Thursday , April 15 2021
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Inflation: who matters?

Summary:
From Peter Radford There are times when you really don’t need to say much.  The facts make the argument for you.  At such times all that matters is that the largest number of people are aware of those facts and that at least some of them speak to the issues raised. So too is with a small snippet of news I saw this morning. I came to it via the New York Times.  The original report being in Business Insider. Apparently Wall Street bonuses have risen 1,217% since 1985.  Quite what the significance of 1985 is I cannot tell, but the number itself seems to have the right feel.  Having seen a few of those years first hand I can attest to the pace of increase from an anecdotal perspective. More importantly, if we applied the same rate of increase to the minimum wage over a similar period it

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from Peter Radford

There are times when you really don’t need to say much.  The facts make the argument for you.  At such times all that matters is that the largest number of people are aware of those facts and that at least some of them speak to the issues raised.

So too is with a small snippet of news I saw this morning.

I came to it via the New York Times.  The original report being in Business Insider.

Apparently Wall Street bonuses have risen 1,217% since 1985.  Quite what the significance of 1985 is I cannot tell, but the number itself seems to have the right feel.  Having seen a few of those years first hand I can attest to the pace of increase from an anecdotal perspective.

More importantly, if we applied the same rate of increase to the minimum wage over a similar period it would stand at $44 per hour and not the current rather pathetic $7.25.

Imagine the hullabaloo were we to advocate bringing the minimum wage into line with the extraordinary levels of largesse Wall Street lavishes upon itself.  We would be treated to endless, not to mention outraged, articles from well known economists attesting to the disastrous impact such ridiculously undeserved amounts would have on the economy.  Just thinking about the inevitable inflation, and its undoubted undoing of the very heart of our social fabric, would throw numerous professors of economics into fits of feinting and hysteria.

I mean: how could workers even consider such an obviously destructive thought?  How could they be so vain as to think they deserved such outrageous compensation?  What, on the margin, could possibly justify such vertiginous increases?  Where oh where is the value added?  To what measure of economic gain do we turn to measure the worth of such a revolutionary change?

The recently passed economic relief package that managed to squeak through Congress by the narrowest of margins had, in its original form, an adjustment to the Federal minimum wage.  The proposal was to move it up from the $7.25 level to $15, at which point it would provide a subsistence wage more in keeping with modern lifestyles.   By my very rough reckoning the shift from $7.25 to $15 would bring it into line with Wall Street circa 1994, maybe 1995.

The asymmetry between the reaction to discussions about the minimum wage and other wage levels — e.g. those Wall Street bonuses — is astonishing.  The puritanical vindictiveness with which the lower end of our wage scale is treated compares badly with the way in which the top end is talked about.  The inflationary impact of the one is dissected and brooded over in minute detail, whereas the other drifts past with little or no attention.  Why aren’t Wall Street bankers criticized for their very obvious contributions to inflation?  Where are the right wing media discussions of all the wasteful things a Wall Street banker might be tempted to use those inflationary gains on?  We are constantly being told that low wage workers would simply “waste” the increase on something as useless as an iPhone.

Even some of my more left leaning friends have a hard time supporting moving the minimum wage up to a subsistence level.  They ask how all those small businesses that thrive on the $7.25 wage level would react.  They ponder on all the failures that might follow from having to pay a subsistence wage.  What, oh what, will the poor business owners do?

Well, for one thing, they ought not continue to exploit the low end of our workforce.  For another they might try to invent a business model that both made a modest profit for themselves and supported their workers at a subsistence level at the same time.  Clearly, if so many of them are doomed by paying a subsistence wage, we have far too many businesses existing only because we subsidize them by keeping wage levels so low.  Worse, by subsidizing these failing business models, and by allowing them to pass along the benefits of their low operating costs to their customers in the form of artificially low prices, we have also passed along the subsidy to, inter alia, Wall Street bankers who benefit from those low prices.

By crushing the supposed inflationary impact of wage increases at the low end, we have moderated the inflationary impact of the overly generous increases at the other.

Ultimately, of course, this has nothing to do with economics.  Most of the modern research has shown that increases in the minimum wage do not have the impact that the textbook suggests it will have.  So the economics is neutralized.  No, this discussion of minimum wages is a social question.  It revolves around our attitudes towards certain types of work and to our sense of social worth that certain activities ought, or ought not, have.  It is about the status of work.

Given that the current onrush of automation might augment, rather than diminish, the number of jobs that fall into the lower end category I think we need a social re-think as to the value of such work.  This is particularly true when we consider that the more marginalized sectors of our community have a disproportionate representation in low wage work.  We, in effect, are marginalizing them twice.

Think of the travails of the past year and the impact of the pandemic.  Low wage workers were in the front lines because so many of their jobs were deemed “essential”.  They had to travel to and from work and risk exposure to the virus.  They maintained our supermarkets, care facilities, and so on.  They were affected by COVID in large numbers.  Wall Streeters, by comparison, have done very well.  Financial business flourished event during the pandemic.  Bonuses are up bu about 10% on the year.  And quite a few Wall Streeters managed to escape to their second homes in the hills or countryside and so have been far less affected by the virus.  Wall Streeters were never deemed “essential”.  They aren’t.  But they have sure been paid as if they are.

The attempt at passing a minimum wage hike to $15 failed.  It was too much of a leap for some of the more conservative members of the Senate to stomach.  They were concerned about the disruption such a leap in wage might have on the small businesses in their various states.

I have yet to hear what they think the impact the Wall Street bonuses might have had.

Peter Radford
Peter Radford is publisher of The Radford Free Press, worked as an analyst for banks over fifteen years and has degrees from the London School of Economics and Harvard Business School.

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