Killing the Economy with Low Wages and Low Welfare

Economics
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            Pearl River      Every once in a while, in trying to understand oppositional arguments from conservative economists, I try to wrap my head around their arguments.  This is especially hard these days in the US in the middle of the governmental shutdown, which of course is less about economics than it is about power, the devil takes the hindmost, meaning the federal workers and the American people.  The rationales confront the contradictions everywhere you look.

The Republicans want to hold onto their narrow majorities, pretending they have a mandate, while benefiting the wealthy and trying to pretend to support workers under a façade of semi-populist proposals.  The Democrats are holding the line at trying to retain the subsidies that make Obamacare work and where ironically, the populations that would benefit most are in the reddest states like Texas, Mississippi, and Louisiana among others.

Where the disconnections become more incredible can be seen in a couple of policy initiatives.  One is an argument that the US uses “wage subsidies to support the country’s lowest paid workers – a welfare system that keeps the poor down, primarily benefits the wealthy and undermines technological innovation.”  The other, not unrelated, has to do with the new Trump tips tax program.

Michael Lind, an academic and fellow at New America, makes the first claim that the US labor model is “low-wage/high-welfare.”  On low wages, he’s absolutely correct.  He argues that these wages are subsidized by the “earned-income tax credit, food stamps, and housing vouchers.”  It’s hard to see those programs as “high-welfare.”  His claim that the poor are being kept down is half right. They are down, but it’s because both wages and welfare are low.  He’s also half right that this “benefits the wealthy” and business, if he will admit that.  His case for undermining innovation is that cheap workers delay better machines, robots, and other tech tricks, but it’s unclear how that helps most workers.  He and his cohort should be happy that food stamps, housing vouchers, and health care support are all being crippled by Trump and Congress as conservatives continue to create a low-wage/low-welfare system.  There’s no way this raises wages or prevents the spread of crippling poverty.

Just as it may seem populist for conservatives to pretend to be for higher and living wages, the tips program is of the same stripe, but even more transparent.  This new tax feature only helps a small segment of service workers in certain jobs and at certain levels of their tips.  Have no doubts, though, this program is about these service businesses keeping wages low and subsidizing them directly through our tax program and by maintaining the customer practice of paying for their laborers.  There are many reasons that the National Restaurant Association has been one of the biggest supporters of this proposal.

None of this good for workers and is a growing disaster for lower income families.  The contradictions between rhetoric and reality are so extreme that it’s no surprise that the budget bill has continued to be so unpopular.  Smoke and mirrors aren’t going to work as the reality punches through the word salads and hype fog.

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