Saturday, March 1, 2014

How Do We Get More Money in the Hands of the Poor?

A few people showed up at a Target job fair for a minimum wage job.
Is this an example of how free markets are supposed to work? Cool!

Since we can't count on the wealthy classes to just start handing money to the lower classes, there is only one way to get more money in the hands of the poor -- through government actions. Government does this by passing laws, which authorize agencies to collect money from certain sources and redistributing it to people or institutions that can benefit by it. Government can also mandate institutions or businesses to grant things of value to deserving people, like raising the minimum wage or requiring scholarships for the poor, regulating student loans, etc.

The tension in our society stems from at least two different places. One is simple greed. I've got it, and I don't want to give you any. Another is philosophical, such as honestly believing in free markets as a solution to wealth distribution. Naturally, greed is in and of itself a form of exploitation or manipulation or both. If you are greedy, you'll work the system so that you have more while limiting the accumulation of wealth by others. The instant you do something generous, you stop being greedy.

Honestly believing in free markets goes only so far before exploitation and manipulation stops those markets from being free. This is common in the American experience. So being philosophically in favor of free markets because you believe productivity and creativity thrive best in the absence of government interference may make some sense. But the lack of the interference has costs. A natural free-marketeer would want those costs to be paid by others so that one might profit by the trade. That's the essence of arbitrage: my position gains value, or why am I doing it?

Free marketeers like to think that all might prosper by this freedom in the marketplace, and that's a laudable instinct. But markets often aren't free just because the government might keep its distance. When the market for subprime loans got overheated and banks and brokers went a little crazy, part of that craziness was the imperfect flow of information. Since a broker might make a loan by not telling his customer that the terms of their subprime loan was not in that customer's best interests, telling that customer the truth is detrimental to  the broker's best interests. So the broker keeps his mouth shut. If enough banks and brokers act this way, the market can get broken pretty fast. A free marketeer who wins in this situation is called a success. The customers who get hosed in this transaction are people who deserve their fate because of "moral hazard." They are losers because they deserve to be.

We'd have to consider that transaction a free-market failure.

We don't live in a libertarian fairytale, a fact generally accepted by all, except politicians who can profit by maintaining the delusion that we do. The rich are the "job creators," which lets them off the hook for hoarding cash and becoming wealthy, either through greed or simple knowledge of how to use the system or just dumb luck. There is inheritance, as well.

The implications of what I just laid out is that markets will fail in their mission of offering access and success to all, a condition called "a rising tide lifts all boats," to which is rarely affixed "except when it doesn't." Except when it doesn't indeed.

This leads to income inequality and wealth inequality, which is exacerbated by limited social mobility, lack of opportunity for the poor and working class, and manipulated and exploited by those who know how, aided and abetted by a political class attached at the hip to the winners.

And thus the cycle goes.

How to stop this from cycling out of control -- as it has in recent decades in America -- is not easy and obvious. It was Matthew Yglesias' musing in Slate about burritos, fast food and low-skilled labor that made me think about this subject. Yglesias makes some interesting points. Burritos, for example, resist automation:
Long story short, the fast-casual burrito dining experience is a difficult automation challenge. But it’s also not a particularly high priority, because food service industry workers don’t cost much to hire. The robots are going to come after truck drivers, accountants, Internet writers, and other mid-skill workers before they hit the lower-skill sector.
That’s why even though total employment still remains slightly below its pre-recession peak, employment in food service establishments is 10 percent higher than it’s ever been. The Obama administration likes to tout a “manufacturing renaissance,” but the long-term trend toward the disappearance of factory work continues unabated.
If businesses can't save money through automation, and fast food takes more hands, then it's natural to pay the lowest amount of money for those hands. Yglesias doesn't go for the obvious solution:
The real trick is to raise living standards without raising the cost structure for working-class employment. By reducing the power of the doctors’ cartel, for example, we raise real wages for everyone who needs medical care. Serious patent reform—by which I mean granting many fewer patent monopolies if we grant any at all, not just tackling “trolls”—would have the same effect. We need to crack down on the broadband trusts, and stop showering money on the most exclusionary colleges in America.
All of which is to say that real wages and living standards have both a numerator and a denominator. The most sustainable way to tackle the problem of stagnating or falling working-class incomes is to work on the denominator—on the various regulatory privileges used by the wealthy and powerful to entrench their income and raise costs for everyone else. [...]
I say raise the minimum wage, as well; that's the numerator. But Yglesias is right. Raising wages, good in an of itself, carries downsides, such as inevitable job losses. Proponents says the costs are manageable. I agree. Shifting wages down from the CEOs to the grunts doesn't cost the companies a dime in profits. They only shift who get the benefits of those profits. Is that so hard to see?

Of course not. Which is why politicians look for ways to disguise their motives. They want to "reduce the deficit." That's code for not giving the needy as much money. Saying that benefits are a "hammock that lulls able-bodied people to lives of dependency..." is code for "the poor or unemployed don't deserve our money because of moral hazard."

I try to be nice when dealing with these "policy disagreements." Of course my unvarnished view is that we humans can be a greedy bunch of bastards and free markets are a most perfect arena for chicanery and abuse. In response to this reality we find our political class much more apt to forgive the immorality of the banksters than the moral hazard of the poor suckers who fell for their sales pitch. Caveat Emptor and all that shit, loser.

Richard Friedlander, a regular contributor to Perspecitves, a feature of KQED public radio in San Francisco agrees that we've got this all wrong:

Whenever we're in danger of thinking we've become civilized, something reminds us we're still predators and prey. Take the argument over the minimum wage. The federal standard is currently $7.25, less than $15,000 a year. For a family of four, the poverty level is $24,000. If 24 defines poverty, imagine life on 15. Russia abolished serfdom 150 years ago, when we abolished slavery. Yet today, in America, where one out of six live in poverty, the old philosophy of giving people just enough food to be worked to death persists. Where work is unskilled or semiskilled, there are always others ready -- if not willing -- to take their place.
Ten dollars an hour is not emancipation, just a higher level of deep poverty. But for even this crumb, business interests demand a cut in the food stamps that give people the strength to work jobs that don't pay them enough to eat.
This isn't just Social Darwinism. It's bad economics. Far from creating more unemployment or driving companies overseas, higher wages create consumers, the engine of economic growth. Since the poor use all their money to consume, their gains go right back into the economy. Better yet, from the employers' standpoint, the entire society will continue to bear the collateral damage resulting from the poor still being unable to afford comprehensive insurance, the education needed to get ahead, or a healthy diet.
Bad economics. Why we tolerate it is beyond me, or maybe not. Maybe I do understand that in our zero-sum-game universe many players might take a little less in profits for the joy of witnessing a higher level of pain the losers must endure. Maybe we could do a study of college students to see if, by turning up a knob, they feel a modicum of pain but another student feels an excruciating level of pain. Just how much pain can we tolerate, safe in the knowledge that somebody else is hurting considerably more? I would not be surprised one bit by the results of such a study.

Anyway, raise the damned minimum wage.

If I can stand it, they really get zapped. Cool!

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