McNellis: When it’s Good for Everybody

Why does this recovery feel like the Great Recession’s marginally brighter little brother?

Franklin D. Roosevelt

By John McNellis

The magnificent PBS series, The Roosevelts, aired about the same time as the release of yet another Federal Reserve report. Considered together, the two prove one thing: Franklin Roosevelt couldn’t get elected hall monitor today. FDR’s New Deal is impossibly left in today’s world of wedge politics, and the Federal Reserve merely confirmed what we already know: The incomes of the mildly rich (the top 10 percent) are 10 percent higher than they were in 2010 while those of the grimly poor (the bottom 20 percent) fell by 8 percent.

Why does this recovery feel like the Great Recession’s marginally brighter little brother?

A single aspect of FDR’s legacy — the minimum wage — brings this into focus. Instituted in 1934, the minimum wage hit its inflation-adjusted peak 48 years ago and has been slowly falling ever since. In 1968, the federal minimum wage was $1.60 an hour and gas cost .34 cents a gallon. Today, it’s $7.25 an hour and gas is $3.63 a gallon. Do the math.

President Obama has repeatedly called income inequality “the defining challenge of our time”. In a largely ignored speech on October 11th, the president pleaded for a raise in the minimum wage to $10.10 an hour. While it’s true that Mr. Obama may no longer have the clout he once did (Sarah Palin’s dog has more political capital), it’s also fair to say Congress isn’t exactly obsessed with America’s working poor. Canny politicians are instead preoccupied with photogenic crises (ISIS, Crimea and Ebola). They know where the sound-bites are, they know air strikes and Marine landings lead the nightly news and they know that, like Thomas Pynchon’s novels, you can’t film hungry.

Why does this recovery feel like the Great Recession’s marginally brighter little brother? While not all-in, a large majority of Democrats do favor raising the wage and, were it not for the Tea Party, perhaps the Republicans might be willing to sign off. If even Mitt Romney is for the wage increase — he is — why would anyone argue against it? The real reason — slave labor is a great gig if you’re the owner — will never be voiced. Instead, foes insist it will cause business to cut jobs or cause enough inflation itself to offset its benefit to the minimum-wagers.

Why are we fretting over a political issue in a business column? The answer lies in this question: Why does this recovery feel like the Great Recession’s marginally brighter little brother? Why are retailers still struggling? Because our economy is consumer-driven and if all you can afford is rent and gas, you’re not driving anything except your rusting Corolla. And you’re not driving anywhere except to pick up food stamps. Putting aside Silicon Valley, our anemic recovery has been on the back of entry-level positions (“entry-level” is economist-speak for no money and less future).

If business owners really thought about it, they would be marching on the Capitol themselves demanding universal wage increases far beyond the President’s palliative $10.10 an hour. Will consumers buy fewer burgers if they cost ten cents more to cover raises? Unlikely. Can retail clerks and bedpan-emptiers be off-shored? No. But the record profits of the retailers and the fast-food and health care industries — the beneficiaries of our toothless wage laws — can be tweaked ever so slightly.

What happens if a corporation’s profits drop by say ten million dollars because of a thousand dollar raise to its ten thousand workers? Two things: every penny of that raise will be spent immediately and race through the economy like a blood transfusion to a wounded soldier; and, due to its lower earnings, the company’s stock price will slump. Instead of having stock worth say two hundred million, the poor CEO will have to make do with one hundred fifty million. However tragic the executive’s loss, it will have no effect on the economy.

Is the creation of an economic oligarchy at the expense of impoverishing the working class that bad a thing? Yes. And — ultimately — even for the oligarchs themselves. If you’re the only guy in town with any money and everyone else has nothing (and nothing to lose), then you’re living like the rich of most countries south of San Diego, that is, behind concertina-wired, twelve-foot walls from which you dare not leave without armed guards. A country where your driver races you through red traffic lights for fear of being carjacked.

The French economist Thomas Piketty puts this case in a more scholarly fashion in his treatise, Capitalism in the 21st Century. Piketty chronicles the increasing concentration of wealth among the richest classes in Western Europe and America. He points out that, leading the pack as usual, America is rapidly approaching an inequality last seen in 18th century France (we know how that turned out). While Piketty’s analysis of economic history has been widely challenged here, it is his prescription for reducing inequality that has Wall Street ready to storm the Bastille.

Piketty is proposing a breathtaking 80 percent tax on income over 500,000 Euros and an annual wealth tax — that is, a tax on net worth — on assets in excess of 500,000 Euros.

If the president’s modest reform is once again kicked to the curb, if the working poor are left even further behind, if they one day take to the streets, Piketty’s proposals may come to appear timid.

Yet one need not support an increase in the minimum wage out of fear or simply because it is the right thing to do, it’s also good for business. The historian Doris Kearns Goodwin summed it up in The Roosevelts, “When it’s good for everybody, it’s good for everybody.”

John E. McNellis is a Principal at McNellis Partners in Palo Alto, Calif.


Originally published at news.theregistrysf.com on October 28, 2014.

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