Friday, July 24, 2009

Holly Sklar: "Minimum Wage Stuck in the 1950s"

From Common Dreams:

"It would take $9.92 today to match the buying power of the minimum wage at its peak in 1968, the year Martin Luther King died fighting for living wages for sanitation workers.

In today's dollars, the 1968 hourly minimum wage adds up to $20,634 a year working full time. The new federal minimum wage of $7.25 comes to just $15,080. That's $ 5,554 in lost wages.

"It is criminal to have people working on a full-time basis ... getting part-time income," King told workers in Memphis, Tenn., days before his murder. King said, "We are tired of working our hands off and laboring every day and not even making a wage adequate with daily basic necessities of life."

Imagine what King would say today.

The minimum wage is stuck in the 1950s. With the raise, the minimum wage is higher than 1950's inflation-adjusted $6.71, but lower than the 1956 minimum wage of $7.93 in today's dollars."

Sklar points out something that I hadn't thought about in a while: that the lack of buying power on the part of greater and greater numbers of people may lead to a Keynesian crisis of demand, where there aren't enough consumer dollars flowing into general industry to keep it going. I'm talking about basics as opposed to luxuries. If there isn't enough demand for regular, working class, goods, then factories will go idle and the entire economy will experience a crisis, whereas if there's enough money flowing in to power it it'll keep going. More money going in means more wages being paid out.

This is the fallacy of consumer confidence polls. People can be as confident as they want but if they don't have the money to spend to satisfy that demand it doesn't matter much whether they're enthusiastic about consumption.

As Sklar notes later in her article, the money that used to go the vast base of people in society is being concentrated in fewer and fewer hands. This isn't Marxist rhetoric, it's reality:

"In 1968, the richest 1 percent of Americans had 11 percent of national income. By 2006, they had 23 percent - the highest share since 1928, right before the Great Depression."

Beyond being unjust, the significance of this increasing disparity is the following: rich people don't spend all their money, and much of what is spent is spent on custom luxuries that are outside the realm of the real economy. Because of this, there's a tendency for the money that gets into their hands not to be recycled back into the economy. The source of their money is the producing and selling of goods used by society as a whole, not luxuries. The big car companies didn't get rich because they only sold custom made Rolls Royce types of cars. But executives who get more of the money tend not to spend it on the proletarian, modest, cars that they oversea the production of. This takes the money out of the essential cycle of production and consumption that powers the economy, if you multiply what's going on over most industries. Working people, on the other hand, do spend most of what they earn, and they do spend it on the basics that keep the economy running.

If you undercut that base the real economy experiences a crisis, with no one having enough money to buy anything, leading to people getting laid off, leading to more people not being able to afford things, leading to more people getting laid off.

The truth of the matter is that the economy cannot survive on custom woodworkers. The essence of the economy has always been the working class and the middle class, which of course overlap. Take that out and you might as well be living in the woods.

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