Why We Should Support a Guaranteed Annual Income and not just an Increase in the Minimum Wage


On the Minimum Wage

 

http://www.alternet.org/economy/robert-reich-7-reasons-why-minimum-wage-should-be-raised-15-hour

 

While Rech is spot on in his reasoning for raising the minimum wage more substantially than the ~$10/hr being proposed, there are a number of reasons why that wage increase, while helping a huge percentage of Anericans, will slso hurt a smaller, but still significant percentage, and potentially increase the concentration of wealth in the topi 1%. I’m not arguing against the idea of raising the minimum wage, in fact I would go beyond the minimum wage for those working, and give at least the amount he proposes as a guaranteed annual income for all Americans. However, without massive changes in the workings of the financial industry, the dangerous concentration of capital in a tiny percentage of individuals and corporations will continue to create instability dangerous enough to potentially destroy the economy to the degree that currency would become essentially worthlesss.

 

Raising the minimum wage to ~$15/hr (which would still likely be too low to keep a significant percentage of workers above a properly revised poverty line, and do nothing for those who for various reasons, often very good reasons, cannot work, at least in the current way in which employers expect people to work) would raise a good percentage of low income earners to just above a realistic poverty line. These people are, as a rule, those who have to spend every bit of their income and still must do without in terms of things we have been raised to expect. Ethically, and economics is really a branch of ethics, it is the right thing to do, and as such it also creates certain economic benefits. Since Reich has already listed the most important of these, I won’t bother to redo the list. I will, however, list the advantages of a GAI that would not be assisted by simply a raise in the minimum wage.

 

  1. A guaranteed annual income has four significant benefits over a higher minimum wage alone:

    1. Those who for various reasons cannot work in current working conditions remain shut out of the economy both as producers (due to demands on workers that often clash with personal and family needs) and as consumers. This is one of the reasons countries with better unemployment fall-backs do better on average, and far better during economic slowdowns, than countries without. Taking away most of a worker’s income if unemployed hurts the economy doubly, as both the productive and the consumptive economic involvement suffer hugely. If unemployment goes up temporarily in a country without a reasonable UI system, the effect tends to spiral in a way it doesn’t in a country with such a program, because the loss of consumptive involvement puts the need for other workers at risk. Unemployment, though, only helps the problem to a degree and for a limited period, any longer downturn will decrease its benefit to the overall economy. A guaranteed annual income will help this issue to a much greater degree, and the improvement is independent of the length of particular economic downturns.

    2. Since the GAI goes to everyone regardless of need, the cost overhead of such a program, when compared to the complex set of assistance programs that each have their own eligibity rules is lowered significantly. Since this is not a cost that assists either productively or to any great degree consumptively, lowering it will produce a net benefit to the economy as a whole

    3. Since it is need-independent, it doesn’t penalizes the majority if they in fact work for additional income. The few that are penalized are for the most part those who currently get the most benefit when all social programs, including tax breaks, are taken into account, the top 1%, primarily since the government could no longer afford to give its friends the tax breaks it currently does. The top 1%, as well, have the highest percentage of any of the income groups of members who do no work whatsoever, which makes them the biggest ‘idle’ welfare recipients in the country.

    4. Cutting tax breaks to the wealthiest individuals and corporations would implicitly assist in lowering the dangerous concentration of wealth. The reason an increased minimum wage would not have an equivalent effect has to do with the way in which the wealthy are able to maintain (and usually increase) that wealth year over year. The primary vehicle is interest. In order to ‘save’ or ‘invest’ money, someone wealthy implicitly requires persons or companies to spend that money via borrowing. The problem specific to an increase in the minimum wage is that it actually enhances the ability to borrow, while not significantly reducing the desire to do so. If most people put their financial status ahead of everything else in their lives, aside from a huge number of lives becoming absolutely miserable, the economy would disintegrate, but even prior to that disintegration, only if the government is willing to increase its borrowing to match the decrease in borrowing by individuals and private companies could those living on interests or investment income continue to do so. Money ‘saved’, if not borrowed by others, is simply money lost, and the money borrowed by those with the means to do so and simultaneously the need to do so in order to live in a reasonable manner is necessary to keep economic demand sufficient to make investment anything other than another way to lose money. A raise in the minimum wage alone, without an increase for those who cannot work, and a change in the financial system that would cut down on the ability to live off others’ labor via investment and interest, would not raise the income significantly of those who currently have both the means and the need to borrow in order to maintain a decent lifestyle (including such things as covering the costs of children and elderly family members, not particularly adding luxuries), but would increase the number of those with the means, as well as the need, to borrow. This increase in the demand for both goods and credit both lead to a greater increase in the concentration of wealth in the top 1%. While the top 1% is likely to get some reductions in social assistance via tax breaks, the increase in the size of the pie, and the increase in the percentage of the pie that is used up paying interest and taking profits would more than make up for the loss in tax breaks.

 

Those that have the most to lose in this situation are those who currently earn enough to pay taxes, and get by on their income, but do not earn enough to pay for things that they might not even think of going without or even could go without and not simultaneously lose their income(such as children, a house, a car) . With a greater number of people with the means and similar reasons for desiring to borrow, the increase in demand will almost inevitably raise the interest rate, and the increase in spending, while increasing the earnings of companies, will also increase the cost of doing business in terms of accounts receivable cash flow loans and profit-taking to maintain investment levels. A GAI, since it also increases, though by a smaller percentage, the basic incomes of those just above the level of ‘getting by’, will by a small margin decrease the pressure to raise interest rates, the increase in cost of doing business, and the pressure to increase profit taking in order to maintain investment levels.

 

The final point in favor of a GAI is that, like universal health care in those countries that have it, the universality of the program gives the vast majority of citizens an incentive to maintain it. Since only a small minority would not gain from the GAI, only a very small percentage of the population has an inherent desire to dismantle the system by electing a government that proposes to do so. A higher minimum wage, by contrast, benefits a large, but significantly smaller percentage of the populace, and as importantly benefits that percentage with the least political leverage, while hurting a much larger percentage of the populace (due to increased interest rates and prices, and increased pressure to keep non-minimum wage salaries down to minimize the increase in payroll costs). This combination makes it much easier for a group interested in revoking the increase to gain sufficient public support to do so.

 

Obviously, since the problems that an increased minimum wage can cause are only partially mitigated by the alternative of a GAI, other things need to change simultaneously.

 

  1. The right-wing attacks on only one segment of those who do not work, those who are also poor, needs to be eliminated by pointing out, and continuing to drive the point home until the majority get it, the reality that the majority of money given to those who are idle goes to the very wealthy, not to the poor; the reality that many of those who are poor and do not work cannot work precisely because they can’t afford to, either because paying for childcare or care of the elderly would cost more than they can earn, or because it would impact their health too greatly; and the reality that the majority of those who do work, and ironically the higher the income, the higher percentage the percentage that fall into this bracket, do not do anything useful. Well over half of American workers do nothing useful. In many cases the appearance of usefulness is simply created by an inverse (and equivalently useless) job role elsewhere that, since it exists, has to be countered. Eliminating both, via intelligent legislation that removes the apparent need for those workers, frees everybody from the perceived need to work as many hours as they do (which lowers productivity even further) and would force those who want ‘more’ than the universal income to find something useful to do in order to obtain that ‘more’. Those who would want more, whatever the actual level of the GAI, would include the vast majority of those who work now, because most people work, and work as hard as they do, in order to feel productive and maintain their social status and respect of their peers than simply in order to cover the cost of living. The attacks on those in the most need of assistance are only justifiable via a backwards and archaic morality that goes directly against both ethical and economic considerations. Eliminating the specter of the ‘lazy and useless poor’ on social assistance, by constantly reminding people that the lazy are primarily found in the richest neighborhood, not the poorest, and the most useless in the highest income brackets, not the lowest, would significantly undermine any attempt to revoke any gains that might be made.

  2. Paying for the GAI by decreasing the concentration of wealth, and by eliminating non-productive overhead associated with assessing means in granting social assistance and overhead associated by employing vast numbers of workers for too many hours per week who accomplish nothing of actual worth would:

    1. lower stress due to working too much and the attendant medical costs from stress related illnesses

    2. increase productivity in the majority of jobs, because beyond 30-35 hours per week, depending on the nature of the job, leads to poor attention to the work and the massive cost of rework that should have been unnecessary

    3. lessen the prejudice against those who cannot work either due to other social and family realities, since those who do work will need to actually find something useful to do, and this will be more difficult when useless jobs are demonstrated to be useless, and eliminated.

  3. Not cause the economy to implode due to a lower rate of employment. Productivity would be increased by eliminating rework, costs lowered via lowering of medical costs due to stress and lowering of the overall payroll by eliminating jobs that don’t actually contribute to that productivity. Simultaneously demand would be maintained and even increased by the simple fact of putting more money in the pockets of those that need to spend it, thus keeping the money in circulation.

  4. Keeping more of the available money in the economy in circulation is one of the best ways of lowering demand for credit, and therefore lowering interest rates, which are in fact the main cause of inflation. Workers demand raises as a consequence of interest-related inflation, and rarely get the equivalent of the increase in cost of living, since giving them that equivalent would simply raise inflation further beyond the interest rate that generates its minimum value.

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One thought on “Why We Should Support a Guaranteed Annual Income and not just an Increase in the Minimum Wage

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