So Crazy, It Might Just Work

Two facts: Democrats need a more compelling message and New York Times editorials are boring. The subject of yesterday’s editorial, however, is interesting and would give the Democrats a more powerful message. It’s called “Let’s Talk About Higher Wages”:

One of the great successes of the Republican Party in recent decades is the relentless propagation of a simple formula for economic growth: tax cuts.

The formula doesnโ€™t work, but that has not affected its popularity. In part, thatโ€™s because people like tax cuts. But itโ€™s also because people like economic growth, and while the cult of tax cuts has attracted many critics, it lacks for obvious rivals.

Democratic politicians have tended to campaign on helping people left behind by economic growth, the difficulties caused by economic growth and the problems that cannot be addressed by economic growth. When Democrats do talk about encouraging economic growth, they often sound like Republicans with a few misgivings โ€” the party of kinder, better tax cuts.

This is not just a political problem for Democrats; it is an economic problem for the United States. The nation needs a better story about the drivers of economic growth, to marshal support for better public policies. The painful lessons of recent decades, along with recent economic research, point to a promising candidate: higher wages.

Raising the wages of American workers ought to be the priority of economic policymakers and the measure of economic performance under the Biden administration. Weโ€™d all be better off paying less attention to . . . the nationโ€™s gross domestic product and focusing instead on . . . workersโ€™ paychecks.

Set aside, for the moment, the familiar arguments for higher wages: fairness, equality of opportunity, ensuring Americans can provide for their families. The argument here is that higher wages can stoke the sputtering engine of economic growth.

Perhaps the most famous illustration of the benefits is the story of Henry Fordโ€™s decision in 1914 to pay $5 a day to workers on his Model T assembly lines. He did it to increase production โ€” he was paying a premium to maintain a reliable work force. The unexpected benefit was that Fordโ€™s factory workers became Ford customers, too.

The same logic still holds: Consumption drives the American economy, and workers who are paid more can spend more. The rich spend a smaller share of what they earn, and though they lend to the poor, the overall result is still less spending and consumption.

For decades, mainstream economists insisted that it was impossible to order up a sustainable increase in wages because compensation levels reflected the unerring judgment of market forces. โ€œPeople will get paid on how valuable they are to the enterprise,โ€ [according to] the Treasury secretary under President George W. Bush.

The conventional wisdom held that productivity growth was the only route to higher wages. Through that lens, efforts to negotiate or require higher wages were counterproductive. Minimum-wage laws would raise unemployment because there was only so much money in the wage pool, and if some people got more, others would get none. Collective bargaining similarly was derided as a scheme by some workers to take money from others.

It was in the context of this worldview that it became popular to argue that tax cuts would drive prosperity. Rich people would invest, productivity would increase, wages would rise.

In the real world, things are more complicated. Wages are influenced by a tug of war between employers and workers, and employers have been winning. One clear piece of evidence is the yawning divergence between productivity growth and wage growth since roughly 1970. Productivity has more than doubled;ย wages have lagged far behind. . . .

The importance of rewriting our stories about the way the economy works is that they frame our policy debates. Our beliefs about economics determine what seems viable and worthwhile โ€” and whether new ideas can muster support.

Preaching the value of higher wages is a necessary first step toward concrete changes in public policy that can begin to shift economic power. It can help to build support for increasing the federal minimum wage โ€” a policy that already has proved popular at the state level, including in conservative states like Arkansas, Florida and Missouri, where voters in recent years have approved higher minimum wages in referendums.

A focus on higher wages is not a sufficient goal for economic policy. . . .

But a focus on wage growth would provide a useful organizing principle for public policy โ€” and an antidote to the attractive simplicity of the belief in the magical power of tax cuts. . . .

That wonโ€™t be easy. The affluent live in growing isolation from other Americans, which makes it harder for them to imagine themselves as members of a broader community. Their companies derive a growing share of profits from other countries, which makes it easier to ignore the welfare of American consumers. The nationโ€™s laws, social norms and patterns of daily life all have been revised in recent decades to facilitate the suppression of wage growth.

But we can begin by telling better stories about the way the economy works.

Unquote.

If the minimum wage had kept up with inflation it would be around $12 today, instead of $7.25ย  If it had kept up with productivity, it would be more than $24. So it makes sense that Democratic politicians want to raise the minimum wage. Although doing so would indirectly raise the wages of better-paid workers, Democrats rarely, if ever, emphasize that fact.ย 

There are other ways for national and local government to help wages rise, such as paying government workers more, requiring higher wages in government contracts, making government subsidies contingent on higher wages, reducing Social Security and Medicare taxes for lower-paid workers (while raising them for the very well-paid) and making it easier to form and sustain unions. The Times editorial is saying that Democrats should make higher wages — higher take-home pay — an overarching message. That would convince more of the working class to stop electing Republicans and vote in their economic interest.