●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Marshall Auerback is a hedge fund manager who seems to understand the fundamentals of Monetary Sovereignty and economics in general. So I was a taken aback by his article referenced in the Naked Capitalism blog site:
In recent months, a number of states have again taken the lead on measures to raise the minimum wage. Massachusetts is moving toward a minimum of $10 per hour. Other measures are on the table in New York, Illinois, New Jersey, Connecticut and Missouri. Meanwhile Sen. Tom Harkin, D-Iowa, is pressing for the federal minimum wage to rise to $9.80 per hour by 2014.
Here are five reasons why we should cheer for working America getting a raise.
1. Good for Families: According to economist James Galbraith, raising the minimum wage would raise the incomes of 28 million Americans. Women would particularly benefit because they tend to work for lower wages than men. As Galbraith sees it, raising the minimum wage is family friendly policy:
With more family income, some people would choose to retire, go back to school, or have children, making it easier for others who need jobs to find them. Working families would have more time for community life, including politics; Americans would start to reclaim the middle-class political organization that they once had. Because payroll- and income-tax revenues would rise, the federal deficit would come down. Social Security worries would fade.
Wait a second, “Raising the minimum wage would raise the incomes of 28 million Americans,” and raising people’s pay encourages them to retire? Am I the only one who sees a disconnect, here?
With higher pay, working families will have more time for politics? Huh? And reducing the federal deficit is a good thing? Marshall, have you forgotten all you know about Monetary Sovereignty?
2. Good for Economic Recovery: To get the economy back on track, spending power has to be in the hands of those who actually spend in the real economy. That means regular people, not the super-wealthy who tend to hoard wealth or invest in financial products.
Every “investment in financial products” transfers dollars from one person to another. The dollars keep moving, from one bank account to the next, and during this process, some are spent.
Minimum wage makes automation more attractive, which leads to unemployment.
3. Helps People Get Out of Debt: As our economy has become increasingly directed toward Wall Street and the so-called FIRE (finance, insurance, real estate) sectors, more wealth has migrated to the top 1 percent. On top of that, real wages have increasingly lagged behind the growth in productivity. It is also clear that hours worked and persons employed in the “productive” sector have been in decline over the last few decades.
This all may be true, but is irrelevant to the question of minimum wage, which generally is paid to people with the lowest productivity (their productivity is not enhanced by computers). Giving them raises won’t increase their productivity, nor will it have a meaningful effect on the income gap.
An increase of a couple of dollars per hour or more in the minimum wage could make huge improvements in the difficult existence of the working poor, perhaps allowing them to exit the debt treadmill and stand a better chance of eventually rising into a revitalized middle-class.
Or, they could be fired as too expensive — to be replaced by machines.
Admittedly, corporate profits might suffer a little and some businesses at the lowest end might disappear. That said, corporate profits as a percentage of national economic output are already at an all-time record levels. And it’s questionable whether such levels of profitability can be sustained. Firms have lots of unused capacity lying around because people can’t afford to buy products and services. Sluggish sales growth is directly connected to lagging wage rates.
Raising the minimum wage will do little to correct “lagging wage rates,” most of which are far above the minimum rate. Firms have unused capacity, which mitigates against inflation. Reduce that capacity, and prices will rise, hurting all workers.
At the same time, dependence on food stamps has surged by over 14 million over the same period. And “financial engineering” has helped to create a significant escalation in debt being borne by the private sector, particularly consumers.
Food stamp usage has surged because we still are in a recession. Raising the minimum wage merely reduced business profits, but does nothing to cure the recession. Increased federal deficit spending is needed for that.
4. Protects Workers From Abuse: A higher minimum wage would also help to mitigate the abusive, exploitative working practices of a number of employers, who take advantage of the currently low minimum wage to seek cut-rate help. Such employers often use undocumented labor, which further undermines America’s working poor.
By definition, the current minimum wage always is “low,” so employers paying the minimum wage always can be accused of “taking advantage. Undocumented labor will not be helped by increases in the legal minimum wage.
5. Justice for Working Americans: The past 30 years have witnessed a dramatic redistribution of national and personal income in favor of profits for the rich. At the same time, this period has been associated with a dramatic decline in the performance of the US economy. To raise the minimum wage would be literally the minimum we could do for those who have suffered from the economic crisis: the working population. It would be an act of justice.
He says the past 30 years have “been associated with a dramatic decline in the performance of the US economy”? Really? His definition of “performance” must be different from mine. Here is the Real (inflation adjusted) Per Capita Gross Domestic Product for the past 50 years:
That looks like pretty good performance growth, but for the current recession period.
Bottom line, minimum wage laws do have some benefit. They prevent employers from being too exploitative and paying desperate workers starvation wages. But there is a downside — a major downside: Businesses measure production value of each asset, including employees.
As employee costs goes up, businesses look for alternatives, like mechanization and shipping jobs overseas. So minimum wage runs head-on into unemployment. Further, it does nothing at all, for the vast majority of people who already receive more than minimum wage, but still are part of the 99% lower income group.
Finally, minimum wage does not add dollars to the economy, so is not stimulative. It may, in fact, subtract dollars from the economy, as overseas payrolls increase.
All 5 of Mr. Auerback’s goals can be accomplished with the following nine steps, none of which involve minimum wage:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America
In short, the solutions lie with added government deficit spending, not with added burdens to business.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports