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The Minimum Wage: Greed, Money & Income Inequality

Friday, August 8, 2014

Back on July 25th I republished a post from December on the minimum wage.  I wrote the original post before I started buying stock graphics (from Shutterstock) for each of my posts, so I went online to see what I could find.  The drawing of a "greedy" business/banker type struck my fancy.

I chose it mainly because I figured I'd get some grief from "my side of the aisle" for suggesting that the problem of the minimum wage is a problem of greed.  And criticism I got - which is exactly what I had hoped for.

There are a number of different issues in the news today that have a number of different angles that we as conservatives - both social and fiscal conservatives - do not usually consider.  There is a reason for this, and it has to do with a book written back in 1971 called "Rules for Radicals."  But that is really a topic for another post.

And the minimum wage, as I have written about a couple of times, is one of those issues.  It is, in fact, an issue of "greed."  It is not, though, the greed of ordinary business people.  It is not even "greed" in the overt sense of the word as might have been suggested by the graphic.  It is a form of "greed" that does not recognize the distinction between self-interest and selfish interest.

Self-Interest & Selfish-Interest

The difference between these two is actually quite simple.  A "self interest" is something that not only advances your own interests but also has ancillary benefits to others.  Buying a home is a perfect example.  It is well documented that neighborhoods with a high percentage of home owners tend to have lower crime and better performing schools.  The relative affluence of the homeowner only explains part of this dynamic; the sense of being a stakeholder in the neighborhood where you own a home explains the larger share of why this is.  Most people - myself and my wife included - buy a home for its tax benefits and to start building some wealth toward retirement - that is our self-interest.  But the choice ends up redounding to the benefit of others as well.

A "selfish interest" is, by way of comparison, an interest which when pursued comes at a cost - usually a hidden and anonymous cost - to others.  And this is where we see the greed - if we are willing to have our assumptions challenged.

Example: Gold, Money, Debt & Speculation

A little history is needed here.  Before 1971 the U.S. dollar was backed by gold at a legally set price of somewhere around $35 per ounce of gold.  This restricted the amount of money which could circulate in the economy.  The restriction, however, was based on the assumption that only a certain amount of dollars at any certain point would be presented for redemption, so we could actually have more money circulating than we had gold in reserves at that $35/oz. rate.

This worked fine as long as everyone had confidence that the dollar would retain its value.  And after WWII, that confidence was high, not only here in the U.S., but throughout the world.  The dollar became the world's "reserve" currency (meaning international trade was all priced in dollars).  Lyndon Johnson and later Richard Nixon, and the Great Society and Vietnam War (as a matter of economics, mind you, not foreign policy) produced the start of deficit spending with their "guns and butter" budgets.

Questions started to rise in the minds of other countries about whether the U.S. actually had the gold reserves to back the inflation of the money supply to pay for the Great Society social programs and the Vietnam War.  So countries started to demand gold for their dollar reserves.  Once that started, no one wanted to be at the end of the line when there was no more gold.  It was a "run on the dollar" - and forced Nixon to remove the dollar from the gold standard.

We are over 40 years past that now, and the results are clear.  I'll list a few which seem to be completely unrelated to this discussion, but which are, in fact, a crucial part of the debate:

1) Campaign Finance: As people on both sides of the aisle debate the flood of money into politics, one side defends freedom of speech and the other decries corruption. Has anyone bothered to ask where all of this money comes from?

2) Debts and Deficits: I have shown in another post how the steep increase in the gross public debt started right after the dollar was removed from gold standard.  With no natural restrictions on the money supply, politicians are free to make promises with no actual plan to pay for them - at least no plan that can withstand even rudimentary mathematical scrutiny.

3) Income Inequality: In that same post I show how the increase in income inequality started at the same time.  This should not be difficult to grasp: The people to whom you owe money will always have more of it than you.  And the more you owe, the greater the disparity will be.

4) The Minimum Wage: As I have argued in the December 2013 post I republished, the problem of the minimum wage is a real problem because the loss of purchasing power (which is really what higher "cost of living" means) is actually lowering the minimum wage in the real terms of what it buys.  This is a problem - especially for me as a social conservative - because I believe that the inherent dignity of the human person means there is inherent value to their labor.

5) Speculation in Commodities: I have explained in yet another post how speculation in commodities futures works, and why it is probably the very best example of selfish interest - coming at hidden and anonymous costs to others.  But the same question applies here as applies to campaign finance - where is all this money coming from?

There are two things I hope the reader - from both sides of aisle - will come away realizing.  The first is that these issues cross the lines which have been drawn for us by conventional partisan orthodoxies.  Nowhere is that clearer than on the matter of the public debt and income inequality.  The Saul Alinksy-inspired framework for thinking about these things (i.e. "Rules for Radicals") tells us we should be off in our corners living vicariously through Rush Limbaugh or Jon Stewart as we try to out-ridicule each other.  The whole point of this blog and my book is to call us to something better - to both think for ourselves and talk to - not past - each other.  Even though I am a conservative, there is a reality to which the Occupy Wall Street folks are pointing - they just don't fully understand its origins.

And that brings me to the second thing: how this all drives down to a sound dollar.

The Occupy Wall Street movement has it partly right in complaining about the "1%."  They just have not yet figured out exactly who these people are.  There is a nice little game going on right now.  Once the dollar was removed from the gold standard, the banking sector saw this for what it was right away.  "Credit" is part of the money supply.  It is also how banks make money.  With no limits on the money supply there is no real limit to how much credit can be extended - and therefore how much profit can be enjoyed - by the banks.  And all that extra money doesn't just get lent out in the traditional fashion.  It also goes into hedge fund speculation on commodities - and into political action committees and campaign coffers.

Now before I go further, let's back up and look at this in terms of self vs. selfish interest.  Sound banking - and the profit it generates - is an example of self interest.  The bank shareholders win.  The small business person gets a loan she can repay; she wins.  Our neighbor who gets hired by that small business person wins.  And the retiree who owns the bank's stock in their retirement portfolio wins.  And at the end of the day we all win - as long as the banking sector is facilitating the exchange of real wealth represented by a sound dollar - otherwise standing in for the wealth of the nation as represented by reserves of gold held by the Treasury on our behalf.

But when that dollar is taken off of the gold standard - a situation forced, as it were, by public debt - the natural limits to the money supply are erased.  This then sets the free market against itself.  Banks are owned by shareholders.  Bank management has a legally enforceable duty to return value to those shareholders.  Returning value to shareholders now competes with sound lending practices.  In the short term, sound lending practices lose that battle every time; the excess money has to go somewhere.  Under these circumstances, our money supply gradually stops being an expression of the wealth of the nation and instead becomes an expression of the wealth of bank shareholders.  That gradual shift happens to be exactly correlated with an increase in public debt, speculation and campaign cash, and a decrease in purchasing power and the minimum wage in the real terms of what it buys.  And in the longer term, as we have painfully learned recently, everyone loses when there is an excess of bad debt.

Game On

The game, you see, is this:

"You guys," say the political sector to the banking sector, "seem to be doing quite well under this new monetary regime.  We want in.  We'll let you "print" money (and in the age of the computer this does not require a printing press) to your heart's content.  You just need to shovel some of it our way so we can keep making ridiculous promises and stay in power."

The wealth of bank shareholders today is tied mainly to the price of U.S. Treasury bonds (i.e. the public debt).  As the price of those bonds goes up, the interest rate goes down.  So in order for the government to keep borrowing, they need the price of those bonds to stay high.  Like anything else in the economy, that is a function of demand.  So the Federal Reserve inserts itself in the market for these bonds and bids them up (by using the big banks as proxy bidders) with money created out of thin air in what they call "Quantitative Easing."  By doing this, the Fed basically props up both government borrowing and the banking sector by propping up the price of Treasury bonds.  And they do this by manipulating the money supply.

Our money supply is now an expression of the wealth of the banking sector, at the behest of the political sector who want to remain in power.  If you want to know exactly who the 1% are, look no further.

And this, then, explains why labor is agitating for an increase in the minimum wage.  Only the problem is not, again, wages; it is the devalued money in which those wages are paid.  If labor and the Occupy Wall Street movement are truly interested in a just economic order where all enjoy an equal opportunity (not an equal outcome) to enjoy the creation of real wealth, they will join us conservatives in our call for a return to a sound dollar.

Like many, I place a quotation at the end of each email.  Mine comes from Steve Jobs in a commencement address to the graduates of Stanford University: Don't be trapped by dogma, which is living with the results of other peoples' thinking.

Dare to color outside the lines! The minimum wage is just one of many issues which calls us to set aside the conventional partisan orthodoxies and think for ourselves, and to start talking with rather than past each other.

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