California Free Press

Burrito Economics

by Robert Reich

Tuesday, June 15, 2021

House Republicans are blaming Democrats for the rise in Chipotle burrito prices.

You heard me right. The National Republican Congressional Committee issued a statement last week claiming that Chipotle’s recent decision to raise prices on their burritos and other menu products by about 4 percent was caused by Democrats.

“Democrats’ socialist stimulus bill caused a labor shortage and now burrito lovers everywhere are footing the bill,” according to NRCC spokesperson Mike Berg.

Republicans have finally found an issue to run on in the 2022 midterm elections. Apparently, Dr. Seuss and Mr. Potato Head weren’t getting enough traction.

The Republican’s tortured logic is that the unemployment benefits in the American Survival Act have caused workers to stay home rather than seek employment, resulting in labor shortages that have forced employers like Chipotle to increase wages, which has required them to raise their prices.

Hence, Chipotle’s more expensive burrito.

This isn’t just loony economics. It’s dangerously loony economics because it might be believed, leading to all sorts to stupid public policies.

Start with the notion that $300 per week in federal unemployment benefits is keeping Americans from working.

Since fewer than 30 percent of jobless workers qualify for state unemployment benefits, the claim is that legions of workers have chosen to become couch potatoes and collect $15,000 a year rather than get a job.

I challenge one Republican lawmaker to live on $15,000 a year.

In fact, evidence suggests that workers are holding back from reentering the job market because they don’t have childcare or are still concerned about their health during the pandemic.

Besides, if employers want additional workers, they can do what they necessarily do for anything they want more of but can’t obtain at its current price – pay more.

It’s called capitalism. Republicans should bone up on it.

When Chipotle wanted to attract more workers, it raised its average wage to $15 an hour. That comes to around $30,000 a year per worker – still too little to live on but double the federal unemployment benefit.

Oh, and there’s no reason to suppose this wage hike forced Chipotle to raise the prices of its borritos. The company had other options.  

Chipotle’s executives are among the best paid in America. Its CEO, Brian Niccol, raked in $38 million last year– which happens to be 2,898 times more than the typical Chipotle employee earned. All of Chipotle’s top executives got whopping pay increases.

So it would have been possible for Chipotle to avoid raising its burrito prices by – dare I say? – paying its executives less. But Chipotle decided otherwise.

By the way, I keep hearing Republican lawmakers say the GOP is the “party of the working class.” If that’s so, the Republican Party ought to celebrate when hourly workers get a raise instead of howling about it.

Everyone ought to celebrate when those at the bottom get higher wages.

The typical American worker hasn’t had a real raise in four decades. Income inequality is out of control. Wealth inequality is into the stratosphere (where Jeff Bezos is heading, apparently).

If wages at the bottom rise because employers need to pay more to get the workers they need, that’s not a problem. It’s a victory.

Instead of complaining about a so-called “labor shortage,” Republicans ought to be complaining about the shortage of jobs paying a living wage.

But don’t hold your breath, or your guacamole.

Off the Top of My Head

The Stock Market is Too Big to Fail

by John Lawrence, April 2, 2021

Just as the big Wall Street banks are too big to fail, so now is the stock market. The stock market will never take another radical dive downward because the Federal Reserve won't let it. The way the economy is shaping up Treasury bonds, which hardly pay any interest, are just a safe place to store your money and also for foreign nations which need the world's reserve currency (the US dollar) to have a savings account because they need dollars to conduct business. There is no worry that the US will have to pay off the trillion dollars in Treasuries that China owns because they need those dollars to do business with the US and other nations. If they did want to dump all their Treasuries for some reason the Fed could just create the money to pay them and effectively take the Treasuries on its own balance sheet.

So the stock market is the only game in town for those who want to actually "invest" their money. There is so much 401(k) money in the stock market that that is reason enough to never let it fail. Instead it will continue on its merry way upward while the Fed keeps interest rates at approximately zero so that not much in the way of interest will have to be paid on US debt. There is no reason to fear that Joe Biden's $2 trillion infrastructure plan will bankrupt the US. Since the US dollar is a sovereign currency, the Fed can print as much money as it wants. If international investors don't want to buy this debt, it ends up on the Fed's balance sheet which is an effective black hole from which it never has to emerge.

Then why is there all this kibuki theater about "how to pay for it," the $2 trillion infrastructure plan I mean. It's just that most Americans including most Congressmen are under the illusion that a country with a sovereign currency like the US faces any constraints in paying for anything. Well, there is one constraint - inflation. This is probably of little concern as long as the money is targeted at the lower middle class an the poor which haven't seen wages rise in 40 years. The real inflation in the economy is the asset inflation that the rich are mostly responsible for. That includes the stock market and real estate. Inflation in the stock market will be carefully controlled by the Fed. We've seen that the stock market moved up even during the pandemic. The real problem is inflation in the real estate market which has made housing unaffordable for many. It continues to get worse as the extra dollars the wealthy have to invest are driving up prices. That's why it makes sense to tax the rich ostensibly to pay for the infrastructure bill. The real reason, however, is that inequality is getting out of hand in the American and the world economy. Taxing the rich is the only effective means to reduce inequality to a reasonable level. It will also help to bring inflation in the real estate market under control.

The real problem that Biden's infrastructure bill will have to deal with is changing the nature of the US economy. When the economy was in full employment under Trump, there were still 4% unemployed. 5% unemployment is considered "full employment," but that still leaves about 15 million people out of work. Biden's infrastructure plan will put those 5% back to work. It had been considered by conservative neoliberal economists that 5% unemployment was necessary to ward off inflation, but that theory has been debunked by Modern Monetary Theory. While inflation will still be a concern with all of Biden's stimulus spending, the main concern is restructuring the US economy from an entertainment economy to a constructive labor economy. Trump's economy was arguably a full employment economy (except for the 4% unemployed), but it was an economy the jobs of which were mainly in the entertainment and military industries. In other words, in my opinion, it was an economy based on false unbeneficial values. An economy based on labor participation rebuilding American infrastructure will be an economy based on necessary and fundamentally beneficial values. This might mean that some of those presently employed in frivolous industries might be incentivized to change jobs. Reducing the entertainment and military sectors while increasing those employed rebuilding infrastructure would be, in my opinion, be a good thing.

 

Off the Top of My Head

How the World Could Change When the Current Crisis is Over

by John Lawrence, April 26, 2020

Perhaps we will rethink what is essential and what is inessential. Here's my list of what is essential: 1) Health care; 2) Food; 3) Water; 4) Sanitation (Waste water and trash collection); 5) Education; 6) Transportation; 7) Electricity; 8) The Internet; 9) Grocery stores. 10) Elder care.11) Police, Fire and Paramedic services. Here are some things that are considered inessential now: 1) Spectator sports; 2) Spectator music events; 3) Parades; 4) Conventions; 5) Bars; 6) Restaurants; 7) Barber and beauty parlors; 8) Tattoo parlors; 9) Political campaign events; 10) Large parties like wedding receptions.

Everyone can come up with their own list of what they consider to be essential and what they consider to be inessential. In my opinion the least essential of inessential services are tattoo artists. There are a lot of products and services in our mass consumer culture which are also frivolous and have nothing to do with what is essential or beneficial to human well being.. It seems that the most essential workers are the least paid while the least essential are well paid indeed. Is advertising really essential? You can look up everything you might want or need online using google or amazon. Why do you have to have some irrelevant product or service pounded into you by TV advertising? It's a historical relic. I record most programs so that I can fast forward through the commercials. If I watch a live program, I put it on pause while I do something else for awhile, and then I fast forward through the commercials. In my opinion everything advertised on TV, especially pharmaceuticals, is inessential. They should be prescribed by a doctor. It's the doctor's business to know which pharmaceuticals you need, not yours.

Are hedge funds essential? Is jewelry essential? Are the products of the wedding-industrial complex essential? Many people are having weddings during the pandemic without paying the tens of thousands of dollars that current weddings fashioned by the wedding-industrial complex demand. There are many frivolous consumer items which advertising insists that people need that they don't really need, that are completely inessential. Some are nice to have, but inessential, and some are downright destructive to peoples' health and welfare.

The most essential activity at this time in history is saving the planet from global warming. Production of renewable energy alternatives is absolutely essential. The provision of green infrastructure is absolutely essential. Fossil fuels need to be left in the ground. Getting rid of plastics which pollute the oceans and other waste products that aren't biodegradable is absolutely essential. Rethinking payscales for essential workers like agricultural workers and grocery store workers is essential. If these are the most essential workers, they should be paid more. The same goes for doctors, nurses, certified nursing assistants, the CNAs who do most of the caregiving at nursing homes. CNAs make little more than minimum wage and yet they are exposed to the coronavirus. What this means is that so much that is really essential now is either being ignored or very little money is being allocated to it while huge amounts of money are being allocated to fruitless and frivolous activities.

The most fruitless activity is war and the provoking of war. The trillion dollar annual budget of the military-industrial complex has been shown to be fruitless and meaningless when the real war is against a virus. Unhealthy conditions in poverty stricken areas of the world including refugee camps can breed disease which affects the whole world including "privileged" people in the more advanced nations. Poverty and disease need to be eradicated in all parts of the world. The military cannot do that. Oh, they can be repurposed a little bit to help out with a pandemic, but they can not really do the job that needs to be done. In particular they are vulnerable to the pandemic themselves and all of the weapons of war cannot protect them. The real war needs to be against poverty and disease which are the breeders of war and pandemics. The real war needs to be against global warming. The real essential workers are construction workers who need to be constructing advanced green infrastructure.

What is clear is that real essential workers need to be paid more which argues for a lessening of economic inequality. So much of the wealth is held by people who are absolutely inessential to the health, welfare and betterment of people all around the world. A Green New Deal needs to be prioritized. Wealth needs to be taxed to pay for it. New York state needs to tax Wall Street to make up for its budget deficit. Priorities, priorities. The helping professionals and care workers need to be given more respect and money. Taxing inessential workers like hedge fund managers is what needs to pay for it.

Off the Top of My Head

Explainer: Quantitative Easing for the People

by John Lawrence, April 19, 2020

Let's say a Wall Street bank has a mortgage that's been defaulted on. That qualifies as a "toxic asset" meaning the guy isn't paying his mortgage. The bank then pleads with the Federal Reserve to take it off its hands because the bank is running low on money that it thought would be coming in if the guy had made his monthly payments. So the Fed adds "liquidity" by saying to the bank, "Give me that mortgage. I will take it off your hands and pay you the full value of the amount borrowed, and then I will be the mortgage holder for the "toxic asset." So the bank is made whole, and the Fed is now the holder of the toxic mortgage. The Fed has "taken it on its balance sheet" and taken it off the balance sheet of the Wall Street bank. This is what happened during the Great Recession of 2008. It's what Quantitative Easing is all about. Theoretically, some day the Fed will sell this mortgage in the marketplace, but who wants to buy a mortgage that no one is paying either interest or principal on especially if the mortgagee is long gone. Instead the toxic asset disappears in what amounts to the Fed's black hole.

Although the Fed will do this for a bank especially for those banks that are too big too fail, they will not do this for Joe Blow. Joe blow, for instance, may have a toxic asset of $30,000 in credit card debt or $100,000 in student loan debt. Why couldn't Joe Blow approach the Federal Reserve and say please will you take this toxic asset off my hands? That would mean adding "liquidity" to Joe Blow's bank account by taking the credit card debt or student loan debt onto the Fed's balance sheet and paying off Joe's creditors. This would make the Fed Joe's creditor. Perhaps some day, when Joe is better off, the Fed might be able to move Joe's debt off its balance sheet and put it back on Joe's account. At least theoretically that could happen.

What is happening today with the coronavirus relief package and the stimulus checks is a variation on QE which amounts to QE for the people. Where is all the money coming from you say? Will it just be added to the deficit and the national debt, God forbid? Right now interest on the national debt is $479 billion. The more money the nation borrows, the more interest on the debt crowds out other items in the Federal budget like social security, Medicare and the military. But there is a neat little trick that is played between the Treasury department which issues the bonds that comprise national debt and the Federal reserve which has the aforementioned capacity to make debts disappear down a black hole.

Those toxic assets that the Fed took off of banks' balance sheets? Some of them were Treasury bonds. Now more than ever the Fed will be taking Treasury bonds off the big banks balance sheet for two reasons: 1) they can't be all sold in the open market because there are no buyers and 2) the US taxpayers will not have to pay interest on these bonds because although the government pays interest to the Fed on these bonds all profits the Fed makes are returned to the Treasury after deducting minimal expenses at the end of the year. So one hand really does wash the other or, if you prefer, the Federal government is playing a shill game with the Federal Reserve. The Federal Reserve monetizes the debt which is the same as saying that it disappears down a black hole on the Fed's balance sheet. The middleman in this whole operation is Wall Street since the Fed by law cannot buy Treasury bonds directly from the Treasury Department. So by monetizing the debt, the Fed is doing two things: 1) it is taking the pressure off of interest paid in the Federal budget and 2) it is guaranteeing that the Federal government will have whatever amount of money it needs to pay its bills without having to increase taxes.

Now this is good news for pandemic relief. Deficit hawks are muted because they know how this shill game is played, and it's no skin off their backs. The Fed essentially prints money (although it's doe with a couple of keystrokes on a computer) and bails out the whole economy. There is no inflation since unions which drove up the price of labor were essentially muted during the Reagan administration which saw most manufacturing jobs transferred to China. So then Fed can print away giving everyone a taste of a Universal Basic Income (UBI). (See Ellen Brown's accompanying article.) Since the cat is out of the bag there is no reason why this same game couldn't be played to relieve American consumers of student loan debt and credit card debt although you can get rid of credit card debt in bankruptcy. Not so for student loan debt.

Also money for infrastructure could be obtained this same way by having the Fed monetize the debt. This would create good union jobs according to Bernie Sanders. But this is exactly what the bond market and the Fed doesn't want - good union jobs - because that would create wage inflation. When wages go up prices go up, and the bond market would not be pleased because inflation eats up the yields on their bonds. What the Fed and the monied interest want is an economy in which workers are deeply indebted because that means a ton of interest going to the banks which are totally in cahoots with the privately owned Fed. If your a worker, the Fed is not really your friend. They are the banker's friend. The Fed was set up in the first place to bail out banks not American consumers. Now it is giving American consumers a taste of a bail out because the coronavirus presents a unique situation with everybody being out of work. When things get back to normal, the Fed will go back to just bailing out banks, and relieving pressure on the national debt.

A Bold New Idea to Boost Wages

by Robert Reich

Sunday, March 3, 2019

The challenges are well known: Working Americans are struggling to keep up with the increasing cost of living. Unemployment is low, but wages of most Americans have remained flat. More than three-quarters of Americans are now living paycheck to paycheck. Most can’t afford a $500 emergency.

There’s a simple and bold solution that would cost about as much as the Trump tax cut. But instead of helping corporations and the rich, it would help millions of working and middle-class Americans by putting money directly in their pockets.

I’m talking about expanding something called the Earned Income Tax Credit, or EITC. And although it’s been around for decades, it can be the basis of a revolutionary change in the lives of millions of people. 

As it now stands, the EITC gives thousands of dollars to the working poor, with the amount of money they receive gradually decreasing as their earnings rise until they reach a cap, which is now a little over $50,000.

It works so well because it directly boosts the incomes of people who need it the most. Cash gives people freedom and dignity— the power to decide, for example, whether to have their car repaired or buy new shoes for their kids or save for a rainy day. 

When working people have money to spend, they spend most of it in the communities they live in. This, in turn, causes businesses to hire more people to meet the demand. It’s a virtuous cycle that lessens poverty, makes the tax code fairer, and boosts the overall economy.

A bold new idea would be to expand this successful program in 4 simple ways:

First: Raise the maximum amount that very poor Americans receive from the Earned Income Tax Credit by several thousand dollars. This would dramatically reduce poverty in all families with someone who works full time. Right now, a job at a $15 minimum wage plus Medicaid and food stamps still doesn’t meet basic needs in much of America. Raising the Earned Income Tax Credit would ensure that every family with a full-time worker is out of poverty.

Second: Extend the Earned Income Tax Credit into the middle class, so even families earning the median family income – which was just about $76,000 in 2017 – will benefit. This would be a huge help to working-class families, many of whom are now one paycheck away from poverty.

Third: Expand the benefits of the Earned Income Tax Credit to two groups of Americans who are working hard, but not necessarily collecting paychecks: people (most of whom are women) who are caring for a child or for a senior in their family, and low-income students.

Fourth: Let people receive this money each month rather than in a lump-sum once a year at tax time, so it helps with monthly expenses – rent, food, education – or can be saved to build a financial cushion.

Presto. We create a kind of cost-of-living refund to lift the incomes of a third of Americans, the people who need it most, and we also include the working class and lower middle class. 

At the same time, we begin to rewrite the tax code in favor of ordinary Americans, instead of large corporations and the wealthy. 

Eighty-three percent of the benefits of the Trump tax cuts will go to the top 1 percent of Americans by 2027. Expanding and modernizing the Earned Income Tax Credit can help put things back in balance.

It’s simple. It’s fair. It’s necessary. It’s big and bold. Enlarge and expand the Earned Income Tax Credit.  

For Minimum Decency, A Maximum Wage

Published on Monday, June 04, 2018 by Inequality.org

Amid rising inequality, a new book argues, the notion of capping income has suddenly become politically plausible.

by Sam Pizzigati

 

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"Income and wealth have concentrated to a degree unimaginable in the early 1990s."(Photo: Steve Rhodes/flickr/cc)

In the United States today, a just-released Federal Reserve report informs us, over a fifth of the nation’s families simply cannot afford to “pay all of their current month’s bills in full.”

Over a quarter of families, the report goes on, skip “necessary medical care” because they can’t afford the cost. And an even greater share — 40 percent — wouldn’t be able to cover an unexpected expense of $400 without having to borrow cash or sell something they own.

In other words, many millions of American households have essentially almost nothing in the way of savings. And not much in the way of income either. Two out of every five Americans, the new Federal Reserve study details, have annual household incomes less than $40,000.

Meanwhile, at the other end of America’s economic spectrum, we have households raking in much more than $40,000 every day. Half the CEOs at America’s 200 biggest corporations now make over $336,538 per week, according to a review of 2017 corporate compensation that Equilar, a pay consulting firm, has just completed for the New York Times.

These top execs and their fellow wealthy can afford to handle any personal emergency life may throw their way. More importantly, they can also afford to buy a level of political influence that turns their needs — and their needs alone — into national priorities.

The end result? We find ourselves in a United States where nearly half the nation lives at the edge of economic disaster while government wallows in a “gridlock” that magically vanishes only when lawmakers have a chance to enrich the already rich.

So what do we do about all this? Maybe we need to start thinking more boldly about solutions to our ever-widening economic divide. One such solution: a maximum wage.

I started writing about the idea of a “maximum wage” — a cap on how much richer an already rich person can become over the course of a year — over a quarter-century ago. Back then, few people took the idea of a capping income seriously because serious people just weren’t talking about income caps, not anywhere in the world.

But that’s changed. Today we can point to places all around the world where the idea of a cap on income has become a matter of serious political discussion, as I relate in my new book, The Case for a Maximum Wage.

In France, a progressive candidate in the first round of the 2017 presidential election, Jean-Luc Mélenchon, campaigned on a platform that included a call for a maximum wage. Mélenchon finished just 4 percentage points behind that election’s eventual winner.

In the UK, the leader of the British Labour Party, Jeremy Corbyn, muses openly about moving his nation toward a maximum wage. In South Africa, polling just conducted by a business group found 53 percent of that nation’s public supporting a maximum wage for corporate execs and only 18 percent opposing.

We now have serious people, even in the United States, talking capping income. This past March, the deputy chair of the Democratic National Committee, Rep. Keith Ellison, told the Congressional Progressive Caucus that America needs to consider enacting a maximum wage.

'Can't Survive on $7.25': On Labor Day, Nationwide Calls for $15 Minimum Wage

Published on Monday, September 04, 2017 by Common Dreams

"Rampant racism. Wage cuts. Attacks on unions. It's time to fight back."

by Jake Johnson, staff writer

 

 

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"We're up before the sun to say, we're not going to take it any more," declared the Iowa Citizens for Community Improvement, which rallied workers outside of a Burger King. (Photo: Stand Up KC/Twitter)

Marches are taking place in hundreds of cities throughout the United States on Monday to celebrate the achievements of organized labor, call attention to President Donald Trump's war on workers, and demand a living wage and a union.

 "Rampant racism. Wage cuts. Attacks on unions. It's time to fight back," declared Fight for $15 ahead of Labor Day.

Workers in America's major cities are doing just that.

Fast-food workers in Boston, Pittsburgh, St. Louis, and Chicago are walking off the job to call attention to the industry's starvation wages. Hoisting signs that read "Can't Survive on $7.25" and chanting "This is what democracy looks like," thousands took to the streets early Monday morning to demand economic justice.

"We're up before the sun to say, we're not going to take it any more," said the Iowa Citizens for Community Improvement, which rallied workers outside of a local Burger King.

Pointing to the Missouri GOP's success in capping the statewide minimum wage at $7.70—which had the effect of overturning wage increases in St. Louis and Kansas City—Bettie Douglas, a mother of two who has worked at McDonald's for a decade, wrote Monday: "What corporations and politicians are doing to me and other working people in St. Louis is obscene. But we refuse to take it lying down."

"Instead, we are taking to the streets—and we will be louder than ever," Douglas continued. "Today—Labor Day—you'll be able to see us out on the strike lines in St. Louis and hundreds of cities across the country demanding $15 an hour and union rights."

Antwan Williams, a McDonald's worker and Fight for $15 organizer, wrote in an email to supporters that the national Fight for $15 is teaming up with unions throughout the country and placing its energy, resources, and power into defeating politicians who use "their power to help corporations and billionaires at the expense of the rest of us."

"Thousands of people are rallying today to kick off this fight," Williams concluded. "We can stop them."

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Republicans in the Senate Vote Not to Raise Minimum Wage

by John Lawrence from the San Diego Free Press

A report by Demos revealed that, in 2012, the compensation of fast food CEOs was more than 1,200 times the earnings of the average fast food worker. Proxy disclosures recently released by fast food companies reveal that the ratio remained above 1,000-to-1 in 2013. Raising the minimum wage would do more to reduce inequality in the US than just about any other measure that could be taken.

But Republicans in the Senate voted down a Federal increase in the minimum wage. What else did we expect? As long as they have the veto, nothing will pass the Senate that benefits the middle class or the poor.

Thomas Piketty's book Capitalism in the 21st Century is the top seller on Amazon.com. He is drawing attention to the fact that the very rich have incomes hundreds of times greater than average workers.

Piketty wrote the following in his book concerning the minimum wage:

"In the United States, a federal minimum wage was introduced in 1933, nearly twenty years earlier than in France. As in France, changes in the minimum wage played an important role in the evolution of wage inequalities in the United States. It is striking to learn that in terms of purchasing power, the minimum wage reached its maximum level nearly half a century ago, in 1969, at $1.60 an hour (or $10.10 in 2013 dollars, taking account of inflation between 1968 and 2013), at a time when the unemployment rate was below 4 percent. From 1980 to 1990, under the presidents Ronald Reagan and George H. W. Bush, the federal minimum wage remained stuck at $3.35, which led to a significant decrease in purchasing power when inflation is factored in. It then rose to $5.25 under Bill Clinton in the 1990s and was frozen at that level under George W. Bush before being increased several times by Barack Obama after 2008. At the beginning of 2013 it stood at $7.25 an hour, or barely 6 euros, which is a third below the French minimum wage, the opposite of the situation that obtained in the early 1980s.

...

"Inequalities at the bottom of the US wage distribution have closely followed the evolution of the minimum wage: the gap between the bottom 10 percent of the wage distribution and the overall average wage widened significantly in the 1980s, then narrowed in the 1990s, and finally increased again in the 2000s. Nevertheless, the inequalities at the top of the distribution - for example, the share of total wages going to the top 10 percent - increased steadily throughout this period. Clearly, the minimum wage has an impact at the bottom of the distribution but much less influence at the top, where other forces are at work.

...

"Various studies carried out in the United States between 1980 and 2000 ... showed that the US minimum wage had fallen to a level so low in that period that it could be raised without loss of employment, indeed at times with an increase of employment ...On the basis of these studies, it seems likely that the increase in the minimum wage of nearly 25 percent (from $7.25 to $9 an hour) currently envisaged by the Obama administration will have little or no effect on the number of jobs."

President Obama will unilaterally increase the minimum wage for workers under new federal contracts to $10.10 an hour. He is now proposing a raise to $10.10 for all workers. Two of the nation’s largest private employers, Wal-Mart Stores and McDonald’s, have taken heat for paying many of their workers so little that they need government benefits and charity to get by.

In March, McDonald’s workers in California, Michigan and New York filed lawsuits against the company and several franchise owners, asserting that they illegally underpaid employees by erasing hours from their timecards, not paying overtime and ordering them to work off the clock. One of the tricks pulled by franchise owners was to order workers to show up for work and then told them to wait around (off the time clock) for enough customers to show up.

Piketty has amassed a huge ensemble of historical data to bolster his conclusions: over three centuries of data from 20 countries. His book shows that starting in 1980, under Republican Presidents Ronald Reagan and the two Bushes, income skyrocked for the upper 1% while remaining stagnant for the 99% and especially the lower 10% because the minimum wage did not even keep up with inflation.

People of conscience need to keep up the fight for the minimum wage right through the next election. While Republicans in the House vote time and again to repeal Obamacare which hasn't a chance as long as Obama is President, the Democrats under Harry Reid in the Senate need to vote time and again to raise the minimum wage even though there's not a prayer as long as the Republicans can veto it. However, it keeps the issue front and center before the American people. Maybe some day the logjam will break. Meanwhile cities and states need to take the lead in raising the minimum wage.

The “Paid-What-You’re-Worth” Myth

by Robert Reich

Thursday, March 13, 2014                

It’s often assumed that people are paid what they’re worth. According to this logic, minimum wage workers aren’t worth more than the $7.25 an hour they now receive. If they were worth more, they’d earn more. Any attempt to force employers to pay them more will only kill jobs. 

According to this same logic, CEOs of big companies are worth their giant compensation packages, now averaging 300 times pay of the typical American worker. They must be worth it or they wouldn’t be paid this much. Any attempt to limit their pay is fruitless because their pay will only take some other form. 

"Paid-what-you’re-worth" is a dangerous myth.  

Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today’s dollars. Today, America’s largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour. 

Does this mean the typical GM employee a half-century ago was worth four times what today’s typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasn’t much better educated or even that much more productive. He often hadn’t graduated from high school. And he worked on a slow-moving assembly line. Today’s Walmart worker is surrounded by digital gadgets — mobile inventory controls, instant checkout devices, retail search engines — making him or her quite productive. 

The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they’d be unionized if they didn’t come close to matching the union contracts.

Today’s Walmart workers don’t have a union to negotiate a better deal. They’re on their own. And because fewer than 7 percent of today’s private-sector workers are unionized, non-union employers across America don’t have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom. 

By the same token, today’s CEOs don’t rake in 300 times the pay of average workers because they’re “worth” it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards don’t want to be seen by investors as having hired a “second-string” CEO who’s paid less than the CEOs of their major competitors. Either way, the result has been a race to the top. 

If you still believe people are paid what they’re worth, take a look at Wall Street bonuses. Last year’s average bonus was up 15 percent over the year before, to more than $164,000. It was the largest average Wall Street bonus since the 2008 financial crisis and the third highest on record, according to New York’s state comptroller. Remember, we’re talking bonuses, above and beyond salaries.

All told, the Street paid out a whopping $26.7 billion in bonuses last year. 

Are Wall Street bankers really worth it? Not if you figure in the hidden subsidy flowing to the big Wall Street banks that ever since the bailout of 2008 have been considered too big to fail. 

People who park their savings in these banks accept a lower interest rate on deposits or loans than they require from America’s smaller banks. That’s because smaller banks are riskier places to park money. Unlike the big banks, the smaller ones won’t be bailed out if they get into trouble.

This hidden subsidy gives Wall Street banks a competitive advantage over the smaller banks, which means Wall Street makes more money. And as their profits grow, the big banks keep getting bigger. 

How large is this hidden subsidy? Two researchers, Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz, have calculated it’s about eight tenths of a percentage point. 

This may not sound like much but multiply it by the total amount of money parked in the ten biggest Wall Street banks and you get a huge amount — roughly $83 billion a year.  

Recall that the Street paid out $26.7 billion in bonuses last year. You don’t have to be a rocket scientist or even a Wall Street banker to see that the hidden subsidy the Wall Street banks enjoy because they’re  too big to fail is about three times what Wall Street paid out in bonuses.

Without the subsidy, no bonus pool. 

By the way, the lion’s share of that subsidy ($64 billion a year) goes to the top five banks — JPMorgan, Bank of America, Citigroup, Wells Fargo. and Goldman Sachs. This amount just about equals these banks’ typical annual profits. In other words, take away the subsidy and not only does the bonus pool disappear, but so do all the profits.  

The reason Wall Street bankers got fat paychecks plus a total of $26.7 billion in bonuses last year wasn’t because they worked so much harder or were so much more clever or insightful than most other Americans. They cleaned up because they happen to work in institutions — big Wall Street banks — that hold a privileged place in the American political economy. 

And why, exactly, do these institutions continue to have such privileges? Why hasn’t Congress used the antitrust laws to cut them down to size so they’re not too big to fail, or at least taxed away their hidden subsidy (which, after all, results from their taxpayer-financed bailout)? 

Perhaps it’s because Wall Street also accounts for a large proportion of campaign donations to major candidates for Congress and the presidency of both parties. 

America’s low-wage workers don’t have privileged positions. They work very hard — many holding down two or more jobs. But they can’t afford to make major campaign contributions and they have no political clout. 

According to the Institute for Policy Studies, the $26.7 billion of bonuses Wall Street banks paid out last year would be enough to more than double the pay of every one of America’s 1,085,000 full-time minimum wage workers. 

The remainder of the $83 billion of hidden subsidy going to those same banks would almost be enough to double what the government now provides low-wage workers in the form of wage subsidies under the Earned Income Tax Credit.

But I don’t expect Congress to make these sorts of adjustments any time soon. 

The “paid-what-your-worth” argument is fundamentally misleading because it ignores power, overlooks institutions, and disregards politics. As such, it lures the unsuspecting into thinking nothing whatever should be done to change what people are paid, because nothing can be done. 

Don’t buy it. 

A Decade of Flat Wages: The Key Barrier to Shared Prosperity and a Rising Middle Class

By Lawrence Mishel and Heidi Shierholz | August 21, 2013

Briefing Paper #365

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The nation’s economic discourse has finally shifted from talk of “grand bargain” budget deals to a focus on addressing the economic challenges of the middle class and those aspiring to join the middle class. Growing the economy from the “middle out” has become the new frame for discussing economic policy. This is long overdue; in our view, an economy that does not provide shared prosperity is, by definition, a poorly performing one. Further, such an economy will not provide sustainable growth without relying on consumption fueled by asset bubbles and escalating household debt. The collapse of the housing bubble and the ensuing Great Recession have laid bare the consequences of this model of unbalanced growth.

The revived discussion of strengthening the middle class, however, has so far failed to drill down to the central problem: The wage and benefit growth of the vast majority, including white-collar and blue-collar workers and those with and without a college degree, has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households. The wage-setting mechanism has been broken for a generation but has particularly faltered in the last 10 years, once the robust wage growth of the late 1990s subsided. Corporate profits, on the other hand, are at historic highs. Income growth has been captured by those in the top 1 percent, driven by high profitability and by the tremendous wage growth among executives and in the finance sector (for more on wage and income growth among the top 1 percent, see Bivens and Mishel 2013).

President Obama’s July 24 speech in Galesburg, Ill., marking the kickoff of the White House’s “A Better Bargain for the Middle Class” initiative, illustrates both the best of this recent focus on the middle class and the failure to adequately acknowledge and address the economy’s failure to broadly raise wages. The president appropriately looked back in time, noting:

In the period after World War II, a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain—a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids.

And he correctly identified what broke down:

But over time, that engine began to stall. That bargain began to fray. . . . The link between higher productivity and people’s wages and salaries was severed—the income of the top 1 percent nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.

However, when it came to strengthening the middle class, the president was too optimistic. Aside from advocating an increase in the minimum wage, the president overlooked what it will take to solve the wage problem, saying:

With new American revolutions in energy, technology, manufacturing, and health care, we are actually poised to reverse the forces that have battered the middle class for so long, and rebuild an economy where everyone who works hard can get ahead.

Innovations in energy, technology, manufacturing, and health care are undoubtedly important. However, in and of themselves, they will not reestablish the broad-based wage growth and improved job quality needed to generate and sustain middle-class income growth. Nor will they, on their own, permit access to a rising middle class for those now left behind.

EPI’s The State of Working America, 12th Edition (Mishel et al. 2012) provides a comprehensive assessment of recent decades’ wage and benefits trends and an extensive analysis of the causes of wage stagnation and wage inequality. In this paper we document the economy’s continuing failure to provide real wage gains for most workers. We track wage trends (and, where possible, compensation trends, which include not just wages but also fringe benefits such as health care and pensions) using both employer-based and household-based survey data. We focus primarily on trends since 2007, the year the Great Recession began. We generally examine year-over-year trends using calendar years, though to assess the most recent trends we also include year-over-year trends using just the first half of each year. We also discuss these trends in the context of patterns since 2000, as the 2000–2007 business cycle—and especially the recovery years of that business cycle, 2002–2007—were characterized by dismal wage growth. In some cases we provide data going back to 1979, as most workers have experienced weak wage growth for more than three decades.

This paper’s key findings include:

• According to every major data source, the vast majority of U.S. workers—including white-collar and blue-collar workers and those with and without a college degree—have endured more than a decade of wage stagnation. Wage growth has significantly underperformed productivity growth regardless of occupation, gender, race/ethnicity, or education level.
• During the Great Recession and its aftermath (i.e., between 2007 and 2012), wages fell for the entire bottom 70 percent of the wage distribution, despite productivity growth of 7.7 percent.
• Weak wage growth predates the Great Recession. Between 2000 and 2007, the median worker saw wage growth of just 2.6 percent, despite productivity growth of 16.0 percent, while the 20th percentile worker saw wage growth of just 1.0 percent and the 80th percentile worker saw wage growth of just 4.6 percent.
• The weak wage growth over 2000–2007, combined with the wage losses for most workers from 2007 to 2012, mean that between 2000 and 2012, wages were flat or declined for the entire bottom 60 percent of the wage distribution (despite productivity growing by nearly 25 percent over this period).
• Wage growth in the very early part of the 2000–2012 period, between 2000 and 2002, was still being bolstered by momentum from the strong wage growth of the late 1990s. Between 2002 and 2012, wages were stagnant or declined for the entire bottom 70 percent of the wage distribution. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.
• This lost decade for wages comes on the heels of decades of inadequate wage growth. For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5.0 percent between 1979 and 2012, despite productivity growth of 74.5 percent—while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent.

Trends in average hourly wages and compensation in employer-based surveys

We first look at wage and compensation trends using data drawn from the available surveys of employers, sometimes referred to as establishment data. All of the establishment-based series that provide up-to-date national measures of wage and/or compensation trends are presented in Table 1.

It should be noted that the wage and compensation data in this table are averages, which are all that are available in the establishment data. Averages can be misleading when data are heavily “skewed” at one end. This happens to be the case for U.S. wages and compensation; those at the top have extremely high earnings, thereby pulling up the average. Thus, the average is actually not an accurate measure of the typical worker’s earnings. Later, when we turn to an examination of household data, we are able to look at medians, which are a direct measure of the earnings of the typical worker (i.e., the person in the middle of the distribution). The data demonstrate, however, that across all of the available establishment-based measures, even average wages and compensation have grown anemically, if at all, for more than a decade.

A Diabolical Mix: U.S. Wages and European Austerity

by Robert Reich

Wednesday, May 30, 2012

What if Europe and the US converged on a set of economic policies that brought out the worst in both – European fiscal austerity combined with a declining share of total income going to workers? Given political realities on both sides of the Atlantic, it is entirely possible.

So far, the US has avoided the kind of budget cuts that have pushed much of Europe into recession. Growth on this side of the pond is expected to be around 2.4 per cent this year. And jobs are recovering, albeit painfully slowly.

But a tough bout of fiscal austerity could be coming in six months. The non-partisan Congressional Budget Office warned last week that if the Bush tax cuts expire on schedule at the start of 2013, just as $100bn of budget cuts automatically take effect under the deal to raise the debt ceiling that Democrats and Republicans agreed to last August, the US will fall into recession in the first half of next year.

Even if these measures were to reduce the cumulative public debt, a recession would increase the debt as a proportion of gross domestic product – making a bad situation worse. That is the austerity trap much of Europe now finds itself in.

Meanwhile, real wages in the US continue to fall. A new “World Outlook” released by the International Monetary Fund last Friday showed that in the three years since the depths of the downturn in 2009, total national income has rebounded in most of Europe and in the US. But the share of national income going to workers has fallen sharply in the US, while rising in Europe as a whole.

The trend is even more striking measured from the start of the recession. It used to be that when a downturn began, profits fell faster than workers’ income because companies were reluctant to lay off employees and couldn’t easily cut wages given union contracts or the threat of unionization.

That is still the case in Europe, courtesy of stronger unions and labor-market regulations. But it is no longer the rule in the US. Since the start of the recession, the share of total US national income going to profits has risen even as the share going to the workforce has plunged. Profits in the US corporate sector are now at a 45-year high.

American workers have been willing to settle for lower wages in order to retain their old jobs or secure new ones. At the same time, US companies, intent on increasing profits, have more aggressively outsourced abroad, substituted contract workers and temps for full-time employees and replaced workers with computers and software.

The workforce’s share of total income includes the salaries of managers and professionals as well as the non-salary income of high-flying chief executives and financiers who receive capital gains, interest and stock compensation.

The widening gulf between the stratospheric compensation packages of the latter and most other Americans suggests why the median wage is dropping, adjusted for inflation, notwithstanding a growing economy and a jobs recovery.

The trend is all the more remarkable considering that the share of national income going to workers used to be substantially higher in the US than in Europe because Americans have to buy what most Europeans receive free – including university education and healthcare.

A dozen years ago, 64 per cent of US national income went to the labor force, according to the IMF, compared with 56 per cent in Europe. Today, however, the shares going to workers are converging – 58 per cent of national income goes to the workforce in the US and 57 per cent in Europe.

Political realities in Europe may be pushing policy makers in the same direction. Germany’s Chancellor Angela Merkel has finally started talking about spurring growth. Under increasing political pressure at home, she seems to have accepted the need to add measures promoting growth to the EU’s treaty on fiscal discipline.

But Ms Merkel and her conservative allies haven’t given up on austerity economics. She is still opposed to fostering growth through more spending, insisting that would only worsen Europe’s debt problems. Instead, she wants to spur growth with “structural reforms” – by which she presumably means giving companies more freedom to hire and fire, outsource jobs to contract workers and, in general, be less constrained by regulation.

That is of course the American model – which has been fueling corporate profits at the same time as it depresses wages.

If Europe were to move towards structural reforms that create a labor market similar to America’s while pursuing fiscal austerity, while America embraces fiscal austerity as US corporations continue to shrink payrolls, we are likely to experience the same results on both sides of the Atlantic. Real wages will decline, we will have less economic security and our public services will be diminished. That is not sustainable, economically or politically.

[I wrote this for the Financial Times]