Friday, August 09, 2013

The solution to poor pay? Spend more government money...

Because apparently it grows on trees. This seems to be a prevailing view of many, even financial journalists and it's entirely befuddling. James Surowiecki of the New Yorker quotes the left wing think tank Center for Budget and Policy Priorities in stating "The best friend that low-wage workers have is a strong economy and a tight job market."

While this may be true, he also argues that to do so, "a higher minimum wage can be only part of the solution. We also need to expand the earned-income tax credit, and strengthen the social-insurance system, including child care and health care [...] A recent McKinsey report suggested that the government should invest almost a trillion dollars over the next five years in repairing and upgrading the national infrastructure, which seems like a good place to start."

Surowiecki begins by pointing to the largely ignored minimum wage protests (well, at least ignored by everyone except for a few journalists) from fast food workers claiming that the demographics of those who are employed in entry level positions has changed. Everyone who is quoted in the articles I looked at covering the limited walkouts however seems to fit the bill. Further he makes the claim:

More important, more of them are relying on their paychecks not for pin money or to pay for Friday-night dates but, rather, to support families. Forty years ago, there was no expectation that fast-food or discount-retail jobs would provide a living wage, because these were not jobs that, in the main, adult heads of household did. Today, low-wage workers provide forty-six per cent of their family’s income. It is that change which is driving the demand for higher pay.
Apparently facts aren't necessary anymore to support claims in journalism because there's no citation or reference - and it's a fact that if not true, it only goes to highlight the ridiculousness of the massive interventions he argues for. In fact, the evidence suggests that while the rich may indeed be getting richer, the poor have as well, albeit at a slower rate - but that purchasing power has increased substantially thanks to the gains in technology. For context: See here

It's too bad journalists almost consistently argue for tired old solutions that only compound problems. In a limited sense - and in the short run, their solutions "work" until the debt collectors come a knocking. Perhaps an even greater irony is that Surowiecki is the author of The Wisdom of Crowds. He should know better.

Update: TheEconomist points out another flaw in Mr. Surowiecki's argument.

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