Rep. Amodei’s Reverse Economics: It’s the Inequality

The U.S. House of Representatives had an opportunity to increase the minimum wage from $7.25 per hour to $10.10 by 2015, and it declined to do so on a 227-184 vote.  Representative Mark Amodei (R-NV Outback) and Representative Joe Heck (R-NVTeaParty) both voted against the increase.  Representatives Horsford (D-NV) and Titus (D-NV) voted in favor of the amendment. [roll call 174]

We can use a few charts to demonstrate why the Republican thinking on the subject of raising the minimum wage is counter-productive during an economic recovery.  Before launching into the graphics, a simple reminder is in order.  The only thing that encourages employment is DEMAND, i.e. there is more demand for an item or a service than current staffing levels can meet with acceptable levels of customer satisfaction.  There are few ways to increase demand.  Demand can be mandated, such as the requirement that individuals purchase private health insurance policies if they don’t already have such insurance in place.  Demand can be generated by allowing tax incentives, such as the deduction allowed on home mortgages.  Demand can be enhanced by creating a “must have” product.   However, there are limits to these three basic demand elements.

The limit is INCOME.  As we’ve seen during the debate over the health care reform issue, we can mandate that individuals purchase health insurance from private corporations, but if they cannot afford it then provisions have to be put in place to augment their financial capacity to do so.  Likewise, all the home mortgage deductions in the world won’t assist the housing market if the homeowners are unemployed or become under-employed such that they can no longer afford the payments.   There are numerous “must have” products and services on the market — but, people are also willing to “get by” without them if the price of the new product or service is beyond their reach.  Smart Phones are wonderful items, but for  a household straining on income from minimum wage jobs they are “might someday have,” rather than “must have now” products.

Now to the charts.   Atlantic published some handy charts related to how income is currently be distributed in the United States, and this first one illustrates where that income is going as well as any:

If productivity is increasing, then what happened to the income that is supposed to be generated? “Where did the gains from productivity go? Well, they went to the top. Household income, adjusted for inflation, has grown 12X more for the top 1% than for the middle 20% … and 24X more than the bottom 20%.”  [Atlantic]   Imagine that spending (demand) is like dragging a weight in order to get to the retail counter.  A person in the top 1% of all income earners in the U.S. has a weight 12X lighter than the Middle Class Americans in the line, and 24X lighter than the burden for those in the lower income categories.   The problem is that as of 2012 there were approximately 1,699,000 households in the United States with income above $250,000 annually, out of 114,761,359 households in total.   This works out to about 1.48% of the households in the nation seeing an increase in their income while the other 98.52% are looking at stagnating or decreasing incomes.   Here’s what the result looks like from one of the Atlantic business section charts:

This isn’t healthy.  Nor is it well explained by reverting to vague grandstanding about this is “America,” or we want “freedom.”  Or, isn’t “Liberty” nice?  Demand isn’t an abstraction. It IS the cumulative result of all the daily economic transactions we make in the course of our mundane lives.  How much to spend in the grocery store?  Do we need new clothing? How many pairs of jeans will the kids need this year?

How does the minimum wage look in this context? “In 1964, the minimum wage was about 50% of the average worker’s hourly earnings. By 2011, that figure fell to 37%.” [Atlantic]  In short, in 1964 those earning minimum wages had more “buying power” than they do now.  Buying Power = Demand.

So, what Representatives Amodei and Heck are telling us in roll call vote 174 is that they see no need to address the increasing variance in income across economic lines, and they see no need to increase the purchasing capacity of American workers.   They give every appearance of clinging mightily to the comforting mythology of Voodoo Economics, in which a consumer based economy is to be supported by real transference of wealth to the upper 1.48% of American households who will “invest” in “jobs.”   The Republican screeds about “re-distribution of wealth” as a form of Socialist-Commie Plot to Destroy America are a distraction from the real re-distribution of wealth which is now eroding the purchasing capacity of America’s middle and lower economic classes and destroying our consumer based free market economy.

Heller’s Platitudes on a Platter: With Charts and Pictures

Quick! Someone get some valid economic information to Senator Dean Heller (R-NV) before he embarrasses himself again.

“The nomination of Jack Lew to be Secretary of the Treasury suggests that this Administration has learned nothing from the debt-driven economic policies of the past four years, and intends to move forward with more of its signature tax and spend policies.

“As the architect and defender of the President’s irresponsible budgets amid grave economic circumstances, Mr. Lew has failed to demonstrate the leadership and commitment to responsibility that this country needs in its chief economic advisers.

“While I respect the fact that Mr. Lew has remained a public servant for many years, I cannot support the nomination of an individual who does not share my commitment to treating taxpayers’ dollars responsibly,” Heller said. [RGJ]

Let Us Parse:

“….debt-driven economic policies of the past four years…”  OK, Senator Heller isn’t expected to be reading all the articles in every economic and business magazine and journal, BUT he could at least look at the pictures in Forbes.  We Repeat:

Now what does the headline, “Slowest spending in decades,” tell us?

“…signature tax and spend policies…“   Here’s a heads-up for everyone. There are basically two things to do with tax revenues: (1) spend the money for government services, or (2) utilize the funds to reduce the federal debt.  However, if you’ve been reading this blog even for a short while, you know that already.

Of all the GOP talking points, the elderly “tax and spend” bumper sticker shorthand is the most hoary, and least accurate.  For example, the last time we had a budget surplus it was during a Democratic Administration.   Notice that the annualized growth in federal spending stood at 3.2 and 3.8 during the Clinton years.  Notice what it did during the two Administrations of George W. Bush, during the “Credit Card Conservative” years?  Those numbers are 7.3 and 8.1, even if the 2009 stimulus is assigned to the Democratic Obama Administration.

Secondly, during any recession, and we had a whopper when the Housing Bubble exploded all over the economy in 2008, government spending increases when AUTOMATIC STABILIZATION programs kick in to soften the damage to our economy.  Unemployment insurance benefits, food stamps (SNAP), and similar stabilization programs prevent recessions from becoming depressions.   The Tax Policy Center explains:

“Automatic stabilizers are features of the tax and transfer systems that tend by their design to offset fluctuations in economic activity without direct intervention by policymakers. When incomes are high, tax liabilities rise and eligibility for government benefits falls, without any change in the tax code or other legislation. Conversely, when incomes slip, tax liabilities drop and more families become eligible for government transfer programs, such as food stamps and unemployment insurance, that help buttress their income.”

Why keep repeating this basic bit of modern economics? Because it seems to have escaped Senator Heller and other radical conservatives, who believe that if we simply reduce taxation on the wealthiest Americans investment in domestic business enterprises will magically increase even if consumers don’t have the financial wherewithal to increase the demand for goods and services.

“…As the architect and defender of the President’s irresponsible budgets amid grave economic circumstances…”  There are several problems with this analysis, aside from the fact that it is vacuous and vague.  First, I thought one of Senator Heller’s complaints was that we don’t have a budget…that we haven’t passed a budget…that we are operating without a budget? [NPR]

All right, the President is functioning with numbers from the 2011 Budget Control Act, the response to the GOP threat to shut down the federal government in the debt ceiling fight of 2011, and the source of the Silli-quester we’re now engaged in.   So, is the “out of control” spending a function of the Congressional act of passing the Budget Control Act?

Frankly and bluntly, the phrasing adopted by Senator Heller is nothing more than a repetition of the Tax and Spend mythology from the first paragraph of his statement.   And, now to the second point.

What grave economic circumstances? For Whom?

Is he talking about economic activity in terms of the U.S. financial markets?  If he is then someone needs to get him a newspaper.  Here’s the graph of financial markets as measured by the S&P 500 for the past five years:

For reference, the index was at 683.38 as of March 2, 2009.  An 831.03 increase (or 121.606 % increase) in the S&P doesn’t signal anything “grave” to me about the health of our financial markets.  So, if a family’s income depends on investments then the past five years have been anything but “grave.”

If, however, ones personal wealth doesn’t come from investments, then indeed, the picture isn’t quite so pleasant. Consider the following information from The State of Working America (pdf).

Those reports about most of the increase in the nation’s wealth going to the upper echelons of American economic elites are accurate, and not only are they accurate they follow a pattern beginning in the 1980s in which the rich start becoming yet richer while the percentage going to the bottom 80% of the U.S. population begins to trend downward.

And, it’s not only wealth distribution which is increasingly headed toward the top, it’s income as well.  During the recovery we’ve seen most of the income going to about 15 counties in the United States.  [Forbes] Forbes has more:

“Galbraith’s not the only one who feels that way. Here’s the free market apostle Alan Greenspan in 2007 admitting that “you cannot have a market capitalist system if there is a significant mood in the population that its rewards are unjustly distributed.” Notice please the notion “unjustly distributed” from one of the policymakers who made it so.”

So, at this point it might be wise to ask if Senator Heller and his Republican colleagues in the U.S. Senate might be amenable to suggestions regarding how to devise a more just distribution, one in which more American consumers could be encouraged to support our manufacturers and retailers by spending more money?

The Real Questions

Does Senator Heller understand that, as discussed previously, aggregate demand and Gross Domestic Product are essentially the same thing?  And, that a reduction in government spending means the reduction in spending for everything from personnel costs to paper clips? From aircraft carriers and armaments to thermometers for food safety testing?  Some companies are manufacturing and selling these products — thus if orders decline so does our GDP.  [See more here]

Would Senator Heller and his associates agree with legislation to increase the minimum wage?  If you really want to put more money into more people’s pockets this is the easiest way to do it.  We can assume he would not be in favor of this remedy because he voted against raising the minimum wage in January 2007.  [H.R. 2 Fair Minimum Wage Act 2007, vote 18]

Since most of the wealth for those not earning most of the family income in the financial markets is tied up in the family home, would Senator Heller support measures to bolster the value of family residences and to help families facing foreclosure?  Judging from his voting record, it doesn’t seem so.  Senator Heller’s on record opposing the Home Affordable Mortgage Program (2011), and opposing modification to bankruptcy laws to help homeowners avoid foreclosures (2009). [OnTheIssues] Nor could he even find it in his conscience to support funding affordable housing renovation in “severely distressed public housing.” [OnTheIssues]

The Real Answers

Contrary to popular thinking among Republicans it really is possible to be Pro-Business and to also consider the needs of shareholders and consumers.  Being Pro-Banking doesn’t necessarily mean a person is Pro-Growth.   Growth, as former Federal Reserve Chairman Greenspan came to understand by 2007, requires a vigorous consumer base, which in turn requires protection for those who work in our factories and provide our services.  Consumers and shareholders do not benefit from policies which further exacerbate wealth and income inequities, nor do they benefit from policies and legislation which undermine the faith in our free market system.

Protecting the incomes of the economic elite does precious  little to prevent economic instability for the majority of American wage and salary earners.  Protecting the economic elite can never add to the total wealth of a nation as much as adding more willing participants in our markets…our housing market, our retail markets, our automotive markets, or in any other market.

In short, Senator Heller’s platitudinous palaver and vague rhetoric is bumper sticker speak obscuring the very real economic issues and the very real economic answers we should be discussing.

Late Night Recommended Reading Roundup

The Nevada Progressive connects the dots in “The Secretive Climate Denial Campaign in Our Backyard.”  The AFP connected to the NPRI, the NPRI connected to the Tea Party, the Tea Party connected to the Republicans, now hear the Words of the Koch Brothers!  Highly recommended reading.

Stay tuned to the Sin City Siren for information about the upcoming Las Vegas, NV hate crime event.  Calendar marking information for those in the area here.

Talk about a business tax is waning in the Nevada Legislature; In case you missed it,  The Nevada View has a good summary, complete with a must see chart on taxation in the Silver State.  Buzzlzarownd discusses tax topics in the current session of the Assembled Wisdom.

L’Affaire Brooks  is covered in the Nevada State Employee Focus blog, and there’s more from Steve Sebelius at Slash/Politics.

Yes, there’s a big difference between deficit and indebtedness, and the Nevada Rural Democratic Caucus blog makes this clear while providing some ammunition with which to push back against the Republican’s Tocsin in regard to the Great Big Horrible Debt Which Will Consume Us Faster Than An A Speeding Meteor… or something.

Speaking of Things Financial:  Begin with the post on Crooks and Liars  about the depredations of HSBC; then proceed to “Call the Waaambulance!” for C&L’s observations on the bankers’ pearl clutching fainting couch landing after being assaulted, I say Assaulted, by Massachusetts Senior Senator Warren.  The Huffington Post describes the whining from Wall Street. Now, read the New York Times article concerning the $35 million settlement agreed to by a mortgage firm that was involved in a six year scheme to prepare and file perhaps a million (or more?) fraudulently signed documents.   Unsettling huh?  If you aren’t sufficiently annoyed by the corporate cavorting over the U.S. tax system — read “The Loophole Lobby.”

What is it that scares Republicans even more than the thought of increasing the minimum wage?  Politicususa has the answer.   And, then there’s the Tennessee Congressional Representative, who during a nostalgic tale of How I Grew Up Self Sufficient Making The Minimum Wage inadvertently made the President’s point for him.  Oh, and by the way, back in the days of the Bush Administration there were 65 Republicans pushing for an increase in the minimum wage. Who’da thunk it.

Then they went on vacation — The Congress is on vacation — again — meanwhile the Violence Against Women Act re-authorization sits awaiting action in the House.  Meanwhile, a prosecutor in Detroit is spearheading efforts to tackle the huge backlog of untested rape kits in police storage.

No, radical gun enthusiasts — Chicago is NOT proof that reasonable controls on guns don’t work.  Look at the Chart.