You may not get rich from it, but you will at least not live in squalor if you engage in it. historic rates and to our rich nation peers, we can signal to young people that hard work is valued. By returning to minimum-wage levels closer to U.S. While there is much to admire in Latin American culture, their high levels of inequality contributing to gated communities for the rich, shantytowns for its poor and high crime rates resulting from a lack of social inclusion are not ones we should emulate. Our present wage and inequality profile leans toward historic Latin American norms. A $12.45 minimum wage would at least put us in the middle of the pack. Most rich developed countries now set their minimum wages between $10 to $16 an hour (or have such high rates of unionization that organized labor sets wage rates). One should remember that the United States once had the world's highest minimum wage, but today it is among the lowest for rich nations. Such a dramatic increase in the minimum wage would be too much of an economic shock, so a simple return to the 1968 inflation-adjusted minimum wage, plus a little extra, would get us to 110% of the poverty rate for a family of four, or $12.45 an hour. Elizabeth Warren (D-Mass.) has pointed out, if you also adjust for productivity gains, the minimum wage today would be more than $20 an hour. The minimum wage that year (inflation-adjusted) was nearly $11 an hour. Given this, perhaps we could at least set the wage clock back to about 1968. We have had massive productivity gains the past half-century. If you want to see how this operates with little regulation, look to Latin America or sub-Saharan Africa.Īnd the best way to get inequality right is to increase the minimum wage. As much as we would like to believe markets do this on their own, the evidence is clear that they do not. How to get the economy "just right"? The first step is to get wages in balance with productivity. This mismatch meant there were insufficient wages to buy what the economy could produce thus, people had to use credit or rush into speculative markets to "earn" cash. By the late 1920s, worker wages fell well below productivity. economy of the 1920s that produced the imbalances leading to the Great Depression of 1929. Too much equality, and people seek to emigrate to find opportunities reflective of their talents, as they did escaping from communism. Too much of it, and we risk a return to the terrible inequality of 19th-century Europe and 20th-century Latin America that drove most of our ancestors to emigrate to the United States. It's time to take the economy out of the freezer and return it to a temperature that is "just right." The first step is to recognize the serious imbalances in our economy, chief among them is to get inequality just right. In fact, rather than removing it so that we could return to a "just right" temperature, it was transferred to the freezer, where the economy became "too cold." Unfortunately, the "real" economy (not speculative bubbles) of production has never been taken out of the "refrigerator" that was used to cool it. Both were achieved in the 1980s and stagflation abated. That untenable set of affairs was addressed by policies designed to cool demand for commodities and restrain wage growth. Massive costs resulting from the beginnings of deindustrialization, global competition, America's long wars in Indochina and the oil crisis of the 1970s created an economy that was "too hot." Cascading oil price increases of 1000% that decade, plus wage demands from labor exceeding the underlying economy's ability to support them, resulted in stagflation: slowing growth matched by rising inflation. The Goldilocks economy that was "just right" came to an end in the 1970s. This created a virtuous circle of increasing profits, wages and available tax revenues for investment in infrastructure that fueled even more prosperity. Today, we lack an economy that is "just right." We had such a "just right" economy in the decades after World War II, when business and labor shared in the economy's productivity gains. Few are happy with our economy, and for good reason.
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