Opinion

Edward Hadas

In favour of the living wage

Edward Hadas
Apr 10, 2013 12:05 UTC

In the United States and some other developed economies, wages for the least well paid are too low. A mandatory living wage is the best way to redress this injustice.

The idea of minimum wages is well accepted, but the American $7.25 an hour does not meet the simple standard of providing enough to support the worker who earns it. For an adult in New York State, self-support requires 55 percent more, $11.25 an hour in a full-time job, according to The MIT Living Wage Calculator. And a just minimum should really be enough to raise a family – something closer to the $23.58 an hour required to support a single wage-earner with one child.

The minimum wage is one part of the remarkably complex pay system found in all developed industrial societies. Economists often suggest that wages are determined by market forces, the supply and demand for labour, and by employers’ calculations of the value of labour. But actual wages influence both the market and the perceived value of labour. It is more accurate to include market forces and economic value somewhere in the middle of the long list of factors which contribute to the ever-shifting social agreement on pay levels. This agreement is established in the mysterious way that all social orders are built – the powerful push, the weak resist, traditions are followed and evolve, justice is respected and flouted, market forces and economic calculations nudge.

By far the most important factor in determining pay is the social judgment of value. The main reason that bankers, advertising executives and doctors are paid more than teachers, childcare workers and street cleaners is that society values the former more than the latter. And the main reason that the minimum-wage jobs pay too little to support a family is that society has agreed that is what such labour is worth. This is an injustice, because honest labour should always be rewarded with enough to live a decent life.

To be fair, the social judgment of these occupations is less harsh than the pay level suggests. The very poorly paid usually receive welfare benefits from the government, either in cash or in the form of free or cut-price services. It is an awkward arrangement, but unavoidable in societies which have decided that pay should be determined by the job but spending power should be determined, at least in part, by needs and family situation. That division will exist as long as family breadwinners do not receive special pay status.

Poverty and renunciation

Edward Hadas
Apr 3, 2013 14:10 UTC

“Go into the street, and give one man a lecture on morality, and another a shilling, and see which will respect you most.” Samuel Johnson said that in the 18th century, but the general preference for money over preaching is sufficiently strong and timeless that his wry quip remains pertinent. Most economists take Johnson’s sentiment too seriously. They assume that people always want more shillings and always resist wealth-denying morality. That is a serious error.

Consider, for example, the enthusiastic response from around the world to the material renunciations of Pope Francis. The crowds cheered when the new leader of the Catholic Church said he wanted a “poor Church for the poor”. His decision to stay in simple lodgings and wear simple clothes amounted to turning down shillings for the sake of giving a morality lecture, but few observers were bothered. On the contrary, it was welcomed as a pertinent comment on the excessively materialist values of modern society.

The need to be “for the poor” is eternal and universal. In every society there will always be people who cannot thrive without help from others. Despite Dr Johnson’s comment, the need for conscience-pricking discourses on the topic, papal and otherwise, is equally timeless. Otherwise, it would be too easy to find plausible but ultimately selfish reasons not to help out.

Banker-think in welcome retreat

Edward Hadas
Mar 27, 2013 09:45 UTC

For once, investors have got it right. In 2008, their panic turned a financial crisis into a long multinational recession, but they have mostly yawned right through the drama in Nicosia. They hardly twitched at a stream of warnings from investment banks and pundits: bank deposits are no longer sacrosanct; the European Union has been exposed as despotic and incompetent; the Russians are coming; the Russians are going; capital controls will destroy everything; “bail in” (taking losses on loans that cannot be repaid) is the end of the world as we once knew it.

Such talk was out of proportion. Cyprus is a small country – its GDP would put it at 116 on the Fortune 500 list of the largest quoted U.S. companies – with a financial sector that had expanded excessively for two decades, almost entirely by attracting flight capital from Russia. A national financial collapse was both insignificant and merited. Besides, the EU and the International Monetary Fund had a plan to deal with the collapse: a combination of financial help from other countries and managed pain for depositors in Cypriot banks.

Alarmists could not deny all this, but they invoked the great demons of financial crises: precedent and contagion. That was silly. Cyprus was obviously a special case, and the European Central Bank was clearly determined, and able, to keep its problems from spreading. Even if Cyprus had left the euro zone, there would have been no dangerous precedents or grim effects, just a demonstration of a bizarre desire for economic self-harm. For everyone else, Cyprus would still be like a flea-bite – scratch for a minute and forget about it.

Cyprus and the danger of promises

Edward Hadas
Mar 19, 2013 14:42 UTC

Don’t make promises you can’t keep. Wise parents tell small children that, and wary lovers use that command as a taunt. But in the world of finance, unrealistic promises are the norm, and they are too often broken. Depositors in the banks of Cyprus may be learning that lesson.

True, the government of the Mediterranean island may retreat from its first plan, and in any case the accounts are to be taxed, not written down, so the terms of the deposit insurance will be technically kept. And strictly speaking, deposit guarantees are not being breached in the United States and other countries with an inflation rate higher than the interest rate paid on savings accounts, even though that inflation-tax steadily erodes the accounts’ real value. But in fact, governments – both small and suspect like Cyprus, and large and respectable like the United States – have failed the lovers’ test. They have made promises to savers which they either cannot or will not keep.

These trust-breaking governments can resort to the errant lover’s usual excuse: we could not have known what the future would bring. Just as bitter experience somehow invalidates a promise of undying love, an impossible-to-predict avalanche of bad loans might erase the obligations of Cypriot banks and the equally unpredictable financial crisis could exculpate monetary authorities in the United States and elsewhere. Such events, they can say, are like the acts of God which invalidate insurance policies.

Obesity and the unhealthy economy

Edward Hadas
Mar 13, 2013 15:11 UTC

Obesity is a matter of free choice – no one forces people to get fat – but few people are happy with the result. In the last few decades, the freedom to eat has too often turned into slavery to the immoderate desire for more.

In the United States, the world leader in obesity, the trend toward higher body weights began more than a century ago. Researchers John Komlos and Marek Brabec show that the average body mass, weight adjusted for height, has moved upward fairly steadily – from too low for optimal health right through optimal to the current too high level. Most visibly, and alarmingly, the gap between the heaviest 30 percent and the rest has widened significantly in the last few decades. There is no end in sight.

The problem of obesity is an adverse side effect of one of the greatest economic liberations ever, the freedom from want of food. Until shortly before 1900, food shortages were nearly always and everywhere a lively possibility, and all too often a grim reality. Now, although inadequate nutrition still blights the lives of more than a billion people in the world, residents of developed economies enjoy food in excess.

Morality and monetary policy

Edward Hadas
Mar 6, 2013 13:22 UTC

Monetary policy these days is complicated, ineffective, and quite possibly immoral. The complexity is inevitable; there is no simple way to ensure that the supply of money and credit is appropriate in a large modern economy. The ineffectiveness is evident: central bankers let that supply grow too fast before the 2008 financial crisis, and have unable to return monetary conditions to normal since then.

The moral lapses may be subtle, but I believe the lack of attention to the common good in the management of interest rates and the monetary system causes three serious problems.

 1) Dangerous freedom

Imagine a world in which anyone can use anything as a currency. This perfect monetary freedom would be a disaster. With strangers, I would only be willing to deal in gold, or some other scarce substance that could be carefully measured, because I would have no way of evaluating verbal or written promises to deal fairly. I might be able to trust members of my social group in economic transactions, but only because our monetary freedom was balanced by strong social constraints; they would be punished if they tried to cheat me.

Salvation through work

Edward Hadas
Feb 27, 2013 14:58 UTC

“It has been computed by some political arithmetician that if every man and woman would work for four hours each day on something useful, that labour would produce sufficient to procure all the necessaries and comforts of life … and the rest of the 24 hours might be leisure and happiness.”

When Benjamin Franklin wrote that in 1790, the American thinker was a few centuries ahead of his time. But the modern economy is so productive that everyone would have far more “comforts” than were available in Franklin’s day, even if the standard working week were shrunk from 40 to 20 hours. The four-hour day, though, isn’t on the horizon. Benjamin Kline Hunnicutt, a professor of Leisure Studies at the University of Iowa, explains why not in a fascinating new book, “Free Time, The Forgotten American Dream”.

For more than a century, labour activists continually demanded – and were granted – shorter working hours. By the 1930s, futurologists were sure that the trend would continue. Workers wanted more leisure time, and, thanks to ever more efficient machines, they could have it, while still enjoying steady improvements in the material standard of living.

The menace of financial markets

Edward Hadas
Feb 20, 2013 14:15 UTC

Financial markets are unstable, unhelpful and often immoral. They should be kept under better control.

My disdain will be dismissed by free-market enthusiasts. For them, lively markets where equities, bonds and currencies are sold at publicly disclosed prices are clearly a good thing; they may even be capitalism at its best. Such open markets, they say, both improve economic efficiency and make society more free.

Not so; these markets are economically and morally harmful. Let me be clear. I am not discussing what non-economists usually mean by markets, the generally useful supermarkets and farmers’ markets. Nor am I debating the merits of what economists refer to as the “market” – the real or virtual place where buyers and sellers make transactions. Nor is this a screed against all of finance. Banks and insurers do not need financial markets to gather savings and make loans and investments.

Tradition, novelty and the pope

Edward Hadas
Feb 13, 2013 16:08 UTC

Institutions need to evolve over time. Institutions must rely on their traditions. These two statements may sound irreconcilable, but institutions – companies, hospitals, government agencies, schools, political systems, churches – can only thrive if they manage both to change and to remain true to their principles. In his surprising resignation, Pope Benedict XVI has given an example of the right balance.

Of course, the Catholic Church is special. It is especially large, especially ancient and especially international, as well as theologically presumptuous about its relations with an unseen heavenly power. The Church on earth, however, faces the same challenges as any long-standing organisation. Others can learn from Benedict’s decision to break with a tradition of nearly 600 years.

By Catholic standards, the tradition that popes always die in office was relatively new. There were several resignations during the Church’s first 14 centuries, and long after the last pope stepped down, in 1415, papal non-retirement was not so much a hallowed tradition as a fact of life. Official retirements were rare in all occupations, and almost unheard of among kings, who were considered roughly the secular equivalents of the pope.

The knots of development

Edward Hadas
Feb 6, 2013 15:35 UTC

Why are so many poor countries stuck with huge economic problems? Why, for example, are there so many unemployed young people in Egypt – 41 percent of 19-24 year-olds? The poor state of British housing can help answer these questions. 

By developing world standards, the British housing system works quite well. In Egypt, it takes 77 bureaucratic procedures in 31 offices, and between six and 14 years, to get legal approval for construction of a new house, according to the 2012 doctoral dissertation of Abdel Hamid El Kafrawy of the University of Glasgow. The result: housing is in chronically short supply and 65 percent of the population live in unregistered and untaxed buildings. 

For a rich country, though, the UK does remarkably badly. Construction has been inadequate, at half the modest target rate set by the government in 2007. The relatively few new houses and apartments which are built are mostly relatively small – new American houses have almost three times as much floor space and new French houses have 45 percent more, according to a 2009 study by the British Commission for Architecture and the Built Environment. And rental and mortgage payments for these under-sized living quarters take a higher share of income in the UK than almost other developed country. 

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