The Minimum Wage Shows Why (and How) We Should Vote Today

It is time for the states to lead.

Every once in awhile in the history of this great country of ours, the federal government just can’t get the job done. Partisan gridlock, constitutional uncertainty, public distrust all play a role. But one of the great strengths of the American system is that the states — those laboratories of democracy, as Louis Brandeis called them — can act when Washington will not. Abolitionism, women’s suffrage, health care reform, gay rights: All started at the state level.

This is one of those times. Our national system is inert. Our national leaders are mired in the muck of inaction.

And yet there is hope. For today is Election Day, and on this day, we will elect 36 governors. This is no time to stay home when the polling places are open. This is a time to choose leaders who will act where Washington has not.

I can think of no better example of the choice we face as a country today than the minimum wage.

After World War II, Congress set the minimum wage at approximately half the average wage in the country. In today’s dollars, it was over $10 an hour. Earning the minimum wage, one full-time worker could support a family of three above the poverty line.

Today, the federal minimum wage is $7.25, less than 36 percent of the average wage. It’s so low that it can’t even keep a family of two out of poverty.

Unlike Social Security or Medicare payments, the minimum wage is not indexed to the cost of living. Only Congress can raise it. The last time they did so was 2009. Democrats proposed raising it again earlier this year, but the majority of senators opposed it.

The feds have failed to act. It’s time for the states to lead.

And we have ample evidence that they can. Twenty-three states already have minimum wages higher than $7.25. Five states — Alaska, Arkansas, Illinois, Nebraska, and South Dakota — have an initiative on today’s ballot to increase theirs.

But not everyone is onboard.

“I don’t think it serves a purpose,” said Wisconsin’s Republican governor Scott Walker last month.

“I don’t think as governor I want to be the cause of someone losing their job,” said Greg Abbott, the Republican candidate for governor in Texas, in explaining his opposition to raising the minimum wage. Pennsylvania’s Republican governor Tom Corbett made a similar argument when stating his opposition last year.

At least they pretended to know what they were talking about. When Republican Governor Rick Scott was asked what Florida’s minimum wage should be, he said, “How would I know?”

These men are on today’s ballot in four of our nation’s largest and most influential states.

And they are tragically out-of-step with the lessons of economic history. In a recent study, the economists Hristos Doucouliagos and T.D. Stanley survey the vast research that economists have done measuring the impact of the minimum wage in recent decades — 64 papers in total — and they find “little or no evidence” that minimum wage increases caused job losses.

On the contrary, raising the minimum wage is a clear boost to the economy. In another recent paper, the economist Arindrajit Dube found that raising the minimum wage significantly reduces the poverty rate, a finding that is consistent with the other 12 studies economists have published in recent years measuring the same effect in different ways.

Only a politician severely out-of-touch with the modern economy could think otherwise. Today’s corporations don’t have to cut back jobs when wages rise. They have to cut back profits, which are at an all-time high. In the long run, they might not have to cut back anything. Higher wages lead to higher productivity, better health, fewer strikes, lower turnover, and higher consumption, which in turn leads to more demand for their products and therefore higher profits.

Individual companies may not want to raise wages if their competitors won’t, but when everyone does it, everyone benefits.

Trying to save money by keeping the minimum wage low is like trying to improve your health by starving yourself. It’s classic shortsighted behavior, hardly the visionary leadership that we’d like to see in the governor’s mansion.

That’s why today’s election matters. In this age of do-nothing politics, it’s easy to despair, but we must remember the intent behind the design. The same founding fathers who created a federal system that resists radical change also created a state system that encourages experimentation. Today we celebrate their creation, and we direct its attention to the challenges of our time.

If the feds do not act, the states will. We the voters will make sure of it.

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This op-ed was originally published in the Huffington Post.

Reader Request: Do Lower Tax Rates Lead to Higher Tax Revenue?

A reader asks: If low tax rates lower income to the Treasury and cause deficits and lower economic growth, how do you explain how we ran deficits with a 70 percent top marginal tax rate in the 1970s and we ran surpluses for 1998-2001 with a 39 percent top marginal tax rate with almost identical average GDP growth for the periods? Doesn’t this fact give significant credence to the supply-side argument that lower tax rates increase tax revenue and cause surpluses?

Professor Chandra Mishra made roughly the same argument in our debate over the Bush tax cuts. I didn’t address it in my op-ed because I didn’t expect a tenured professor to advocate such a widely discredited position.

First, a clarification: I never said that “low tax rates…cause…lower economic growth.” On the contrary, the economic evidence indicates that tax cuts have a slightly positive effect in the short run.

In order for tax cuts to increase tax revenue, however, they would have to have such a large effect on economic growth that it outweighs the effect of the lower rates. Taking a smaller percent of a bigger number can yield more than taking a bigger percent of a smaller number, given the right numbers. At a certain point, if you keep raising taxes, people will stop working because it isn’t worth the effort. If enough people stop working, economic output decreases, and tax revenue shrinks despite higher rates. If you like graphs, you can visualize that “tipping point” as the top of the “Laffer curve,” named after economist Arthur Laffer who helped popularize the concept in the 1970s:   Continue reading “Reader Request: Do Lower Tax Rates Lead to Higher Tax Revenue?”

In Defense of Economists, Capitalists, and Canada

A few days ago, my air conditioning system broke. I called a repairman. He inspected the system and found the problem. A small part had broken. Luckily, he had a replacement in his truck.

“No,” I said.

“I’m sorry?” he said.

“I said no. That’s not the problem.”

He looked at me strangely. “But I just inspected—”

“I know what you did,” I interrupted. “And I’m telling you, the problem is that the system is leaking Freon.”

“But I didn’t see any leak.”

“Doesn’t matter,” I said.

“Excuse me,” he said, “but I’m confused. Are you trained in air conditioning repair?”

“No.”

“Have you ever fixed an air conditioner before?”

“Nope.”

“Then how do you know what’s wrong with it?”

“I’ve lived with the thing for twenty years,” I said. “I think I know my own air conditioner.”

“But you don’t even know how it works,” he said.

“Neither do you,” I said…and sent him on his way. My air conditioner is still broken. Continue reading “In Defense of Economists, Capitalists, and Canada”

How to Lie with Statistics

What would you conclude if I showed you the following graph?

If you know how to read a scatterplot, you’d probably say that changes in the tax rate have no effect on the number of hours worked. If you follow economic policy debates, you might be surprised by this graph because it contradicts a very common belief: Europe is less productive than the U.S. because their taxes are higher.

But I didn’t show you the whole graph. Here’s how it really looks:   Continue reading “How to Lie with Statistics”

Getting What We Paid For…

My latest post is up on the Sun-Sentinel site. I haven’t written much publicly about the financial crisis lately because I’m saving most of the material for my forthcoming book, which is taking most of my time (hence the light posting here). Because compensation has received some heavy — and, as I argue, inaccurate — press lately, I felt compelled to make this little-understood argument clear. I make the point that there is a compensation problem, but it’s not the one you think. Find out what the real compensation problem is here. And now for my addenda:   Continue reading “Getting What We Paid For…”