Americans' economic inequality has been increasing dramatically. Reducing that inequality would be desirable, everything else being equal.
Minimum wage increases — often the proposed remedy — may not be the best approach. When the cost of something — including labor — increases, people normally buy less of it. As President Coolidge allegedly said, when large numbers of people are unable to find work, unemployment tends to result.
We often hear arguments that minimum wage increases don't increase unemployment. But anecdotal evidence — a "sample" of one — is worthless. And statistical studies, sensitive to the assumptions upon which they are based, can be manipulated to prove whatever one wants to.
Since current minimum wage legislation doesn't guarantee that anybody will be employed, today's real minimum wage is $0. Unemployed people make inequality worse, not better.
It is not totally impossible to increase minimum wages without increasing unemployment. The legislation would just have to require government to hire anybody needing a job, paying the legal minimum plus all legally required fringe benefits. This would actually eliminate unemployment completely. But unlike today's minimum wage legislation, it would cost the government (meaning taxpayers) a good deal of money.
A more fundamental problem with proposals to increase the minimum wage is the assumption that wage increases are the only way to reduce poverty and inequality.
There are alternatives that would decrease inequality by distributing money or other benefits to all Americans equally. One we've all heard about is Andrew Yang's proposed universal basic income (UBI) of $1,000 per month for all adults. This would double the income of a poor family whose spouses jointly earn only $24,000 per year. It would produce a much smaller percentage increase for the rich, thus greatly reducing the inequality between the two families.
In other words, instead of trying to force wages to be more equal, we could make them less important by distributing money to people through an additional channel.
My own preferred solution would be a monthly social dividend paid, not just to adults, but to every member of the public — every man, woman and child subject to the government's jurisdiction. But Yang has pointed us in the right direction.
Whether we adopt Yang's approach or my own preferred solution, we would need to establish a trust fund — managed by government-as-trustee for the public — to handle the payments.
The trust could be funded from various sources. Government-as-trustee could capture the value created by natural resource scarcities. Land, oil, the electromagnetic spectrum through which radio, TV, and cell phones transmit information, and the like are gifts from nature, rather like manna from heaven. Since they aren't created by anybody's labor, nobody should have a claim to more than an equal share of them. (See "oil dividend," Alaska.)
The trust fund could also auction temporary monopoly privileges to the highest bidders, when monopolies are needed for the public welfare.
Government frequently creates money. Instead of letting that money benefit banks or be spent on governmental operations, it could go directly into the trust fund for distribution to everybody. Why hope money will "trickle down" to people from the banks when we can count on it "bubbling up" from dividend-receiving consumers to the various places from which they purchase goods and services?
Inheritance tax receipts could go into the trust fund, making everybody heirs.
Andrew Yang has proposed additional possible sources of money that could also be distributed through the trust fund.
One final benefit: when emergencies like COVID-19 require distribution of money to prevent the economy from seizing up, that too could be distributed through the trust fund.
Wages will always be important, but forcing them to be more equal has serious side effects. Other sources of income for everybody, equally distributed, would be a better way to reduce economic inequality.
Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. He received his Ph.D. from Johns Hopkins University in 1966, and has been a National Merit Scholar, an NDEA Fellow, a Woodrow Wilson Fellow, and a Fellow in Law and Political Science at the Harvard Law School. His college textbook, "Thinking About Politics: American Government in Associational Perspective," was published in 1981 and his most recent book is "Beyond Capitalism: A Classless Society With (Mostly) Free Markets." His columns have appeared in newspapers in Michigan oregon, and a number of other states. Read Prof. Paul F. deLespinasse's Reports — More Here.
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