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Toward a Living Wage

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After attending the annual Intercollegiate Studies Institute (ISI) Leadership Conference in Indianapolis, one of the things I thought about was a living wage. The argument by many of the participants was that the best way to lift people out of poverty and provide a living wage was to provide a robust economy — basically, trickle-down economics. Even Thomas Woods’ talk, which had a religious character, had this general idea. In fact, when he was asked to reconcile St. Peter’s teaching on obedience to the government with disagreement on welfare policy, he largely fumbled the answer, in my opinion. I favor my response to the question.

The problem with talking about a living wage is that it always talks about the issue from only one end of it. Either you have to artificially raise wages or trickle-down will raise wages. Still, this only talks about the problem from the aspect of raising the amount of money getting paid. There is another way to get to a living wage: decrease the cost of living so that current wages are sufficient.

Increasing wages by raising the minimum wage is an unsatisfactory solution by itself. There is a finite amount of money going around and all things being equal, a business will offset increased costs by cutting costs elsewhere. In the realm of employment, they will usually not hire as many people or not pay people above the minimum wage as generously (i.e. stagnate wages at the minimum wage line). It presents an intractable problem. What is better — 90% employment at 80% of a living wage, or 80% employment at 90% of a living wage? Costs could be cut elsewhere, but businesses already have the incentive to do that. Creating a burden is unlikely to help them be more efficient. This skips past that difficultly of setting a living wage (for what type of living arrangement) and that some people shouldn’t be paid a living wage (high school students, college students, temporary workers).

This also can lead to inflation because any cost a business incurs will be passed on in its prices. Those increased labor costs will get passed on again and again to the only entity that is unable to pass off costs. We’ll call that person “the consumer.” We could theoretically determine a living wage at some snapshot in time and mandate that all workers be paid that wage. Even if there is no additional unemployment, that increased labor cost will result in increased prices across the board. This translates to an increased cost of living and makes the living wage insufficient once the costs pass through the system. Even if you could control the rate of employment, there is no way to set a living wage. It would increase the cost of living and make that living wage insufficient again.

The solution to this problem is to stop focusing on the size of the paycheck and to start focusing on the cost of living. There are several components that make up the cost of living. There is food and the sales tax to buy that food. There is housing and the property tax levied against that property. There is medicine, government fees, income tax, etc.

One way to cut the cost of living directly and immediately is to cut taxes. This can be accomplished be getting rid of wasteful and unnecessary government spending which is always inefficient and bleeds money away from the economy. Even welfare payments bleed money off that remains in the black hole of Washington DC.

Another way is to decrease transaction costs for people doing business. For instance, the legal and insurance systems allow for businesses to not only prepay their future lawsuit settlements, but also provide a nice way to compartmentalize those costs and pass them on to the consumer. The dirty little secret about suing companies is that they aren’t the ones paying — society is. And in fact, you’ve already paid.

Likewise, property tax gets passed down to renters in the form of higher rents. Sales tax raises prices for consumer goods. Higher business taxes make for higher prices. Increased regulation makes for higher regulation costs and higher prices.

To effectively reduce the cost of living, every regulation, every tax, and every wasteful or unnecessary government spending initiative needs to be stopped. There are important regulations and things the government should tax and spend money on. However, it will always spend money inefficiently and bleed money away from the economy when they do it. This needs to be minimized.

Productivity gains, increases in efficiency of production and distribution, and new technologies will also help (as it always has) to increase the quality of life of all workers. This is where trickle-down is most helpful. However, it’s only part of the solution.

The more the cost of living can be reduced by reducing the bleeding effect of government spending and regulation, the more people there will be living above the poverty line.

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About John Bambenek

John Bambenek is a political activist and computer security expert. He has his own company Bambenek Consulting in Champaign, IL that specializes in digital forensics and computer security investigations.
  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    John, this solution sounds an awful lot like deflation to me. A lot of Americans will think you’re trying to make them forever poor by increasing their debts – another effect of deflation not often talked about. And from what I’ve heard elswhere, the personal debt load in the States is pretty high.

    For sure, your solution will kill the real estate bubble in prices, which will certainly bring about a recession in your country as people lose out on their real estate investments and hopes of profit from property accumulating value.

  • troll

    as you decrease government funding and therefore the size of its workforce you increase the size of the ‘private’ labor force which already has an abundance of surplus labor ensuring a low wage and enabling ‘investors’ to extract more from each unit of labor

    to approach a ‘living wage’ you might consider an attack on the principle of maximized profits rather than taxation…after all – it is that principle that drives the viscous circle of price adjustments in the face of wage increases

    troll

  • http://www.elitistpig.com Dave Nalle

    You seem to be looking only at external ways to cut the cost of living, without considering that government solutions are entirely unnecessary if people make some lifestyle compromises to deall with their limited income.

    The immigrant population seems to understand this, but apparently those here more than a couple of generations forget such ideas as communal living, using public transportation and other basic means of being thrifty which will stretch a low salary a lot further.

    Dave

  • http://jcb.pentex-net.com John Bambenek

    Ruvy-

    I think you are taking it too far. In fact, since for the last hundred years, the cost of living for essentials has gone down substantially. If you compare the cost of owning a car in the amount of hours it would take to work, it is much less now than it was previously. I fail to see how it would decrease home values, reducing property tax would do anything but reduce home values.

    troll-

    I’m not entirely convinced we have a surplus of labor, not from our unemployment statistics. That, and making it cheaper and easier to do things would also encourage new enterprises providing new opportunities. The labor market isn’t that static. As far as maximized profits, the problem isn’t the profit motive (and I don’t know how you could codify anything other than max profits), the problem is short-sightedness. Employers should treat their employees well (within reason) because it’s cheaper and more efficient/productive to have a happy employee than a disgruntled one. However, since it is chearper in the short-run to not care about morale, people don’t. It’s the focus-on-the-numbers mentality that has people playing with their spreadsheets for a maximum “bottom-line” in their quarterly reports to Wall Street.

    Dave-

    That can’t be codified in policy though certainly has a point. People being thrifty would certainly help and having a “saving” instead of “spending” mentality. But that doesn’t mean we shouldn’t cut unnecessary government waste (that will directly benefit that population) anyway.

  • Maurice

    “There is a finite amount of money going around…”

    Not true. Money is the fluid representation of work. The more work performed the more money. As our ability to work more efficiently has gone up so has the amount of dollars in our economy.

    The real solution is to make workers more valuable. Vo tech is not for everyone but for many people it would change their entire working life. As our economy changes our workforce needs to change. Union jobs in the manufacturing industry are just about gone. Time to get a skill.

  • http://jcb.pentex-net.com John Bambenek

    Fine, if money represents work, we have a finite amount of people and a finite amount of time therefore a finite amount of money at a given point in time. It can change over time, but raising minimum wages is a snapshot effect, not a time-progressive effect.

    And I’m not saying trickle-down doesn’t work, I’m saying it can be greatly enhanced be reducing the cost of living by removing unnecessary transaction (and other) costs from the economic system.

    Make it easier to trade, not more difficult. That will also invigorate the economy.

  • zingzing

    your grand idea for eradicating poverty is… lowering taxes… yes… that’s… interesting…

    just what makes you think that, should property taxes be decreased, landlords will start charging less rent? greed, johnny, greed.

    your “solution” is a bit simple-minded. if that’s all it took, it would have been done long ago. i don’t have a solution, but then again, i never said i did… but, seems to me that paying people a wage they can live off of (you know, because they work for a “living,” not just to please their masters) is a good start. then you can have your republican dreams about lowering taxes (because there will be more people WHO CAN FUCKING AFFORD to pay said taxes).

  • Kurt

    A few thoughts:
    1. We have artificially depressed lower-level wages via outsourcing and immigrant labor. My taxes pay for health services to Wal-Mart employees, while their top executives earn more from the deal. There is no real free market for labor in the US.
    2. The minimum wage may not be effective in Washington DC, but it is in many other places. Why not raise it to $15 an hour for adults? The increased tax revenue would help everyone – it would also effectively move money downward into the consumer system, and reduce the market for untaxed/illegal immigrant labor.
    While many of your points are worthy, I question some of the conventional wisdom.
    Another example – instead of spending $30,000 a year per poor person to administer poverty programs, why not simply eliminate poverty today by giving the money directly to the poor? I know, here comes the moral outrage… but imagine the potential long-term benefits to the economy.

  • http://jcb.pentex-net.com John Bambenek

    If by give them that money you mean something like a “negative income tax”, fine, I have no problem, especially if it is implemented in the form of a flat tax.

    But honestly, I don’t believe the federal government is in a position to effectively help the poor, I’d rather give the money to community efforts directly instead of having it sent to Washington to be skimmed off on every level on the way back down.

  • troll

    John says: *I’m not entirely convinced we have a surplus of labor, not from our unemployment statistics.*

    or one could say given our unemployment stats we have just enough surplus labor to maintain a general tolerance of low wages – we hardly need a bunch of government employees redirected into the private workforce…that and Kurt’s #8-1 above

    *…the problem isn’t the profit motive (and I don’t know how you could codify anything other than max profits),*

    developing a new code for economic (political) interaction to replace the improperly so called codified ‘max profits’ would require a general recognition of cooperation and equality of labor as underpinning our system of production (which would require further a reevaluation of the propriety of the existing division of wealth)…IMO

    *the problem is short-sightedness.*

    all action is short sighted…relativistically speaking – and the time limited ‘get mine now’ mentality goes hand in glove with the irrational max profit motive

    troll

  • Maurice

    Most of my family members are in jail or on welfare. My parents were on and off welfare as I was growing up. I know a little about poverty and what brings people out of poverty.

    As our economy becomes more technology based a standard High School education no longer cuts it. I was not a fan of Clinton but at one point he talked about vocational training at the HS. This made sense to me because not all HS students are cut out to go to a 2 or 4 year college. But many would do well with a skill.

    In my mind the best way to get my family members out of jail and off welfare is job training.

    Anecdotal example: My brother-in-law learned welding while in federal prison and is now employed.

  • http://jcb.pentex-net.com John Bambenek

    I fail to see what the problem with the max-profit motive is. For someone who is sufficiently long-sighted, they realize the value of getting the best employees (by paying them appropriately and treating them appropriately), by honest dealing with vendors and customers, and otherwise being ethical. What do you want to replace the max-profit motive with? Break-even? Profit helps companies invest in growth.

    And I am quite sure with new capital flowing through the economy, the growth would be more than sufficient to handle the new public workers entering the private workforce.

  • http://jcb.pentex-net.com John Bambenek

    I don’t education is the whole solution here, but I can write a whole other post on the sorry state of our education that leaves college graduates barely capable of work (much less HS grads).

    That’s another story all together.

  • Blue Meanie

    John states “I fail to see what the problem with the max-profit motive is.”

    Well now, the problem is that the average weasal has more moral fibre than the CEO’s who are administering that “max profit” approach.

    Instead of looking out for the continued health and growth of the corporations they are managing, what they actually do, motivated by their own greed, is to maximize whatever parameters it is going to take for the bottom line of that particualar fiscal quarter in order to exceed Wall Street expectations, so that the CEO can get his obscene bonus.

    Case after case has shown this practice to be done, and the flaws as well as harm, are not discoverd until after the CEO has leveredged his options, cashed out his stocks and bailed with his golden parachute.

    Think of the last 5 years or so, I am fairly certain you can see the examples of how many corporations have failed or been bought out cheap due ot these practices.

    For those who think that tax cuts are the be all and end all, obviously you have no understanding of basic economics. Working only from the “supply side” without paying attntion to and fostering “demand” may work in the short term fo the very few.

    Yet it is a devastating policy for those who work for a living, or the socio-economy at large.

  • http://www.fifthdentist.blogspot.com The Fifth Dentist

    As usual, you have no idea what you’re talking about.

  • http://www.elitistpig.com Dave Nalle

    BM, what you and so many others fail to grasp is that the money that goes to top executives does NOT come out of the pockets of workers. They are on salary and are paid what they are paid regardless of how the company profits and where those profits go. What the CEO takes home actually comes out of the pockets of the stockholders, and if they have a beef they can vote out the CEO and the board and find someone who’ll do the job they want at the price they want. But they usually don’t complain, because those bloated reward packages go hand in hand with fat profits for stockholders as well.

    Dave

  • Blue Meanie

    Well Dave, how the hell do you fit so many pure bullshit opinions in between your ears without the top of your head popping off from sheer hypocritical pressure?

    If you look at it realistically, the gross income is your total, with net costs being deducted you wind up with net profits. Now calculating all actual costs, including salaries and compensation packages, as well as actual costs for materials, office supplies, taxes etc you get the true “net”

    What you have left over after all of that is your profit. Are we agreed there? Can we also agree that how you set up your cost structure determines the quantity of variable for some of your other costs?

    What I mean here is that, if we say office supplies cost more, you need to either cut somewhere else or increase your price.

    Still following the bouncing ball? Good.

    Using this logic you can readily see that if upper management and CEO compensation packages are examined more carefully, there is more capital to spread around. As research and develo0pment money, profits to shareholders, better office supplies, or even, dare I say it?

    Raises or profit sharing for workers. You know, the people who actually do the real work to create the value added for the company?

  • Maurice

    BM

    You are out of your league.

  • Blue Meanie

    Well Maurice, I realize that some people could be considered “minor league” and beneath my notice.

    But I am an equal opportunity Meanie, and will send the dear,sweet Glovvie of my wrath against the oppressors and Sgt. Peppers descendants, as I see fit.

    Your worship, however, is noted.

  • http://www.elitistpig.com Dave Nalle

    BM, nothing you said in #17 contradicts what I said. Cutting expenses does increase profit. Not one cent of that increase in profit goes to the workers, no matter where it’s cut from. You could eliminate the CEO salaries alltogether and the resulting savings would not go to the rest of the workers. Salaries in a company aren’t assigned by dividing up the profit. You seem to have confused corporations with cooperatives, which are an entirely different and rather rare business model, the two most notable being Nokia and REI.

    As I said before, when you cut overhead the additional profits go to the shareholders. It’s possible that some bonuses may be handed out as well, but that’s all done on a predetermined structure, which isn’t impacted by the amount of profit, just by whether or not profit is made.

    Now don’t get me wrong. I like the idea of profit-sharing for employees. But it’s not the way most corporations operate.

    Dave

  • http://jcb.pentex-net.com John Bambenek

    BM-

    You ever meet a big corporate CEO, because you seem to claim some expertise as to how they are as a lot.

    Or maybe you’ve just actualized the typical bigotry that everyone in the board room is evil.

    Either way, it isn’t a serious attempt to solve the issue.

    There comes a time when you grow up and stop pointing fingers and fix things.

    Let us know when you’re ready to do that.

  • Maurice

    I think BM has views that are representative of many that are naive in the ways of business.

    As I stated in #5 money is the fluid representation of work. There is no limit to the amount of work we are able to do. Especially in manufacturing because of automation and robots. This means there is no limit to the flow of money. One example: my company now manufactures NAND flash memory that goes in MP3 players and phones and cameras. This is a multi-billon dollar business that didn’t exist 5 years ago. If money flow were a zero sum game then the money being made by our NAND flash chips would have to have come out of the profits of some other industry. This is wrong thinking. No other business had to lose money for us to make our billions.

    This means CEOs can make however much in the hell they want to and it won’t effect change in the workers wages. The workers wage is based on supply (of labor) and demand (of skills).

    BM talks like a Keynesian but has probably not studied him.

  • Blue Meanie

    Well now, here we go.

    Dave: I know we have agreed on the basic issue here, and yes I understand we are not in conflict on most of the points. You do hit on the fact that some of that saved capital coudl be spread amongst the workforce, and that is exactly what I am advocating here.

    John: Actually I work for a tech multinational that deals with other huge corporations. Yes, I do interact with CEO’s and other exectutives on a daily basis. Try not to assume. I am both pointing fingers AND offering possible solutions. Turn off Limbaugh, get out of mommy’s basement, then we can talk.

    Maurice: you state;”As I stated in #5 money is the fluid representation of work. There is no limit to the amount of work we are able to do. Especially in manufacturing because of automation and robots. This means there is no limit to the flow of money.”

    I disagree, there IS a hard limit, that being the demand for the particular product. As for your statement that CEO compensation and workers wages are not linked, I must respectfully acknowledge your statement of how it currently operates and say that it is broken.

    See the conversation between Dave and myself for further contemplation.

  • Maurice

    BM

    Would you agree there is more money in the economy now than 20 years ago? If so what is the hard limit?

    Recommended reading: Frederic Bastiat

  • Maurice

    Also, Dave said the same thing about the disconnect between CEO salaries and worker wages in #20.

  • Maurice

    Interesting reading:

    Business News
    Friday, May 5, 2006
    Tresury’s Snow says wages not inflation threat

    WASHINGTON (Reuters) – U.S. Treasury Secretary John Snow on Friday said he expected wages to rise in the months to come but did not think this would create worrying inflation pressures because of fast growth in worker productivity.

    Asked about if there was a risk of larger paychecks sparking a broad rise in prices, Snow told CNBC television: “I don’t think so because productivity remains so high … And as long as productivity remains high, we can have higher wages but not an increase in per unit labor costs.”

    Kinda reflects what we have been talking about.

  • Blue Meanie

    Yes Maurice, I know what Dave said. And I responded.

    As for the “hard limit”, for the entire economy, there is no theoretical limit since our currency is by fiat rather than based on some standard banked. Such as gold or wheat. Due to a fiat currency, all kinds of tricks and abuse can be accomplished.

    Now, about your statement about the size of the economy between now and 20 years ago; take a look at that ratio and compare it to the debt ratio.

  • http://jcb.pentex-net.com John Bambenek

    BM-

    I’ll put my business experience against yours any day of the week. My first year out of college I made six figures. I was the youngest project manager at Ernst & Young and later at Cap Gemini. If I was still there I’d be an exec now. Your method of argumentation is intellectually lazy. Don’t present facts, only provide invective.

    Either contribute or shut up.

  • http://jcb.pentex-net.com John Bambenek

    What does the debt ratio have to do with anything aside of consumers making choices of how to manage their own money?

    Debt isn’t randomly assigned based on some Illumnati world conspiracy, people make choices and some take on debt based on those choices.

  • Blue Meanie

    Well John, learn to read, then speak up. If you note above, not only am I attempting to discuss these issues rationally; I also provide my concepts on correction and denote the differences in opposing theories from the macro-economic standpoint.

    As for the debt ratio, you are speaking of consumer debt, which is a factor; I was speaking more towards national debt (as part of fiat currency model).

    Reading comprehension is your friend.

    and to Maurice, thank you for providing the interesting article to read, and for the polite discussion.

  • Maurice

    I think you nailed it, John. At first I thought BM was a Keynesian. Now it looks like he is just out of his league.

    Recommend BM read Milton Friedman for easy to understand economics.

  • Blue Meanie

    Well Maurice, seems like you and I hit hte post button at the same time. Read my comment #30 and see if my previous statement makes more sense for you.

    Part of the difficulty here is that I do not subscribe to any axiom in the entire “supply sider” economic hypothesis.

    Not that it matters, and not that I care a whit as to others opinions about my opinion.

    I came here for an argument. Sorry, channeling Monty Python again.

    My entire point has been completely proven out merely by the original poster’s statement in #28, since it shows his own particular bias towards viewpoint of economic modelling.

    It seems that the only one who understood what I was getting at was Dave, and we promptly agreed on the valid issues being discussed.

    Again, thank you Maurice, I do appreciate the reading suggestion if not the implications around it, and I do understand quite well what you are driving at. My point is that such practices do not maximize efficiency but rather skew all benefits in a “top heavy” fashion that rather quickly burns out rather than sustains growth and benefits a larger segment of not only people, but the economy as well.

    American consumers have been the driving force of the world’s economy for quite the while. How much longer can that go on if the very same people are hit with stagnant income growth (after adjustments)? Some would say such is not the case, and that is debateable.

    But then we hit the personal debt versus savings numbers as well as the current demographics of the American public. That math is Lamarckian to the point of a Camus prediction.

  • RedTard

    “Recommend BM read Milton Friedman for easy to understand economics.”

    Why must you be a condescending asshole. Reading others ideas gives you knowledge but it reduces your ability to creatively and openly look at a problem. BM, has a point about bloated CEO compensation pay.

    The thing you’re acting oblivious to is that the big shareholders are all part of the same wealthy class as the CEO’s. They vote each other huge bonuses and get in and out of companies on inside information. Meanwhile, the average shareholder with 200 shares in an IRA has exactly zero control, they’re not privy to the inside information and they end up going down with the sinking ship or getting duped by the cooked books into buying overpriced shares.

    Unfortunately, that’s the best system we have for now. The question is how much corruption are you willing to accept? The pendulum has swung and the farther it goes the more violent the backlash. The sad thing is the wealthy class will simply read about it in the papers or from their yacht in the Pacific, the middle class will end up paying for their transgressions.

  • RedTard

    Corruption is not the rule in Corporate America but there have been way too many exceptions lately.

  • Blue Meanie

    Well said, Red.

    Both about corruption not being the rule as well as about the middle class picking up the tab.

  • Maurice

    Did not mean to be condescending. Milton Friedmans book ‘Free To Chose’ has a chapter explainning how the Federal Reserve came about. Based on BM’s comments (non gold standard) I thought this would be an interesting read. Also highly recommend reading Frederic Bastiat.

    As I stated your comments seem to come out of the Keynesian model. That is not a good fit for our economy. I reject the idea of zero sum.

    The real solution to John’s original post IMHO is for workers to make themselves more vaulable. It appears to me that BM is suggesting some sort of wealth transfer.

  • Blue Meanie

    Well Maurice, it appears you are making assumptions with nothing there to substantiate.

    I understand you reject the concept of zero sum, and that is a debate in and of itself. As for the history of the Federal Reserve, I know it better than you might imagine, hence my point of a fiat currency.

    And no, I am NOT advocating any kind of wealth transfer. What I suggested, as Dave noted, was a more advanced model of profit sharing that gives better rewards to those participating in value added activities(workers), and less insane multiples of average salary voted for CEOs by their buddies on the Board. (Especially since they sit on each other’s Boards in order to do this)

    I am stating that the worker’s efforts ARE more valuable and should be compensated for in a more equitable fashion.

    Take a look at Japanese corps , their CEO to average worker compensation ratio, then compare it to the U.S.

    Just as an example, and something to think about.

  • RedTard

    That’s all interesting background information on economics, but he question at hand is that of CEO pay. It is at a historically high level in relation to worker pay.

    There are two proposals being tossed around that are being fought tooth and nail by groups representing the corporate types.

    1) Would allow shareholders to nominate board members.

    2) Would require CEO pay to be publicly available and approved by the shareholders.

    Those are both great proposals and should immediately be approved, unfortunatly, the wealthy run this country and are fairly capable of fending off progress is it might effect their bottom line.

    CEO’s and the corporate boards they conspire with are more interconected than a backwoods Arkansas family. I don’t support workers unionizing and working together to artificially inflate wages, how in the hell can I support rich folks doing the exactl same thing?

  • Maurice

    Thanks for the polite response.

    My company has a profit sharing program. We divide 10% of the profit to all employees. Also, our CEO is one of the top ten most efficient according to Forbes.

    Neither of these things help poor people. You can’t clean toilets and expect doctors wages. The best way people can be paid more is to have a desired skill.

  • RedTard

    Maurice,

    You can see it so easy when workers conspire to inflate wages and you rightfully condemn it. Can you not see that wealthy ex-CEO boardmembers (nominated by the new CEO) are doing exactly the same thing?

  • http://jcb.pentex-net.com John Bambenek

    The only reason I didn’t talk about workers making themselves more valuable is because “someone needs to clean the toilets” so to speak. I’m a big proponent of education but I don’t think that gets everyone off the welfare dole. However, lowing the cost-of-living will.

    I’m not sure how this is a supply-side solution.

    And BM, I can read. Mostly all I see is invective. Maybe there is a point between insults… I’m just not going to waste my time sifting through your trash to find it.