Opinion

The Edgy Optimist

The real issues behind the minimum wage debate

Zachary Karabell
Dec 6, 2013 18:03 UTC

In his speech at the Center for American Progress this week, President Obama devoted considerable time to an issue suddenly much in discussion: the minimum wage. This is not a new debate. In fact, it neatly echoes the last time Congress raised the minimum wage, in 2007, which echoed the debates before that. Few economic issues are such sweet catnip to ideological camps, and there is precisely zero consensus about whether these minimums have positive, negative or no effect.

Supporters say that a higher minimum wage will give people a better standard of living and boost consumption. Detractors argue that it will lead companies to hire fewer workers and kill job creation. One thing no one addresses, however, is that regardless of whether the government raises the minimum wage, our society can’t endlessly coast with a system that includes wage stagnation for the many and soaring prosperity for the few, nor can the government snap its legislative fingers and magically produce income. Someone will pay for these increases; nothing is free.

You wouldn’t know that from the tenor of the debate. In Obama’s speech, he stated that, “it’s well past the time to raise a minimum wage that in real terms right now is below where it was when Harry Truman was in office.” He acknowledged that many resist the idea of mandating a wage above the current $7.25 an hour. “We all know the arguments that have been used against a higher minimum wage.  Some say it actually hurts low-wage workers — businesses will be less likely to hire them.  But there’s no solid evidence that a higher minimum wage costs jobs, and research shows it raises incomes for low-wage workers and boosts short-term economic growth.”

It was a robust, populist speech, and it triggered an inevitable retaliation on the right. “Mr. Obama wants to raise the minimum wage to please his union backers,” harrumphed a Wall Street Journal commentator. Jennifer Rubin of the Washington Post decried the idea as just more government wealth transfer, and she countered that rather than raising wages, “One way to lessen income inequality would be to stop transferring wealth from young to old.”

There is growing income inequality in the United States, which has accelerated in the past few decades. Wages for labor have flattened while capital has flourished. As Goldman Sachs chief executive officer Lloyd Blankfein recently remarked, “This country does a great job of creating wealth, but not a great of distributing it.” And he would know. The top 10 percent of earners in the United States have gone from constituting a third of all income in the U.S. in the 1970s to half today. The top 1 percent accounts for 20 percent of the nation’s wealth.

A new American dream for a new American century

Zachary Karabell
Jul 26, 2013 13:22 UTC

In a major speech this week on the economy, President Obama emphasized that while the United States has recovered substantial ground since the crisis of 2008-2009, wide swaths of the middle class still confront a challenging environment. Above all, the past years have eroded the 20th century dream of hard work translating into a better life.

As Obama explained, it used to be that “a growing middle class was the engine of our prosperity. Whether you owned a company, or swept its floors, or worked anywhere in between, this country offered you a basic bargain — a sense that your hard work would be rewarded with fair wages and decent benefits, the chance to buy a home, to save for retirement, and most of all, a chance to hand down a better life for your kids. But over time, that engine began to stall.” What we are left with today is increased inequality, in wages and in opportunity.

The assumption is that this is unequivocally a bad thing. There have been countless stories about the “death of the American dream,” and Detroit’s bankruptcy last week was taken as one more proof. Yet lately the unquestioned assumption of a better future based on hard work has not served America well. If anything, today’s version of that dream has been the source of complacency rather than strength, and its passing may be necessary in order to pave the way for a constructive future.

Why high corporate profits aren’t so bad

Zachary Karabell
May 1, 2013 17:10 UTC

Over the past month, America’s largest companies reported their earnings for the first quarter of the year. These quarterly reports provide as much insight into our economy as any of our leading indicators. And these results, if read correctly, highlight once again the bifurcated world we live in. Our gross domestic product is growing about 2.5 percent a year for now, but that masks a vast divergence, not between the 1 percent and the 99 but between what works and what does not. What this earnings season demonstrates is that capital and companies are thriving, along with tens of millions of people connected to those worlds, while labor and wages are not. But that is not how it is being interpreted.

The consensus among investors and the financial media is that the quarter was something of a bust, as company after company reported only modest – and in many cases, non-existent – revenue growth. “Revenue still missing as companies beat earnings,” blared a USA Today headline, and that encapsulates what most have said.

The uber-bearish economist Gary Schilling, cited by the widely-read uber-gloomy blog Zero Hedge, put it bluntly: “Pricing power has been non-existent [and] sales volume increases have been very limited so the only route to profit has been cutting costs. That has pushed profit margins to all-time highs.” Enjoy it now, says Schilling, because profit without revenue growth is “unsustainable.” The only reason markets are doing well and corporations aren’t panicking, the thinking goes, is because central banks are flooding the world with money.

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