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'We've Structured Our Economy to Redistribute a Massive Amount of Income Upward' Janine Jackson ([link removed])



Janine Jackson interviewed Dean Baker about raising the minimum wage for the September 3, 2021, episode ([link removed]) of CounterSpin. This is a lightly edited transcript.

[link removed]
Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer

CEPR (2016 ([link removed]) )

Janine Jackson: The media debate around the minimum wage has advanced. You don't hear so much about "pin money"—the notion that minimum wage earners are just looking for a little extra change, and not a livelihood. You may even have heard suggestions that the US minimum wage is out of whack, that it should be higher than it is.

Still, as with reporting on most major economic premises and priorities, media discussions of the minimum wage mainly rattle around the same old tracks; they just don't go deep enough, don't ask the right questions of the right actors, to actually explain why so many US workers are struggling by on so little.

Here to break it down for us is economist Dean Baker, co-founder of the Center for Economic and Policy Research ([link removed]) , where he writes the blog Beat the Press ([link removed]) , and author of, among other titles, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer ([link removed]) . He joins us now by phone from Utah.

Welcome back to CounterSpin, Dean Baker.

Dean Baker: Thanks for having me on, Janine.

JJ: If we could do some brief 101: What is the logic behind there being a link between the minimum wage and productivity? That reflects a societal value, right?

DB: Yeah, it does. So we established the minimum wage, the national minimum wage, back in 1938, under part of the New Deal, the Fair Labor Standards Act. And I actually can’t even tell you the exact figure ([link removed]) it was set at. Of course, it’d sound very low, because we’ve seen a lot of inflation since then.

But from 1938 to 1968, the minimum wage rose roughly in step with productivity growth. And just to be clear what that means to people, productivity growth is the amount of output we produce in an hour, goods and services we produce in an hour. And the minimum wage over that period rose pretty much in step with that.

And to be clear how that was done, basically they had the minimum wage following the median wage. And the median wage at that period, ‘38 to ‘68, followed productivity growth. So the minimum wage following the median wage meant that the minimum wage also followed productivity growth.

And the implication of that is that even workers at the bottom, what we might think of as the least-skilled, lowest-paid workers—not disparaging these people, just literally saying they’re the lowest-paid workers, people who work busing dishes in restaurants, or cleaning toilets in hotels or businesses—those people shared in the gains in the economy. So the idea was that even those at the very bottom, they got richer when the economy as a whole got richer.
Minimum Wage vs. Productivity

CEPR (1/21/20 ([link removed]) )

JJ: Now we come to the chart folks may have seen, and there’s a nifty version in your recent Beat the Press post ([link removed]) on this, of the minimum wage over time coming detached from productivity growth. I’m going to ask you to explain that delinking, and what relinking those things would entail.

But first of all, you have a nice moment in your recent piece where you talk about $26 an hour, which is what it would be had it kept pace, what a minimum wage of $26 would look like. You spend a minute visioning that. I wonder if you could do that for us.

DB: Yeah, I just did the calculation, and that’s an easy one to do, just taking minimum wage from its peak value in ‘68, and just carrying through what it would be if it rose in step with productivity, and you’d get $26 an hour. It’s a hair less, but trivially so.

So you just go, OK, what does the world look like? Imagine we had done that. So someone’s working a 40-hour week, 50 weeks a year. That comes to $52,000 a year. So imagine the lowest-paid worker—again, the people who are busing dishes in restaurants, cleaning toilets—that they made $52,000 a year. It’s just, to my mind, almost mindblowing in terms of how different the world would look.

So say a single mother is raising two kids. Well, $52,000 a year, that’s well over twice the poverty line. I’m not going to say that person’s hugely rich or anything. Of course not. But that’s a comfortable middle-class existence.

And then I say, well, suppose you have two earners. Let’s say we have two earners, very bottom of the pay scale. And let’s say, even at the bottom, there’s some opportunities for pay raises, promotions. So say 15, 20 years into their working career, people in their mid-thirties, 40, at that point let’s say that their pay is 20% higher. That’s pretty modest. So they have 20% above the minimum wage. That would be over $60,000 a year.

So if you had two earners, they’d have $120,000 a year as their income. This would be people at the bottom end. And it’s just sort of an interesting thought. What a different country we would have if the lowest-paid people, a two-earner couple, was still pocketing $120,000 a year.

JJ: And, of course, the politics would change, because people would be able to imagine a future for themselves and their children. And they wouldn’t feel shackled by debt and—

DB: Again, I just wrote down the number. I said, well, let’s think that through for a moment.

JJ: Let’s think about it.

DB: It almost sounds farcical. But you go, no, we were doing that until 1968. And it’s not that we had all Communists running the country in the ‘40s, ‘50s. Dwight D. Eisenhower was president for eight of those years.

JJ: Exactly.

DB: So it wasn’t as though we were being run by crazy radicals in that period. But that’s what we were doing at the time. The minimum wage, those workers at the bottom, were seeing their living standards rise in step with the growth in the economy.

JJ: Starting from now—and this is important—if we were simply and solely to raise the minimum wage, some bad things would happen. Most media debate just stops there, and that’s the problem with most media debate. You explain why we can’t just do a higher minimum wage; we have to also change a number of other things. And that gets at how the wage got out of sync with productivity in the first place.

DB: Yeah, so just to be clear, there are ongoing debates on raising the minimum wage by more modest amounts. Many people have set the target at $15 an hour for 2026. And much research shows that we don’t have to worry about a lot of job loss at that. So I don’t want to scare people away from that. But I’m talking about a considerably higher number, obviously; I’m talking about $26 an hour today.

JJ: Right.

DB: In 2021. So that’s considerably more than, say, $15 an hour five years from now. But, in any case, suppose we wanted to do $26 an hour? Well, that would create a lot of unemployment, a lot of problems in the economy, ’cause we’ve structured it to redistribute so much income upwards

And what I always start with here are patent and copyright monopolies, just because this is so incredibly important. There’s so much money at stake. And it’s also literally never discussed. So the fact that people are getting incredibly rich over the Moderna vaccine, or the other vaccines and treatments being produced for treating the coronavirus, that’s because we gave them patent monopolies.

And we didn’t have to do that. In the case of Moderna, we basically paid for the research. So why on Earth the government would give them a patent monopoly, and arrest their competition, is hard to understand. But that’s the sort of thing that redistributes a huge amount of income from the rest of us to the shareholders at Moderna. And, obviously, the higher-paid top executives and, I’m sure, some of their top scientists are doing very well from this.

So that’s a really big part of this story. Patent and copyright monopolies, by my calculation, redistribute on the order of more than a trillion dollars, about 5% of GDP, or half of all corporate profits, upward. So I would certainly look at much weaker and shorter patent and copyright monopolies.

We have a corrupt corporate governance structure. Basically, CEOs write their own paycheck. And as a result of that, we’ve seen an explosion of pay at the top of the corporate ladder. So CEOs now get 200 to 300 times the pay of a typical worker. If we go back to the ’60s, it would have been around 20, 25 times the pay of a typical worker.

So you might see a CEO, if we had the same standard in place, the CEO at a major company, instead of getting $20 million a year, might get $2 million a year. And I always raise this point and people go, well, yeah, that’s bad, but CEOs, there’s only 500, the 500 large companies. But it’s not just the CEO. If the CEO is getting $20 million, the CFO, chief financial officer, is probably getting $12, $13, $14 million. There’s probably a few other top executives in the C suite also getting somewhere near $10 million. And then the third tier is probably getting $2 or $3 million also.

JJ: Right.
Dean Baker (image: BillMoyers.com)

Dean Baker: "We’ve basically structured our financial sector to rake off enormous amounts of money from the rest of the economy." (image: BillMoyers.com)

DB: If you had the CEO getting $2 million, then you’d see corresponding reductions in the pay of the other people at the top. And that has a huge impact on pay scales throughout the economy. So if we had a corporate governance structure that was similar to what we had 50, 60 years ago, we’d see CEO pay that was more in line with what we had in those decades.

The financial sector—we’ve basically structured our financial sector to rake off enormous amounts of money from the rest of the economy. And, again, it’s not a story that they’re contributing.... If you look at the hedge fund—I was going to say guys. Almost all of them are guys.

JJ: Right.

DB: But, whatever, hedge fund people, that often have pay in the hundreds of millions, even billions a year, they’re not contributing to the economy. And again, I’m open to that argument. If you’d show me, oh, here’s all these great companies, that wouldn’t have gotten the capital they need, but these brilliant hedge fund people were able to recognize them.... Well, if that’s the story, you could tell that. Except there’s no evidence to support that story.

JJ: Right.

DB: So we structured our financial sector in a way that allows for enormous fortunes to be made, again, at the expense of the rest of the economy.

So those are the three I would highlight. I may give you other examples. But the basic point is, we’ve structured our economy in ways to redistribute a massive amount of income upward. And if we don’t address that restructuring, if we don’t basically reverse what we’ve done over the last four or five decades, we can’t have a world where people earning the minimum wage get $26 an hour. So we've got to focus on the ways we’ve misstructured the economy, so that people at the bottom—and, in fact, people at the middle—could live decent, secure lifestyles.

JJ: Some pundits still use the image of the "burger flipper" as a kind of emblem of someone who, you know, no moral judgment, but they just don't contribute enough to productivity to "merit" a higher wage. It sounds like there really are better emblems for that.

But it’s a bitter pill that, for example, CEO pay is stratospheric, that our tax and regulatory structure wildly rewards a handful of people who contribute little or nothing to the productive economy, and that that happens because the people who could change it just have no incentive to.

I think people really want there to be a better reason than that. And by not seriously engaging that reason, I think corporate media lead us to believe that there is really a real, dry-eyed reason things have to be this way, we just don’t understand it.

DB: I think that’s very much right, and trying to get—you know, you’ve been doing this as long as me—trying to get to the core: What is the problem here? I mean, I know many of these reporters. They aren’t on the take. But it literally doesn’t occur to them.

So the idea that, oh, we did not have to give Moderna a patent monopoly. Here we are in this worldwide pandemic crisis. We could have just said, “We paid you for the research. We’re not also going to give you a monopoly. And if it’s not worth your while to do the research for the money, then we’ll find someone else who’ll do the research for the money.” But that’s literally not something they think about. And we first have to start talking about those things if we hope to change them.

JJ: Right. Well, we’ll start here.

We’ve been speaking with Dean Baker. You can find his blog Beat the Press on the website of the Center for Economic and Policy Research. That’s CEPR.net. ([link removed]) Thank you so much, Dean Baker, for joining us this week on CounterSpin.

DB: Thanks a lot for having me on.


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