Robert Reich laid out, one by one, four big conservative lies about income inequality. For people who actually have a basic understanding of both business and economics, these lies seem rather self-evident. Yet, to pony up to their rich benefactors, Republican lawmakers, and their “microphones” (read: Heritage, Fox News, etc.), insist on pushing these lies as truth so that they don’t risk angering their benefactors.
According to Reich, these are the four big lies about income inequality.
Lie #4. Increasing the minimum wage will result in fewer jobs.
There are studies that show increasing the minimum wage has a negligible effect on employment rates, if it has any at all.
The University of California at Berkley studied eight cities with high minimum wages, and 21 states with minimum wages higher than the federal minimum. That study found that businesses tend not to go fleeing to neighboring towns or states when the minimum wage goes up, as conservatives like to predict. In fact, this study found that businesses were able to absorb the higher cost of labor because it brought down other costs, such as the cost of turnover. It also increased worker productivity and satisfaction, which also raises revenue, as mentioned above.
The Economic Policy Institute regularly conducts research and studies into minimum wage increases and the workers that such increases effect. They’ve found that:
- Raising the federal minimum wage to $10.10 by 2016 would return the federal minimum wage to roughly the same inflation-adjusted value it had in the late 1960s.
- An increase to $10.10 would either directly or indirectly raise the wages of 27.8 million workers, who would receive about $35 billion in additional wages over the phase-in period.
- Across the phase-in period of the increase, GDP would grow by about $22 billion, resulting in the creation of roughly 85,000 net new jobs over that period.
Furthermore, the workers who would receive a raise do not fit the stereotypes of low-wage workers:
- Among affected workers, the average age is 35 years old, nearly 88 percent are at least 20 years old, and more than a third (34.5 percent) are at least 40 years old.
- Of affected workers, about 54 percent work full time, about 69 percent come from families with family incomes less than $60,000, and more than a quarter have children.
- The average affected worker earns half of his or her family’s total income.
One sub-lie told in connection with this one is that a minimum wage hike would seriously hurt small businesses. One year ago, more than two-thirds of small businesses actually supported raising the minimum wage, and 85% of them already pay every one of their employees more than the minimum wage. Two-thirds also believe that raising the minimum wage will help to stimulate the economy.
Lie#3. Anyone can make it here in the U.S. if they just have enough discipline, gumption, and intelligence.
Har de har har. If only it were that simple. We hear stories of this lawmaker, or that businessperson, clawing their way out of the poverty the rest of their family was mired in, and they hold themselves, and a few others, up as shining examples of grabbing The American Dream and running with it.
However, nearly half of the children born into poverty will remain there their whole lives, according to Reich.
But the problem’s worse than that; we have a serious problem with generational poverty here. People mired in generational poverty have an astoundingly complex situation facing them. Reich says that we ignore our poorest schools. We do. Poorer schools receive less money, have worse teachers, and worse educational materials, than wealthier schools.
People who say, “I climbed out, why can’t everyone?” don’t truly realize what they’re saying. The National Center for Childhood Poverty says that children in poverty face significant challenges:
[box type=”shadow”]”Children growing up in low-income families face many challenges that children from more advantaged families do not. These children are more likely to experience multiple family transitions, move frequently, and change schools. The schools they attend are less well funded, and the neighborhoods they live in are more disadvantaged. The parents of these children have fewer resources to invest in them and, as a consequence, their homes have fewer cognitively-stimulating materials, and their parents invest less in their education. The stress of living in poverty and struggling to meet daily needs can also impair parenting.” [/box]
These children also often have the added problems of having nobody who believes in them and their potential. No matter the child’s intelligence or gumption, a lack of support from teachers, parents, other relatives, and even friends, often results in not realizing that potential at all.
The truth of the matter is that escaping from generational poverty is virtually impossible today. There are a few who manage to do it, but they are a very few. Not enough to say, “If we can do it, anybody can, so long as they put their minds to it.”
Lie #2. People get paid what the market decides they’re worth.
Reich mentions that CEO pay was approximately 30 times their average worker’s pay 40 years ago. Today, it’s over 300 times their average worker’s pay. CEOs have not gotten to be these rare phenomenal business savants that are so completely amazing at their jobs that the market’s decided they deserve so much more pay. In fact, the market doesn’t really influence or control the pay of CEOs. The CEOs themselves have a lot of control over what they get paid. Hence the dramatic increase when compared to the average worker.
By contrast, workers don’t have that control. They have almost no control over it at all. Besides that, history shows that if a business can abuse and exploit its workers, it will. We see that even today, as companies prefer to use factories in Bangladesh, China, Cambodia, and wherever labor is exceptionally cheap and regulation is virtually nonexistent. If the market truly determined pay, then companies wouldn’t always be looking for ways to stiff their workers.
The price of labor is not something that we should determine by supply and demand. The reason for that is simple: The labor force is people, and people aren’t products and services. There are strong cost benefits associated with higher wages, even for low-skill jobs. The Center for American Progress explains why higher wages often result in more profitability for companies.
[box type=”shadow”]”It is costly to replace workers because of the productivity losses when someone leaves a job, the costs of hiring and training a new employee, and the slower productivity until the new employee gets up to speed in their new job. Our analysis reviews 30 case studies in 11 research papers published between 1992 and 2007 that provide estimates of the cost of turnover, finding that businesses spend about one-fifth of an employee’s annual salary to replace that worker.” [/box]
Also, studies show that when employees are happy, they’re much more productive, and they’re much better with customers and/or more likely to make a high-quality product. They have a true interest in seeing the company succeed, and so they work much harder. According to Dr. Noell Nelson, a clinical psychologist (via Forbes):
[box type=”shadow”] “Companies that effectively appreciate employee value enjoy a return on equity & assets more than triple that experienced by firms that don’t. When looking at Fortune’s ’100 Best Companies to Work For’ stock prices rose an average of 14% per year from 1998-2005, compared to 6% for the overall market.” [/box]
In other words, companies can incentivize their labor force to do more, and do it better, in a way that doesn’t work for products and services, because products and services can’t respond to incentives like better pay, better benefits, or employer honesty and compassion. So calling wages “a market price” is beyond ridiculous, because it completely ignores how wages affect a company’s performance and competitiveness.
And finally… the top lie about income inequality.
Lie #1. The rich, and corporate CEOs, are the job creators.
Why is this a lie? Because we’re a consumer economy. The so-called “job creators” decide when to hire based on their demand, and demand ebbs and flows based on consumer confidence and ability to spend.
We keep cutting taxes on businesses and on the wealthy because, according to supply-side economic theory (a.k.a. “Reaganomics” and “trickle-down economics”), if these two groups have more money in their pockets, they’ll have more money to spend in business-to-business (B2B) activities. Investing in each other spurs demand, which spurs hiring. Business investment and B2B spending is, in fact, a significant chunk of our total economic output.
There’s just one catch: Somewhere in the supply chain, there has to be an end-user. A consumer. Let’s look at the automakers, for instance. They sell most of their cars to the rental car companies each year, because each one of those companies has a fleet that numbers in the hundreds of thousands just in the U.S. So the automakers make most of their money selling cars to other businesses.
Now, look at the rental car companies. They’re happy to pour money into the automakers’ coffers as long as their own demand is high. However, according to an industry source, in 2008, when the entire economy imploded in a chain reaction, demand for rental cars fell off a cliff for several reasons. The most obvious might seem to be that people weren’t traveling for vacations, and people were taking their cars to shops less because they couldn’t afford it. However, some rental car companies, like Avis-Budget Group and Hertz, get a substantial number of their customers through contracts with other companies. And companies whose revenue depended more on consumer spending than anything else (either directly or indirectly) stopped sending their employees to other cities for conferences, training, meetings, retreats, and more, as they worked to cut every cost they could to handle their flagging revenue. That hurt Avis-Budget and Hertz badly.
So the rental car companies began downsizing their fleets, and when time came to start buying new cars again at the end of 2008 and going into 2009, they didn’t have the numbers they needed to justify buying their usual number of cars. That cost the automakers lots of money, and contributed to their already-sorry financial outlooks.
What happened with the rental car companies and the automakers is a small example of why economic theory has to take into account what the everyday consumer has in their pocket to spend. B2B investment can’t compensate for a lack of consumer demand.
It’s also important to note the number of wealthy people the GOP would love to protect vs. the number of people who have seen their real wages drop over the last decade or more. There just aren’t enough wealthy people out there to drive enough demand to create jobs.
There’s a reason these are lies. Sadly, conservative lawmakers like to scream them to remain on the side of big business, and on the side of income inequality that favors their rich benefactors. It’s true that the income inequality we’re seeing here is something we haven’t seen in more than 100 years; not since the days of the robber barons. As Reich said at the end of his piece, reversing inequality here “will require bold political steps.”
Image courtesy of Politico
More on wealth inequality from AATTP:
- Here’s How the New Inequality Kills More Americans than Guns, Cars, and Smoking Combined
- Incredible! Krystal Ball: Inequality ‘is the True Enemy of Democracy’ (Video)
- Shocking New Report: Wealth Inequality In America Is Worse Than You Can Imagine (Images)
- Watch Bernie Sanders RIP Michele Bachmann on CNN Over Income Inequality!
- Prominent Republican Blasts Tea Party on Income Inequality, Calls for New Economic Stimulus