Tuesday, May 24, 2016

The Sensible Approach to Increasing Wages: The Discussion We Should Have

There is a very crucial discussion and dialogue that the American people must have this election cycle. 

‘What is the role of government and what is the role of business in wage growth and services?’

The American people are deeply distrusting of government these days. However, they are also deeply distrustful of business as well. The government, however, is a much more seemingly tangible and constant companion that we all can point to with such entities as the President, Congress, or either or both of the major political parties.

It’s easy for some to pile on the blame on big business. It becomes even more easy to believe because of all the hype in this election cycle regarding the billionaire class coupled with Citizens United. The reality is much more complex. Certainly, it would be far simpler if employers paid their employees more equitably. However, that’s not happened. Some focus on big business as the villain has been welcome this election cycle.

Meanwhile, some despise welfare programs because of waste. Others want to protect these programs because of the real needs of real people throughout the country. It's because of real mismanagement that most of these programs don't work efficiently or effectively. There needs to be real reform and a real metamorphosis of the concept of the administration of these programs and services.

Big business happens to have little to nothing to do with how welfare and other government service programs are constructed, administered, funded, and managed. However, because we all encounter government in one form or another, it is this threat that seems the more imminent for most.

These welfare and other government service programs do on their face add to the deficits. However, they do quantifiably boost the economy across the country as well. 
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What stands in the way of reforming them are simplistic messaging by politicians of both parties and a lack of courage to correct the unintended consequences of those reforms, i.e., fixing the ObamaCare, eliminating waste in defense, and addressing the tax code.

Big business does have a lot to do with our ridiculous tax code. 

We should gut the code and reinvent it the way it was intended . . . to incentivize better behavior to increase wages for workers. 

The reality of reform and the problems we face is much more difficult to conceptualize and put into action. There are many fears and anxieties that change presents. Inflation, job losses, losing elections: these are all potential consequences of actually trying to solve our nation’s problems.

And, real inflation hasn't been an ongoing threat for years in America. During the first term of President Obama it was because of the Great Recession that we had little to no inflation. It was due to dramatically lower energy prices during his second term. 
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The Dollar is in the best shape since the mid 90s. That's definitive progress, but still not good enough for most American households. And, having dramatic change in the value of the dollar would be destabilizing. Considering the sustained level of job growth under the Obama economy coupled with the lack of inflation, it seems we're on course for a non-wage growth economy.

This is the big drag on the economy, wages and purchasing power. 

So, how do we increase wages without increasing inflation too much, without too many job losses, and without creating too many untoward consequences?

The only arm government has to attack wages and purchasing power of the American people is through the tax code and artificially by increasing minimum wage, services, and welfare. I’ve already discussed that the services and welfare side of the equation are broken and in need of serious reform in management and administration. 
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As the business community simply isn't raising wages on their own, the government has to reassert its authority over the tax code and reacquire it's efficient use of services and welfare to better position the American people's purchasing power, which is the driving force of the economy. Consumers actually account for about 70% of the American economy. That’s where American policy should therefore be focused.

The way you increase wages is through the tax code. Simplify it. Then incentivize companies by giving tax breaks to companies that have better ratios between lowest and highest paid employees as well as those companies that introduce profit sharing.  

Some people are very concerned when you talk about increasing wages. 

Why should we even try to increase wages?

The reason to increase wages is due to profits increasing and wages increasing dramatically for the top 10%, and at an extremely high rate, compared to the other 90% of workers. That is why the American economy has stalled out where it has roughly been since the 80s, with both booms and busts.
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Currently, the American worker is getting by, not able to fuel local economies, i.e., small businesses. The wealthy are hoarding their profits and not reinvesting that back into the local economies or their employees.

Also, we’ve not raised wages in America in three decades. The system of laissez faire has failed, and terribly. The GOP talking point of ‘tax cuts only’ simply doesn't work. This laissez faire economics has failed American workers often in the past. In fact, it was these policies and other massive deregulation efforts that led to the Great Depression.

So, let's try the other alternatives and increase wages through a variety of methods. Because guess what, the American people do drive the American economy. They do deserve to be equitably compensated for their hard work.

Also, some people may believe raising wages is somehow introducing new money into the market; that’s a false belief.  These wages are coming directly from the wealth and profits created from the hard work of Americans. 

By using the tax code to both incentivize employers to have a better wage distribution from lowest to highest paid employees and executives AND to introduce profit sharing, you create a system that increases productivity, and that makes employees part of the business model that benefits their employers and themselves simultaneously.
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If wages do increase, demand for goods will increase, and therefore, prices will increase. Okay. Some people use that as an argument to maintain the status quo. There is a fatal flaw to this argument . . . executives and the wealthy continue to have had very real and substantial wage and wealth gains over the last three decades while prices have increased. Meanwhile, wages remained stagnant for workers while productivity increased steadily.
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And, if demand increases, demand for jobs increases. 

We’ve tried the approach of tax cuts for decades. They balloon deficits and debt. They collapse the economy. And, then, we forget these lessons quickly.

We must follow through and push through tax reforms that give us wage reforms. That will finally give Americans the economy they deserve. Small businesses will have renewed customers. Governments will have renewed revenues. And, we must couple all of this with a fundamental rethinking of the welfare and service sector of government. 

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