of conservative economists and politicians stating that a higher minimum wage actually increases unemployment, and thus makes certain people worse off as they lose their low wage job for no job at all.

When I took AP Economics my junior year of high school, we used an immensely popular textbook by conservative economist N. Gregory Mankiw. It taught the standard version of introductory economics. It’s rooted in classical economics, and features elegant graphs. It triumphs rational choice theory, or the idea that individuals consistently make the most sensible choice for their overall well-being

Parts of the American left have few good things to say about Mankiw. Beyond that, the issue is that his model doesn’t reflect the real world. Behavioral economists have clearly proven that individuals are not rational, and groups even less so. Looking at in-depth data, it’s clear that the immensely complex world economy does not fit elegant graphs most of the time.

In this debate over a higher minimum wage, there is one flaw of the conservative line. The blog An Economic Sense states simply that there is no empirical research that shows a correlation between a higher minimum wage and higher unemployment. Like many policy changes, it fades into the noise of the economic system. Rory Sutherland, a marketing executive and behavioral economist says that mainstream economics suffers from a case of “physics envy” (video). You can’t isolate individual cogs in the economy and figure out their relations to everything else. Minimum wage policy is not a proton at a particle accelerator- you can’t figure out all of its effects in a controlled environment.

Raising the minimum wage does not create a whole new burden to be shouldered by private industry. The government has to cover these people already through food stamps and Medicaid. Large corporations like McDonalds and Wal-Mart are indirectly subsidized by the government, despite large profits that prove they are not a dollar an hour away from bankruptcy.

John Maynard Keynes had a large set of theories about how the system worked- with data in the decades following his death proving some and disproving others. Famously, he disputed the classical idea that workers only needed to adjust their demands to be employed, and that all unemployment was voluntary.

It’s now clear that some unemployment is involuntary, especially in a near-recession as the United States is now. There are many reasons why people cannot find work, and it is doubtful that the minimum wage is the primary reason. More people could probably provide more labor than their wage if they were hired, but worker value in a large firm is difficult to measure, and the people who run businesses are not always rational. Or rather, they look towards profit rather than output.

The lesson here, which is hammered home every time someone on TV quotes from that economics textbook I had, is that the economy is far more complicated than some would let the public believe. If the minimum wage is an economic problem, it doesn’t show up in current data. It may just be a figment of a theory that just doesn’t make much sense.