Public Comment

The reasons for raising the minimum wage to a living wage can generally be broken down into the categories of moral, social, practical, environmental, governmental and economic. The first five arguments favor raising the minimum wage, but the last economic one is generally used by those in power to trump all other arguments. In this comment I will outline the primary arguments in favor of raising the minimum wage and close with a summary of why the economic argument is hollow, based on a neoclassical economic model whose assumptions are absurd. 

Moral Argument – It is immoral to pay people less than a living wage to perform tasks that are deemed necessary in our society. It is also immoral to pay them far less than their contribution in the production of the final good. Low wages are a form of theft. It does not matter that both parties have agreed to the wage price – the negotiation is not on a level playing field. When one is faced with a choice between starvation and extreme poverty at the minimum wage, there is no choice. A living wage reduces the exploitation of those who are desperate for work. The primary exploiters are the service industries where low wages are the norm. These low wages create a peasant class of workers who own nothing and struggle just to feed their families and pay their rent. Meanwhile their labor creates the profits that continue to accumulate to the investor-owner class. The very idea that a wage structure can allow those at the top of a corporation to pay themselves 1000 to 10,000 times the wage of those who actually perform the physical work is morally obscene. The idea that the surplus value created by the workers can be entirely siphoned to an investor-owner class is also immoral. 

The current low-minimum-wage system is designed to extract maximum profit from those doing the work, from those who have the least, and funnel that money into the pockets of rentiers (owner-investor class) who add little or no value. This extraction clearly doesn’t provide the maximum benefit to society. Instead it has created a wealth disparity that is greater now than at any point in U.S. history. After overthrowing feudalism, which was criticized for allowing a noble-rentier class to control all wealth, capitalism has undertaken to create a similar structure of wealth inequality with the investor-rentier at the top. It is just as immoral for capitalism to enshrine the investor-rentiers as the class deserving to accumulate all the wealth, as it was for feudalism to enshrine noble-rentiers as the God-endowed inheritors of surplus value from the land. The inequality that results from such a system is immoral no matter what the economists claim. And in a democratic society, it is the moral argument that should trump all other arguments. A living wage that allows all workers in a community to afford to live in that community is the moral choice. 

Social Argument – Paying people less than a living wage, or forcing them into long hours of labor, or forcing them into long commutes, creates dissent and envy. It breaks the social bonds that hold us together. If wages are so low that both parents are forced to work long hours, children will not receive the kind of adult supervision they need. This sets up the next generation for failure, and that failure will often manifest as an increase in crime, drug addiction, and mental health problems. These problems result in long term costs to society. By keeping the minimum wage low we are privatizing the short term profits while shifting the long term costs and risks onto the public. A living wage will strengthen the social bonds that encourage social cohesion, cooperation, compassion and altruism. Without a living wage, the harsh financial conditions imposed on the working poor will result in abuse, depression and addiction. Creating a society where even the poorest have their social needs met – food, shelter, health care, education, and adequate leisure to strengthen social and family bonds – will in the long run benefit all of society, reducing the long term costs of breaking the social contract that we share with each other. 

Practical Argument – A vibrant city is created with a diverse population who bring to the table a variety of cultural views and tastes that make the community experience more enjoyable for all. When a city becomes unaffordable to the diverse groups who work there, unaffordable to the artists and musicians who wait the tables and work the cash registers, then the city’s culture begins to die. When a city gentrifies, it becomes a bland monocrop of sameness. The city’s cultural centers will be subject to the disease of too few patrons. With a shrinking diversity, driven by a wealthy class whose limited tastes atrophy the social experience, the city begins a slow, cultural death. Eventually those businesses that located in a city so they could hire a creative and energetic group of workers, workers who gravitated to the cultural Mecca, will find those workers leaving – repelled by the cultural desert created with the shift to a mono-culture of high paid workers. And shortly after the creative workers leave, so will the businesses. To create a sustainable city with a vibrant cultural life that attracts the best and brightest, the lowest paid workers must be able to afford to be part of the community. They bring a special richness to the city with their culture, art and music. 

Environmental Argument – By setting the minimum wage to a level where all workers are paid enough to afford housing in that city, we reduce the need for long commutes and the associated fossil fuel usage. This change will primarily impact those lower-paid workers who perform the tasks (from washing dishes to running the cash register) that are necessary to make a functioning business community and are least equipped to afford a long commute. The higher minimum wage could also be supplemented by an intensive effort by the city to construct affordable housing to meet the needs of the working poor. As part of that process, we should avoid centralizing market-rate housing near the transit hubs, which would effectively transfer this infrastructure to the upper income classes. Instead the city should mandate mixed housing with high fraction of inclusionary housing near all transit centers. This would also reduce some of the pressure for a higher minimum wage since housing costs make up a significant fraction of the working poor’s budget. With climate chaos and ocean acidification happening now, it is critical that public policies support a change in work-living arrangements to reduce fossil fuel usage. An increased minimum wage that allows one to live in the community where one works would be a step forward. 

Governmental Argument – When the minimum wage is below the livable wage, government subsidies are required make up the difference. Fast-food franchises and companies like Walmart point their low-wage employees to government programs to reduce their costs. This direct subsidy pads the profits of those corporations and puts other companies at a disadvantage. Those subsidies funded by the taxpayers include Medicaid/CHIP program, Temporary Assistance for Needy Families (TANF), Earned Income Tax Credit (EITC), and food stamps. A recent UC Berkeley study showed nearly half the families with workers in fast-food, child-care, or home-care required public assistance, totaling hundreds of billions of dollars (http://laborcenter.berkeley.edu/the-high-public-cost-of-low-wages/). In addition, the high costs to society are realized when the poor wait until the last minute before going to emergency rooms because they can’t afford health care, or when people become so desperate they turn to crime and end up in costly prisons. A livable minimum wage combined with universal health care would reduce the overall costs to society and reduce the need for most of these government subsidies. 

Economic Argument – The economic argument reduces to the simplistic supply-demand curves found in any economic textbook. The argument states that “any” minimum wage will result in moving the number of jobs to a level lower than the “equilibrium point” determined by the “laws of supply and demand.” The argument is primarily based on the up-sloping shape of the supply curve (which says that people will want work more hours at higher pay), and the down-sloping shape of the labor demand curve (where higher wages will result in less demand for labor as prices are raised and demand decreases). Neoclassical economists believe that the optimal benefit to society, and maximum number of workers employed, are determined by the crossing of these two labor curves which determines the “equilibrium” employment rate for all of society. This economic model ultimately posits that this “equilibrium” wage is actually determined by the choice of workers between working more to enhance consumption or working less to enhance leisure. The model may sound reasonable, but only because we have been so indoctrinated with neoliberal propaganda that we don’t question the assumptions that form the basis of this theory. 

The full argument against the neoclassical/neoliberal supply-demand narrative is too long for this short discussion (see Steve Keen’s Debunking Economics for the long version). So instead I will just list the primary problems. 

1) The most obvious fallacy of the economic argument is that the interaction of millions of people fighting over wages could be reduced to the crossing of two curves. This ignores the complexity apparent to anyone who studies the real world. The neoclassical model requires simplifying assumptions that take the model outside the domain of reality. 

2) The second fallacy is the assumption that wages reach an “equilibrium” when in fact the economy is dynamic (time-dependent) and never in a state of equilibrium. Neoclassical models ignore time! They ignore the complex time-evolution of economies, including the inherent instabilities in the system. 

3) A third fallacy is the up-sloping supply curve which suggests that if the minimum wage was lowered, that workers would choose more leisure time rather than be forced to work more to feed their families. The shape of the curve does not apply to the real world of low wages. The up-sloping supply curve is based on the assumptions that all people have the identical tastes (absurd on face value) and that our consumption patterns don’t change with income (again absurd - think about whether Bill Gates spends the same fraction of his income on food now as when he was in college). These assumptions were required to generalize the “utility” theory of human behavior into a model that described group behavior. The utility theory itself is absurd since if involve unmeasurable quantities (utility) and is based on a model of selfish human behavior that ignores compassion and altruism. Absurd assumptions result in an absurd model. 

4) A fourth fallacy is that as you raise the minimum wage and put more money in the pockets of the poorest people who generally spend all their income, that this shift in monies from profits into wages will not impact demand for goods, which will in turn increase demand for labor. The model ignores any feedback, treating the supply and demand functions as independent, and assumes the equilibrium point is a stable equilibrium. In fact, as history tells us, employment can be unstable with lower wages resulting in less demand for products, leading to more wage cuts or layoffs, which will further reduce demand, all in an endless positive feedback as happened during the Great Depression. In fact, raising the minimum wage can be shown to be a stabilizing influence on the economy (Steve Keen’s “Debunking Economics”). 

5) Lastly, the neoliberal model posits that the actual wage rates are entirely in the hands of workers choosing between consumption and leisure. This model tells us that the hundred-million dollar salaries paid to Wall Street CEOs, and the dollar-a-day wages paid to workers in third world countries who actually produce our goods, are all controlled by a free-markets that reward people what they are worth according to the benefits they provide to society. This model leaves the CEOs and owners of Walmart off the hook for paying less than a living wage, and allows those in power to shift the blame for low pay onto the workers. This is classical blame-the-victim. The neoclassical model is so far from the reality of rigged-markets and monopoly profiteering that the delusional predictions of such theories are useless. 

Impact on Small Business - Since the general economic argument can be shown to be hollow, a final comment may be in order regarding the impact on local small businesses. I am sure that small business owners will cry foul – worrying that a rising minimum wage will hurt their bottom line. I’m sure that they will claim that small local businesses will be most hurt by a higher minimum wage – that customers will travel to Oakland or elsewhere to save that extra dollar or two. Really? Drive miles to save a few dollars? If that was the case then all small businesses would have been driven out by big box and chain stores. I am also sure that we will hear threats that they will have to close down and move. Really? Move out of Berkeley which has one of the healthiest rates of disposable income? These arguments are hollow. Wages are no different than all the other inputs to a business’s balance sheet – taxes, rental space, raw materials, management costs, advertising, and profits. Wages are part of the cost of doing business, and like other inputs they vary with location. If your taxes go up, you raise your prices. If your rent goes up, you raise your prices. If your raw materials go up, you raise your prices. If your management costs go up, you raise your prices. If your advertising goes up, you raise your prices. If you are mandated to provide health care, you raise your prices. Why should wages be any different? They are just part of the cost of doing business. If anything, a higher minimum wage makes small businesses more competitive with local big-box stores – it is an equalizer since there is no savings from scale. More likely the higher minimum wage will create a happier work force, with more money to spend locally. The dollar multiplier effect is highest among those with the smallest incomes. The result could very likely be a net gain to small businesses. But the real response one should give to a small businesses owner who fails to pay a living wage is: “What is wrong with you? How can you treat your employees so poorly?” This is a moral question. Small businesses should pay people adequate wages so they can live a healthy life. 

In Summary - The economic models used by politicians to justify a low minimum wage are built on absurd simplifications (see 1 above), omitted variables (see 2 above), logical contradictions (see 3 above), approximations that ignore feedback mechanisms (see 4 above), and assumptions that markets are not rigged by those who control them to maximize profits (see 5 above). At the heart these models are ideological beliefs that trump the logic and mathematics used to construct the models (see Steve Keen’s “Debunking Economics”). The result is a neoliberal mythology of meritocracy and market magic whose predictions are at odds with reality. This mythology has been so deeply ingrained in our culture for the last 4 decades by neoliberal and libertarian think-tanks, that mainstream business, news, and political leaders no longer question their basis even when they fail miserably to predict an outcome. Instead you get the befuddled response of Alan Greenspan who finally admitted he does not understand why his models failed (https://www.youtube.com/watch?v=lGYtnW_1lUU). It is important to understand that the truly faithful, the economists who promote these neoliberal/neoclassical models of the economy, may actually believe that free-market no-regulation policies produce the optimal benefits to society in spite of the obvious wealth inequality they generate. However, those who hold the reins of power have long ago realized that this mythology is a useful tool to implement an agenda that enriches the 1%. So they continue to fund the neoliberal economic dupes, like Frederic Mishkin (https://www.youtube.com/watch?v=5msVl3oZl4U), paying them to produce more economic nonsense based on absurd assumptions. This nonsense can then be used to justify the obscene wealth inequality we see in the U.S. today, and in the world as a whole from globalization. 

In Conclusion - We as a society should ignore the neoclassical and neoliberal economic arguments and treat them as the propaganda that they obviously are. Instead we should base our political decisions on arguments that everyone in our society can understand – primarily moral arguments. These moral arguments can be supplemented by social, practical, environmental and governmental arguments. When it comes to moral issues of social justice, we are all experts and need not rely on the economic charlatans to tell us how to act. Based on my own observations of the cost of living in Berkeley, I would recommend a minimum wage of at least $20/hr – and that it be enacted ASAP.