March 18, 2014: Jim Schneider
The minimum
wage debate has raged on for decades. Like most of the perennial battles
between the political left and right, the two parties invariably fail to
consider policies that would benefit all Americans. Instead, they have divided
the nation into various factions and only promote policies that support their
factions at the expense of their rivals. A political system that is based on
compromise, like ours, fails under these tactics and leaves our economy to
languish in the uncertainly and neglect wrought from political gridlock. We
need a new approach. We need a strategy that is designed to unite us, not
divide us. ---- But how could we possibly do that in this political climate?
For
starters, we need leaders that recognize the critical importance of unifying
our nation. We need leaders that are able to convince the American people and
both parties that our Federal Government should adopt a single, overarching
economic objective that would guide the development of our nation’s economic
policies. But could the hodgepodge of America’s diverse interests ever
agree to a common economic objective? Yes, if that objective spoke to every
American like this one.
Continuously improve
the standard of living of all Americans.
That’s it.
That’s as complicated as our national objective needs to be. A standard of
living can be defined and measured. It can be compared over time and between
groups and across locations. It would be easily understood, actively supported
and would lead to broader participation in the political process. An objective
would persuade policy makers to couch their proposals in terms of the objective
and prioritize them accordingly. The voters would gain a gauge for comparing
actual results against the plan and measuring the contributions of their
elected leaders.
An
objective would make it harder for the parties to demonize the motives of the
other party. When voters no longer believe someone is the devil, they may be
more likely to consider that person’s point of view. The political discussion might
then switch from castigating opponents to how best to achieve objectives. Yes,
the debates would certainly rage on; but instead of discussing the emotionally
charged and economically less significant, we just might begin to delve into
solutions that address our most pressing economic problems. So how would a
national economic objective help our minimum wage debate?
Well, if the nation were to agree to a
national objective then we could get about the business of debating the
economic strategies that would best reach that objective. I contend that our
government should first concentrate on two major policy arenas.
- Jobs
- Safety Net
Jobs:
The most effective way for individuals to
improve their standard of living - as well as increase their sense of worth and
well being is through a job. The most effective way for our economy to grow and
generate jobs is through a vibrant private sector that offers goods and
services that people want at prices they can afford with enough profit to
warrant their continuation. The goal of our Federal Job Policy should therefore
be:
To enact policies that allow the
private sector to maximize the quantity, quality and sustainability of U.S. based, profit funded, private sector
jobs.
Repeated Keynesian approaches by the Republicans to reduce
taxes or by the Democrats to increase spending have not and will not have the
long-term desired effects to jump-start our economy. The theory behind a
Keynesian stimulus is that a short-term cash/demand infusion will prime the
private sector economic pump. But if the pump is broken, the infusion will have
no more effect on stimulating our economy than would a jockey going to the whip
in order to stimulate a race horse with a broken leg. The only remedy is to fix
the leg first. Therefore, the best strategy for fixing our economic race horse
is to:
Eliminate the obstacles that inhibit
the hiring of US based private-sector employees.
The main
obstacles inhibiting demand for US based jobs include:
- The employer funded Safety Net Programs including healthcare and retirement
- The business costs to comply with federal and state regulations
- A perverse tax system that causes sub-optimized economic decisions
- Uncertainty over future regulations is inhibiting business start-ups and expansions
- An absence of a supply-increasing and price-stabilizing national energy policy
- An absence of a commerce-facilitating infrastructure-improvement plan
- An inconsistent supply of short-term debt for small businesses to finance operations
- A mismatch between labor skills needed and labor skills available.
There are
certainly other job expansion impediments but a concerted effort to minimize
these obstacles would produce an immediate, dramatic and sustainable
improvement in the US
labor market.
Safety Net:
America needs a safety net for the simple
reason that no one has yet devised a way for a regulated free-market capitalist
system to adequately ensure a minimum standard of living for all her citizens
all the time. But if we want to achieve our national objective we must stop
forcing our employers to pay for our safety net because doing so makes US based
jobs less competitive in a global economy. We therefore must adopt an
alternative safety net funding mechanism. --- But what should that be?
First, we
should categorize all federal expenditures into safety net costs and everything
else. By so doing, minimum wage would clearly fall under the safety net
category and by definition should NOT
be paid for by our employers. --- That would really change the minimum wage
debate - for the better.
To pay for
our safety net, I suggest a national retail sales tax appropriately called the
Safety Net Tax (SNT). The SNT would include a rebate to all US citizens for taxes paid up to
the poverty level. The first programs transferred to the SNT would include
Social Security and Medicare eliminating the need for the Payroll Tax.
Advantages of the SNT over the Payroll Tax include:
- US based labor costs would decline which would increase demand for US based labor
- The SNT Rebate would make the SNT more progressive than the Payroll Tax and help the poor
- Payroll Taxes are hidden in prices and passed along to customers. The SNT would reduce the prices of US goods and services and show the cost of government on every receipt.
Once the
SNT was established, and the minimum wage was considered part of the safety net
then minimum wage discussions would focus on how much the SNT would need to
increase in order to pay for a particular minimum wage increase. Ethereal
debates over price increases and job decreases would be replaced with Americans
discussing their desire to pay a definitive SNT rate increases.
With $17.4
trillion in debt, $63 trillion in unfunded liabilities and over $2 trillion of
job burden costs already foisted annually on our employers, the minimum wage is
but a fly on an elephant’s back. But nonetheless the topic helps to illustrate
the economic anchor we have chained to our collective neck. The $17.4 trillion
national debt would be best solved by following through with our job policy
goal and strategy. The $63 trillion in unfunded liabilities would be best
resolved by replacing pay-as-you-go funding with prefunding at birth for the
next and all subsequent senior entitlement generations. The $2 trillion in job
burden costs would be resolved by implementing the Safety Net Tax.
