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Raising Wages Would Revive Our Economy

It seems so obvious that consumption is the fire that powers an economy and money is the fuel.  It doesn’t matter from where the spending comes in the short run, but it must come from ordinary people in the long run.  Wages paid are dollars spent and a dollar spent is a dollar earned in a free economy.   Just as you can dampen consumption by raising the cost of borrowing, you can also dampen consumption by suppressing wages, which is exactly what we have been doing for more than 30 years.  Corporations have become cash rich but customer poor.  They could end this sluggish economy tomorrow by raising wages.

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7 Comments

    • DataHeart says:

      With almost half of all working families having no discrecionary spending at all it seems cruel to blame their poverty wages on profligate spending.

      As for television sets being in the homes of the poor, I saw this first hand in my social work career and was perplexed at first. Why would they buy a TV when they can’t afford food?

      I remember my visits with one woman who lived in poverty all her life. Every time we met to solve some problem, her soap opera was playing in the background. She wouldn’t turn it off. I found it districting. The problems, tragedies, hardships and complexities in this woman’s life were almost unfathomable. It required all my attention to understand and help sort things out. Then one day the woman had to excuse herself for a few minutes, during which time I stopped to watch what was happening on her show. It was then that I realized this woman would have given her eye teeth to exchange her problems with any character on that show. I came to understand just how important TV is in relieving the chronic emotional pain associated with a life of poverty. It wasn’t a surprise to me some time later to learn of a family literally living in a hole in the ground who had stolen electricity from a nearby power line to run their color TV.

  1. What about regulations? Regulations increase the need to be compliant, which increase the need to add systems process, and procedures. Increase regulations increase the cost of business and apply downward pressure on wages. You can blame the corporations but regulations are on the rise and as such, you see wages held captive.

    • DataHeart says:

      Imagine what a football game would look like if you started removing rules and regulations during play. At some point it would stop being football and there would be blood on the field. That’s what would happen to commerce and free markets without regulations. The notion that free markets operate according to natural laws is almost delusional. Commerce operates much more like a game than a natural habitat. It is entirely defined and created by government rules. As in any game, you can’t have the winning players creating or changing the rules as they go along. Rules must be established in advance and enforced on the field. Democratic government is the process we use to establish the rules of commerce. From standardizing weights and measures to monitoring food quality and product claims, it is clearly the role of the people to decide what rules businesses and corporations must follow.

      So if you mean to discuss which regulations strike a better balance between protecting consumer interests and facilitating business, or if you want to talk about the balance between the public good and what helps companies grow, then let’s get specific. But let’s not reinforce the myth that government regulations are bad. Some regulations are better than others to achieve a particular purpose, but government regulation is essential to the game itself.

      We should also remind ourselves that commerce and financial markets are just a subset of humanities larger social economy. One of the seven deadly social sins, you may recall, is “commerce without morality.” When commerce becomes self-serving, when business interests supplant social interests, then commerce has lost its moral compass. I am afraid this is what has happened.

      • “Blood on the field” is an extreme analogy. Do you really believe that without regulation we would all simply de-evolve into rabid, violent people willing to rob, steal and cheat?

  2. DataHeart says:

    True story… Public schools in New Jersey have to put out requests for proposals for every major service contract, such as student bus transportation. The lowest bid generally wins the contract. This is supposed to keep costs down, but student transportation costs are nearly equal to per/student education costs. This is partly because any anti-trust laws we have aren’t well enforced.

    It seems the owners of school bus companies divided up their territories and colluded with each other to determine who gets which contacts and how much they bid.

    When it was time for my town to renew its transportation contracts, an official friendly with a bus company owner persuaded him to make an actual competitive bid in his rivals territory. He did, the bid was lower, he won the contract and the town saved a pile of money. Several months later this bus company owner was tricked into going down to Florida for a business deal where he was murdered. His body was dumped in the ocean. His business rival was ultimately convicted for the crime.

    So to your list of what I really believe would happen without regulations you can add “murder”.

  3. Michael says:

    If you look at Corporate profits (after tax) their long-term average is 6% of GDP. Today they are 11%. If the difference ($800B) were going to wages instead of corporate profits, GDP would be about $800B-$1T higher, we would have close to full employment, and the deficit would be much smaller.

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