Wednesday, June 13, 2007
Some Liberal Heresy - the Minimum Wage
Alan Cranston was at one time the California State Controller. There was a scandal at one time about the excessive fees that estate appraisers were charging to appraise the estates of well-to-do people who'd died and left small fortunes to their relatives. It seems, now that I think about it, that the scandal wasn't about the fees but rather about Cranston's choice of individuals to be official estate appraisers. The job was a nice political plum and some people were upset that Cranston was rewarding some of his political friends and allies with estate appraiser positions. A lot of us Californians were rather annoyed at Mr. Cranston.
Anyway, when Cranston ran for the Senate, his Republican opponent was Houston Flournoy. I voted for Mr. Flournoy. He seemed like a nice man and hadn't been accused of appointing cronies to nice cushy State jobs. As I recall, Mr. Cranston won the election without my support. Mr. Flournoy eventually faded into complete obscurity. I don't know what happened to him. Mr. Cranston served in the Senate for many years. I remember meeting him more than once at Democratic club events. He made it a point to attend these parties and press the flesh of the faithful.
All of this information about my voting habits is to give you some background as to my liberal credentials, such as they are. I am uncomfortable about the minimum wage, in particular about the periodic adjustment of the minimum wage to correct for inflation. Perhaps part of my discomfort comes about from my own situation of being retired and living on an income that is not indexed for inflation. Anything that encourages inflation reduces the effective value of my savings and the revenue I enjoy from them. I am convinced that raising the minimum wage helps maintain the gradual inflation of our currency. I am also convinced that, in the long run, raising the minimum wage doesn't really provide an increased standard of living for the poorest members of our society.
There's a story that I learned many years ago. When Henry Ford started his factory to produce automobiles in large numbers, with workers who specialized on different parts of the car, he realized that his workers were living in poverty. He gave them a big raise to something like five dollars a day. In the 1900's that was a lot of money. What happened was that at first the workers enjoyed the extra money in their pockets. Then the grocers, the landlords, the barbers, the cab drivers, the bus drivers, and everybody else realized that the Ford workers had all this extra money. The price of groceries went up. Landlords increased their rents. The private enterprise system worked according to theory: everyone with a product or a service to sell charged whatever the market would bear. Soon the workers were again at the bottom of the economic ladder, no better off than they had been before Henry raised their wages.
This story influences me. I know it's not a "liberal" story. I am committing some kind of liberal heresy for repeating it. If there is a Pope of liberalism, I will be excommunicated. I'm sorry about Ford's workers, but I am convinced that the story is true. Our system of individual freedom implies that purveyors of goods and services are free to charge whatever they choose for their products. That's a situation that has existed since before the time of Caesar Augustus. There will always be a fraction of our population that is poor and living on starvation wages.
A British economist once enunciated the "Iron Law of Wages." If there are more workers available than jobs for them, competition for jobs will have the effect of reducing the wages to the level where the workers can barely buy enough food to maintain their strength needed to do the jobs. Couple that theorem with the Henry Ford corollary, in which prices will rise until the poorest people can no longer buy, and the result is the permanent creation of a poor underclass, barely able to survive.
At various times compassionate men and women have tried to create different models for society in which this underclass of extreme poverty would not exist. Some models were based on religious belief. Individuals formed communes, like the Shakers. The Mormons today have a social order within their religion that takes care of the poor and provides them with food, jobs, and housing. Monastic orders are examples of such models. Monasteries and the Mormons are examples of religious societies that have eliminated extreme poverty. Another model, socialism, was enunciated about 150 years ago as a way to organize an entire society in a way that eliminates extreme poverty. Socialism has been tried in several places with varying degrees of success. Where it has failed the failure was partly due to corruption and the creation of a privileged class within the society. Pure socialism has not yet succeeded in any society. Some countries, particularly in Scandinavia, have elements of socialism in their economic structures. Because these countries are also open and democratic, the bane of corruption and favoritism has not brought down the society in the way that the communist experiment in Russia eventually collapsed. However, the Scandinavian countries are not purely socialistic. Their economies are a mixture of private enterprise and socialism. Their experiments continue; the future will tell how successful they are.
I would despair completely our present American society if I could not look to Scandinavia for hope. Perhaps I am prejudiced; my Grandfather came from Sweden in 1853.