Higher Wages Help Everyone

Much of what is known as “economic theory” is gibberish. It is propaganda, implanted into the minds of academics for one reason: to preserve the status quo of always favoring the (very) wealthy over all other members of the population. The facets of economic doctrine which are valid, are valid because they do little more than express principles of simple arithmetic and common sense.

“Supply and demand” is just simple arithmetic and common sense. If supply exceeds demand (i.e. there is a surplus), the price falls. This depresses supply and stimulates demand, until equilibrium is restored. If demand exceeds supply (i.e. there is a deficit), the price rises. This stimulates supply and depresses demand, until equilibrium is restored.

Similarly, the principle of economics known as the Marginal Propensity to Consume, is nothing more than an expression of simple arithmetic and common sense. Put a dollar into the hands of a poor person, and that person will spend the entire dollar, providing maximum stimulus to the economy. That’s not a “theory.” It is an elementary fact.

Put a dollar into the hands of a middle class person (the few who remain ), and that person will spend most of the dollar, and save a small portion of it. Again, this is not a “theory.” It is an elementary fact. Put a dollar into the hands of a wealthy person, and that person will hoard the vast majority of that dollar. The wealthier the person, the greater the percentage that is hoarded.

Thus economic theory tells us that the more-equitably that wealth is distributed in any economy (and society) the stronger and more prosperous that economy will become. The last century of empirical evidence shows us precisely the same thing. In the 1960’s; wealth was distributed in our societies more equitably than at any other time in our history. In the 1960’s; our economies were more prosperous than at any other time in our history.

Today, wealth is distributed less equitably than at any time in our history, i.e. the oligarchs at the very top, are hoarding a greater percentage of wealth than at any time in our history. Our economies are bankrupt. (Real) unemployment is at record levels. The middle class has almost been wiped out, and individually, we are drowning in more debt than at any other time. And this is how things look as the Next Crash looms before us.

When was the only other time in history when our economies were in almost this horrific a condition? During the Great Depression. The Great Depression is the only other time in our history when wealth was concentrated almost as extremely and inequitably as it is today.

This is nothing more than a manifestation of common sense. We have “capitalist economies.” What happens when a tiny minority of people hoard most of the wealth, and thus this “capital” ceases to circulate in the economy? The economy begins to starve to death, i.e. there is a Depression. The evidence could not be more obvious.

More and more and more wealth is hoarded by the Top 0.1%. Less and less and less capital circulates in our capitalist economies. What is the only way to restore any semblance of health to our economies ( afterwe initiate Debt Jubilee )? By increasing the percentage of wealth in the hands of the people, and reducing the percentage being uselessly hoarded by the oligarchs.

In the United States; the Top 0.1% is hoarding as much total wealth as the bottom-90% combined. Obviously this tiny group of people didn’t earn (roughly) 90% of all wealth. They stole it. The easiest way to liberate this stolen wealth is via taxation.

The easiest way to put more dollars into the hands of the people is a two-stage process:

  1. Create jobs for everyone , instead of structuring the economy so that 20+% of the population are not allowed to work.
  2. Pay the people fair wages.

In real dollars, wages for the Average Person have been declining for nearly 50 years. Consequently, ourstandard of living has fallen by well over 50%. Yet despite all of these indisputable facts, there is still a large community of Neanderthals who insist that paying people a livable wage (rather than a slave wage) would destroy our economies.

“It’s going to cause a job loss across the country like you’re not going to believe.”

What was the context for this dire prediction? These were the words of a McDonalds executive , predicting the End of the World, should McDonalds employees ever be paid a livable wage of $15/hour (USD). Let’s explicitly expand upon the reasoning behind this fear-mongering.

  1. If McDonalds was forced to pay its workers $15/hour (due to a mandatory minimum wage) it would have to raise prices.
  2. If McDonalds raised its prices, people would stop buying its food, sales would fall, and the (fairly paid) workers would lose their jobs.

Why would McDonalds’ sales fall dramatically, if it raised its prices? Because the United States is (like Canada) a minimum wage economy: the land of the Working Poor . If McDonalds paid its workers fairly (so goes the logic), the rest of the Working Poor could no longer afford to shop there.

Wrong.

If all of the Working Poor were being paid $15/hour (USD) instead of the current minimum wage of $7.25/hour, all of the slaves would have more than twice as much money in their pockets . If everyone was paid a livable wage, no one would lose their jobs because of higher prices.

Note the other argument of the McDonalds Neanderthal:

“It’s cheaper to buy a robot than hire at $15/hour.”

Yes. Why don’t all the Slave Masters replace all their slaves with automation, instead of paying those slaves a livable wage? And once all of the slaves have been replaced with “robots”, who will buy McDonalds hamburgers? The robots? Indeed, with McDonalds’ sales already spiraling downward, if they ever did pay their workers a livable wage, it could be the basis for a new advertising campaign: buy McDonalds “ fair-wage burgers .”

We don’t need to view this issue hypothetically, when we have a real-life example of (relative) enlightenment: Switzerland. In Switzerland, a referendum was held to seek to raise the minimum wage to the equivalent of $25/hour (USD). According to people like the McDonalds Neanderthal, if a $15/hour minimum wage would cause job losses “like you’re not going to believe” then a $25/hour minimum wage would be nothing less than economic Armageddon.

In fact, the referendum was defeated. However, of greater relevance is the fact that even if the referendum had passed, almost nothing would have changed in Switzerland’s economy. In Switzerland, 90% of the workers already make more than $25/hour (USD). Is Switzerland’s economy collapsing, because its workers are being “overpaid”? No. Switzerland has one of the only healthy economies in the Western world.

High wages (for the workers) = prosperity.

This was an empirical fact with our own economies, a half-century ago. It is an empirical fact with Switzerland today. Simple arithmetic and common sense tell us that fair wages for the workers must lead to greater economic prosperity, for everyone. All of our economic empirical evidence shows precisely the same thing. As our economies become more-equitable, they become stronger and stronger. As our economies become less-equitable, they get weaker and weaker.

For those who choose to ignore simple arithmetic and common sense, and for those who choose to ignore 100 years of empirical evidence, we have the IMF .

IMF study finds inequality is damaging to economic growth

Simple arithmetic. Common sense. Empirical evidence. Economic studies. Still not convinced that greater wealth equality helps everyone? How about these words of wisdom?

An imbalance between rich and poor is the oldest and most fatal ailment of all Republics.

Who uttered those words? Were they from one of the authors of the IMF study? No. Those were the words of Plutarch, a Greek philosopher who lived 2,000 years ago. Two thousand years ago; it was already “old news” that the fastest/easiest way to destroy the economy of any nation is to allow the wealthy to steal-and-hoard most of the wealth.

Apparently, we haven’t learned much in 2,000 years.

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About the Author: Sprott Money