Author: Jared Bernstein

The House of Representatives was busy yesterday engaging in vicious class warfare against working families.
Their two signature accomplishments were: 1) striking the proposed increase in the minimum wage from the Labor-HHS bill, and 2) reviving the effort to repeal the estate tax.

Late last week, members of the House Appropriations Committee voted to include an amendment to raise the minimum wage to $7.25 on a funding bill.  Given that Congress is a few months away from surpassing the Reagan-years record for ignoring the minimum wage, and the fact that its buying power is the lowest it’s been since 1955, it’s time for a raise.

Yet, instead of letting the measure go to the floor of the full House for a vote, the Republican leadership decided to pull the appropriations bill from consideration and the minimum wage increase along with it.

At the same time, conservatives began crafting a compromise measure to revive the estate tax repeal, which died in the Senate last week.  As the New York Times reports this morning, “Though billed as a compromise, the measure would cost about three-quarters as much as full repeal of the estate tax.”  Estimated cost over 10 years: $280 billion.

It’s hard to find words to express the outrage of these actions.  It’s not simply that the policy process has gotten off track.  It’s that a key purpose of government has been turned upside down, and done so with apparent impunity.  

Instead of seeking ways to address and ameliorate the unbalanced growth which characterizes this economy, they’re exacerbating the problem.  Instead of a small, overdue boost to low-wage workers that would help them reconnect, just a bit, to the growing economy, they want to shovel even more of the benefits of our prodigious productivity growth to the top of the wealth scale.

There’s a word for this: shameless.  And shame on all of us if we sit back and watch it happen.

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(This article was co-written with Ross Eisenbrey of the Economic Policy Insititute.)

UPDATE: I will be defending the minimum wage on CNBC (Kudlow & Company) at around 5:20 EST tonight.

An increase in the minimum wage is once again hovering around the Congressional docket, as Democrats try to wedge it into various bills while Republicans try to sink it.

And once again, as reliable as clockwork, defenders and opponents are snapping into action, dusting off briefs and arguments, updating the analysis for inflation and generally doing the same dance we always do (I’m a defender).

There’s got to be a better way.
Facts matter, so I’m not for a second saying that progressives should ignore the superior research, summarized below, that supports an increase. But I think we should also fight this one on basic fairness. It’s simply shameful, in an era of sharply increasing economic inequality, for Congress to incessantly cut rich people’s taxes yet refuse to help low-wage workers.

First, a bit of context regarding the minimum wage. As Isaac Shapiro and I report in a study coming out today, the buying power of today’s minimum wage is at its lowest since 1955. Remember, unlike most other government programs, the wage floor is not adjusted for inflation. Since the last increase in 1997 alone, inflation has eroded 25 percent of the minimum wage’s value.

Second, the federal minimum wage has often been set with the level of other workers in mind, reflecting the principle that minimum-wage workers should share in economic gains and should not fall too far behind other workers.  During the 1950s and the 1960s, the minimum wage averaged about half the average wage of workers in nonsupervisory positions.  Now it has fallen to 31 percent, the lowest share in the history of this data series, which begins in 1947.

So what about the usual pushback against the increase: that it will hurt low-wage workers, whose employers would have to fire them when the wage mandate priced them out of the labor market (not to be snarky, but this concern doesn’t seem to come up when Congress mandates their own pay hikes; since the last minimum wage increase in 1997, to $5.15, they’ve raise their pay by about $35,000)?

That “disemployment” argument would be plausible, were it not for the fact that tons of careful research has disproved it. The federal minimum wage has been raised 19 times by Congress since its introduction in 1938. Eighteen states, covering about half of the national workforce, have minimum wages above that of the Federal level.

In other words, more than any economic policy, we’ve had hundreds of “pseudo-experiments” — rare in economics — that allow us to test the impact of wage mandates on various outcomes. These experiments allow us to compare before and after, or, even better, compare nearby places that face similar economic conditions but have different minimum wage laws.

So what have these studies found. Here’s the way economics Nobelist Robert Solow summarized the findings: “The main thing about this research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small.”

A great example comes from the last Federal minimum wage increase, back in 1996-97.  The usual suspects predicted massive job losses among those affected by the increase from $4.25 to the current level of $5.15. Instead, low-wage workers experienced the strongest job market in 30 years.  Poverty fell to historic lows, particularly for the most disadvantaged workers, such as less-skilled minorities and single-mothers.

I know the opposition forces have their own studies and arguments and even Nobel Laureates.  But the point is that any policy maker not in the pocket of those moneyed interests opposed to an increase could absolutely support it with confidence that the policy would have its intended purpose of providing a small boost to the living standards of the least advantaged workers among us.

So what gives?

Well, they’ve been busy passing $70 billion worth of new tax cuts, mostly by extending earlier Bush cuts on dividends and capital gains.  These cuts reduce millionaire’s tax payments by $43,000, middle-income payment by $20, and low-income payments by $0. Oh, and they got awfully close to repeal the estate tax, a gift to the Paris Hiltons of the world that would have cost $1 trillion over 10 years.

So, here’s my question: I know inflation has eroded the value of the minimum wage.  What’s responsible for the erosion of Congress’s values?

Is it an electorate that is too busy or too distracted to notice? Is the Republican spin machine really so effective that a majority is convinced that trillions of dollars in regressive tax cuts are fine yet a moderate minimum wage increase will cripple the economy?

These are probably part of the answer, but here’s another part: too few of our leaders are hammering home the shame of these actions. With notable exceptions (Ted Kennedy, George Miller, and precious few others), the dog is neither barking, howling, or growling.

We are in desperate need of a Howard Beale “I’m-mad-as-hell-and-I’m-not-going-to-take-this-anymore” moment.

So, here’s my plan. If the Congress refuses to act, I say we all pick a time–say, 12 noon on December 2, 2006, the day Congress ties Reagan’s nine-year record for ignoring the minimum wage. At that moment, we all lean out our windows and yell at the top of our lungs, “Raise the minimum wage!”

On second thought, why wait until then? Let’s vote for change on November 4th.

This past week, much to everyone’s surprise, Democrats in the House of Representatives managed to slip a proposal to increase the minimum wage into a bill funding the Departments of Labor and Health and Human Services.

Faced with the specter of having to vote against increasing the wage floor from its current embarrassing level of $5.15 to $7.25 by Jan. 1, 2009, Congressional Republicans snapped into action and pulled the bill.

This is what these brave souls do in election season when they don’t want to have to go back to their districts and answer questions as to why it’s ok to cut hundreds of billions in rich people’s taxes but deny the working poor a boost.

Well, I say: “Not so fast, guys.  Let’s chat about this for a few minutes.”

Not let me get this straight.  Last month, you passed $70 billion worth of new tax cuts, mostly by extending earlier Bush cuts on dividends and capital gains.  When tax cuts target investment income, the benefits flow to the wealthy, and these cuts are exhibit A: they reduce millionaire’s tax payments by $43,000, and those of middle-income families by $20.  Sorry, that’s not a typo.  It’s what you get when you put the YOYOs in charge of fiscal policy.

Wait a second, where you going?  I’m not done.  Set a spell…
After you finished that master stroke, you came alarmingly close to repealing the estate tax, a gift to the Paris Hilton’s of the world that would have cost $1 trillion over 10 years.  A few stalwarts blocked you, but you’re sure to be getting back to this one first chance you get.

Other than that, let’s see…you made a lot of noise about gay marriage and flag burning, and you guys in the House just passed the Iraq War Resolution supporting the administration on Iraq and rejecting the setting of a date for troop withdrawal.

Oh, and you raised your own pay by $3,300.  In fact, you’ve raised your own salaries by about $35,000 since the last minimum wage increase.

But when it comes to raising the minimum wage, you pull the bill.

Let’s review a few facts.  The Federal minimum wage has been stuck at $5.15 since September 1, 1997.  Come this December, you will tie the longest spell on record for ignoring the labor market’s wage floor (i.e., the Reagan years, from 1981 to 1990, when Bush I signed an increase).  And since it is not adjusted for inflation, its buying power has eroded by 25% since then.

That’s why the current minimum wage, in real terms, is at its lowest value since 1955.  Compared to the average wage, it’s at 31%, the lowest level on record going back to 1947, meaning those stuck at or near the minimum wage are falling further behind the rest of us.

As always, your rationale for not raising the minimum is that it would hurt low-wage workers, whose employers would have to fire them when the wage mandate priced them out of the labor market (one can’t help but note that this concern doesn’t come up when you mandate your own pay hikes).

That would be a plausible argument, were it not for the fact that tons of careful research has disproved it.  The federal minimum wage has been raised 19 times by Congress since its introduction in 1938.  Eighteen states, covering about half of the national workforce, have minimum wages above that of the Federal level.  And over 100 cities have living wages–a higher minimum that applies to workers on city contracts or at firms with local government subsidies.  

In other words, more than any economic policy, we’ve had hundreds of “pseudo-experiments”–rare in economics–that allow us to test the impact of wage mandates on various outcomes.  These experiments allow us to compare before and after, or, even better, compare nearby places that face similar economic conditions but have different minimum wage laws.

The question that has received the most scrutiny is whether increases in the minimum wage lead employers to lay workers off.  You probably don’t want to hear the results from me, but here’s how Nobel laureate in economics, Robert Solow, put it: “The main thing about this research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small.”

A great example comes from the last Federal minimum wage increase, back in 1996-97.  The usual suspects predicted massive job losses among those affected by the increase from $4.25 to the current level of $5.15.  Instead, low-wage workers experienced the strongest job market in 30 years.  Poverty fell to historic lows, particularly for the most disadvantaged workers, such as less-skilled minorities and single-mothers.  

On the other hand, there no such body of evidence supporting your claims that cutting taxes for the rich actually accomplishes anything beyond distributing wealth up to the scale.  Did I mention that profits as a share of national income are at a 39-year high?

Now, don’t get me wrong.  I’m not implying for a nanosecond that an increase in the minimum wage would offset the damage you guys have done over the past few years.  In that scheme of things, raising the pay of about seven million low-wage workers by less than two bucks is a token gesture which you will hopefully be forced to make so you can show your faces again in public.

But it would make an important difference to those workers, so you should do it.  The fact that I even have to argue with you about it is what’s so painful.

The recent failure in the Senate to repeal the estate tax stands as a rare victory for sane fiscal policy.  The NYT editorialized about the event under the heading “What Passes for Good News.”

In fact, the Senate vote came alarming close to ending a tax on inheritances of the richest half-a-percent of households, with a majority of Senators (57–but they needed 60 for a repeal) supporting a measure which would have cost the treasury $800 billion over 10 years at a time of ballooning budget deficits and war.

Of course, the politics of the repeal were the focus of most analyses–would the White House be adhered to or get rebuffed on an issue dear to them–but the economics of the tax cut are deeply revealing of the fundamental flaw of economic policy today.

And that flaw is this: we have, over the past three decades, shifted from we’re-in-this-together (WITT) economics to you’re-on-your-own (YOYO) economics.
For decades after the Great Depression, economics had two main policy goals: (1) ensuring that we as a society tap our collective potential and fully employ our economic resources, especially people, and (2) providing individuals with ample protections and publicly provided insurance against undesirable market outcomes–weak job creation, high unemployment, rising poverty rates, and falling real incomes — and other challenges like aging out of the workforce or becoming disabled.

This approach ran into trouble in the latter 1970s, when two villains who are not supposed to appear on the same stage–high unemployment and inflation–combined with another potent force to knock the dominant regime out of the box.  That other force was the rise of “neo-classical” economics.

This approach to economics also has two goals: (1) getting rid of the policy set associated with the old economics and (2) making sure that individuals are offered the optimal incentives, the ones that should lead them to behave in ways that, according to the mathematical models, bring about the most efficient results.

In other words, the target of economic policy has shifted from maximizing society’s potential through promoting full employment and insurance against market failures, to incentivizing the individual’s interactions with the market.

Thus, YOYO economics was born. Today, we’re seeing the outcomes: greater inequality, a fiscally bankrupt government, the shifting of risk from the government and the firm to the individual, and the loss of the systems and institutions–like pension coverage, minimum wages, overtime rules, and a durable safety net–that smoothed some of the rough edges of capitalism, without diminishing the economy’s growth potential.

The policy implications reduce to this: “You’re on your own. Here’s a tax cut. Now go out there and optimize.”

In our money-laden system, that type of message leads directly to endless arguments for cutting taxes, especially for wealthy investors, since they’re the ones who, according to YOYO lore, will unleash all kinds of wonderful fairy dust once their hands are no longer tied by the fact that they have to pay taxes on inherited income from estates worth millions.

The irony of all this is that the majority of individuals do much better under the WITT regime than the YOYO one.  Part of this is distributional: the typical, or median family’s income grew with productivity over the period where WITT was in ascendancy, but has lagged ever since.  

And part stems from the fact that we simply all do much better when we work together to confront the economic challenges we face.  The new, globalized economy has many wonderful attributes and opportunities, but too many of us feel like we’re walking a tight rope without a net.  

From this point forward, we should view every proposed initiative through this lens: does the policy rebuild that connection between growth and broadly shared economic security?  If not, as with the estate tax repeal, it should be rejected.  If so, bring it on.

With their focus solidly on the gay marriage amendment and estate tax repeal, the conservative movement is busy rearranging deck chairs on…well, not quite the Titanic, but on a rotting ship of state.
Polls reveal that these issues are not resonant with people outside of the far right (re gays) of the very rich (re the estate tax–according to the NYT, “18 of the wealthiest families in the country” have spent $200 million lobbying for repeal).  

My favorite poll result right now is one from this poll  showing that by a ratio of 3.6/1 respondents would rather that Congress provided health insurance for uninsured Americans than repeal the estate tax (pg. 6).

It’s a great example of how the YOYOs, stuck in their ideological prisons, are unable to address what people care most about right now.

The pessimism and defeatism of their economic agenda is becoming glaringly clear.  

Once you take universal health coverage of the table, you’re left with “Health Savings Accounts,” — the “attention, health care shoppers” approach to solving the crisis of the uninsured that is going over about as well as their Social Security privatization gambit.

Once you stake your claim that the economy is doing just fine, and it’s your problem if can’t get ahead, you’ve created deep cognitive dissonance between yourselves and the millions of working families who wonder why we just had the best GDP quarter in over two years yet many of us are feeling pinched.

Once you’ve identified that the only tool in your policy toolbox are tax cuts on the estates of multi-millionaires, with no regard for future deficits, you’ve signaled that the bottom 99% are on their own.

When you argue that your tax cuts are “working,” ignoring the fact that job growth has decelerated since March and the chair of the Federal reserve warns that a “…softening in the pace of overall economic activity that seems to be under way”, well…people have a right to ask what do you mean by “working?”

So what’s in our toolbox?  

If our platform amounts to: “We’re not them,” than I’m afraid the answer is “not much.”

What’s needed is an agenda that unambiguously connects to the things most people care most about.  

Red- and blue-staters alike are yearning for their leaders to stop this nonsense about gay marriage and estate-tax cuts, and get real about what’s really troubling them: the middle-class squeeze, saving for college, and the seemingly inexorable increase in economic inequality.  The candidate/party that puts aside both dissonant cheerleading and opposition-bashing in favor of communicating how they will restore competency to government in will have a huge leg up.  

Here’s a test: name one economic policy, other than tax cuts, associated with outgoing Treasury Secretary John Snow.

Give up?

Now think about this: what is the economic policy of the Bush administration? What about the Congress? What about the Democrats?
If all you could come up is that the first two aforementioned groups want to cut rich people’s taxes, I’m with you. Beyond that, none of the above has offered a coherent strategy for meeting America’s economic challenges.

And these problems are prodigious: global economic competition; 46 million people lacking health insurance; the seemingly inexorable climb of inequality; obscene CEO compensation packages totally unrelated to performance; an economy that’s doing fine, until you consider the people in it.

Each of these problems needs concerted thought and action. But while the administration’s new nominee for Treasury Secretary, Henry Paulson, is certainly an able economist, he will likely be as ineffectual as was Secretary Snow.

There’s a reason why the nation’s economic policymakers are suffering from a deficit of ideas: It’s YOYO economics.

YOYO is an acronym for “You’re on your own,” and it is the guiding light of economic policy as practiced today. The idea is that no matter what the problem is, the solution is less government and more markets.  You’ve seen many examples of YOYOism in action, but here’s a primer:

Problem: The looming health care crisis.

YOYO solution: individualized Health Savings Accounts, designed to create better “health care shoppers.”

Problem: The economic insecurity associated with globalization.

YOYO solution: more education. If you’re not smart enough to compete with cheaper, skilled workers abroad, well, “you’re on your own.”

Problem: Solvency in your old age.

YOYO solution: Try your hand in the stock market with a private account.

And underlying all of this is the biggest YOYO tactic of all: cut taxes to the point where government is forced to contract so there’s no question of an activist agenda. If you can enrich your donors along the way…well, then it’s a “twofer.”

The problem is, as is becoming undeniably clear, YOYOism doesn’t work. It failed lethally in New Orleans. It’s done nothing to stop the growth of the uninsured, the rise in poverty, the decline in median earnings (i.e., the real earnings of the typical worker, down 2% over the recovery, while productivity is up 15%), nor the rise in the profit share of national income, now at a 39-year high.  The public rejected it with the failure of the Bush-push to privatize Social Security, and now the polls show deep dissatisfaction with the president’s management of the economy.

There’s a countervailing message rising out of the anxiety generated by the new economy:

“Policy makers, work with us. We’re in this together. Rebuild a government that we can believe in, and we will do so. Conceive and articulate an agenda that harnesses the tremendous capacity, skill, and flexibility of our economy to meet the challenges. Instead of creating 300 million individual risk-bearing silos, let’s pool risk though universal health insurance coverage and a strengthened pension system. Let’s build an ambitious public/private partnership with the goal of energy independence to replace the jobs and wages lost to globalization.”

You have to strain to hear this message, but it’s there. It is, however, in desperate need of amplification.  The new treasury secretary can’t help–his hands are tied by YOYO ideology. So the question is: who will step up and amplify this liberating message?