Only in America

The usual argument against substantially raising the minimum wage—to, say, $15 an hour—is that we don’t have any data to analyze the effects on unemployment of such a large increase. Better, critics argue, to settle for a much smaller increase, where the data indicate no substantial effects, one way or the other.

However, Teresa Tritch points out, U.S. history does offer a relevant example: 1950, when the minimum wage went from 40 cents an hour to 75 cents an hour, an increase of 87.5 percent.

The entire raise took effect on Jan. 25, 1950, just 90 days after the passage of the law that authorized it. Some 1.5 million workers saw their wages rise.

What happened then? Data sources from that era do not allow for the kinds of analyses that economists have used to evaluate the impact of more recent minimum wage increases. Moreover, in 1950, several industries were still exempt from having to pay the minimum wage, so direct comparisons between then and now are not feasible.

But this much is known: In December 1949, the month before the raise kicked in, the national unemployment rate was 6.6 percent. By December 1950, when the 75-cent minimum had been in place for nearly a year, it had fallen to 4.3 percent. By December 1951, it was 3.1 percent and by December 1952, it was 2.7 percent.

The higher minimum may not have caused the improvement, but it clearly was part and parcel of it.

There is no firm historical evidence to reject or support raising the minimum wage substantially. But what evidence there is indicates it is worth a try.

Note: the chart above shows percentage changes in the federal minimum wage (blue line) and the unemployment rate (red line). The fact that the red line is mostly in negative territory until the recession of 1953-1954 indicates that unemployment was decreasing.

Protest of the day

Workers in Ciudad Juárez are protesting Lexmark’s decision to fire about 75 workers who had submitted a formal request to form a union.

Lexmark, a Kentucky-based corporate leader in laser printers, is worth around $2bn and has the support of Mexico’s political establishment and apparently also its media and Catholic hierarchy, notwithstanding Pope Francis’s visit to Juárez on Wednesday.

The elites wish to snuff out defiance and stop rebellious contagion spreading across this industrial city, according to those inside the shack.

“We’re living on charity, and it’s tough, but we’re still here,” said Susana Prieto Terrazas, a lawyer representing the protesters, as she huddled by a wood-burning stove. “We’re going forward. This is a system of modern slavery and we have to fight.”

The fight here is largely without precedent.

Ciudad Juárez, a gritty city of around one and a half million across the border from El Paso, Texas, is a global economy workshop. About 300 factories with headquarters in the US, Europe, China and elsewhere employ about 300,000 Mexicans. There are virtually no independent unions and, until now, little sign of worker mobilisation. Historically low wages are changing that.

“Conditions have become insufficient for survival,” said Elizabeth Flores, director of Pastoral Obrera, a labour and human rights advocacy group. “It has been a time bomb. This protest is an enormous opportunity.”

Jazz Record Mart RIP

I spent a lot of time over the years browsing and purchasing items from the inventory of music, especially jazz and blues, at Chicago’s Jazz Record Mart. I also enjoyed taking friends from out of town there.

Now, due to rising rent, the shop that billed itself as “The World’s Largest Jazz and Blues Record Store” has closed its doors.

Of rainbows, unicorns, and puppies

They’re often referred to in the major media, like the New York Times, as “left-leaning economists.” Although, as Doug Henwood observes, “So slight is their leftward lean that it would require very sensitive equipment to measure.”

So, I’ll just refer to them as liberal mainstream economists, who with colorful language and little in the way of an alternative analysis, have taken to attacking Bernie Sanders and one of his economic advisers, Gerald Friedman.

The language is over the top: Sanders’s proposals are various referred to as “puppies and rainbows” (ramped up to “magic flying puppies with winning Lotto tickets tied to their collars”) and “unicorns.”

And, aside from one careful, critical study of Sanders’s healthcare plan (by Kenneth Thorpe), there’s nothing in the way of an alternative analysis.

All liberal mainstream economists (like Alan Krueger, Austan Goolsbee, Christina Romer, and Laura D’Andrea Tyson) think they have to do is put their signatures to “An Open Letter from Past CEA Chairs to Senator Sanders and Professor Gerald Friedman” and assert, in the name of “responsible arithmetic,” that the Sanders campaign is citing “extreme claims by Gerald Friedman about the effect of Senator Sanders’s economic plan.”

What we’re witnessing is an extraordinary spectacle of all the elements of “liberal ideology“—including, when all else fails, the ultimate threat: a campaign that dare steps outside the liberal mainstream and, thus, “is well on its way to making Donald Trump president.”

It’s as if Sanders has had the temerity of not consulting the liberal establishment in formulating his plans and that Friedman, who has been called out by name, has had the audacity of making headlines without the credential of belonging to the liberal establishment.

The liberal mainstream economists who are now attacking Sanders and Friedman seem to be taking it personally, as if their monopoly on analysis and policy has been challenged.

I guess it has.

So, how should we read Sanders’s plans and Friedman’s analysis of its costs and consequences? My view, for what it’s worth, is that Sanders and Friedman are not presenting a “realistic” proposal that follows the dictates of liberal policies and forecasts. What they’re doing is something bolder: they’re imagining a world in which a wide variety of fundamental changes have been made—a minimum wage of $15 an hour, universal health coverage, free public higher education, massive infrastructure spending, and so on. In such a world, their analysis suggests, there would be much lower unemployment, faster economic growth, and much less inequality than prevail under existing conditions.

It’s as if they’re holding up a mirror to what is being touted by liberal mainstream economists, which shows both that “realistic” policies and forecasts promise more of the same—excessive unemployment, slow growth, and grotesques levels of inequality—and that, as a country, we have the wherewithal to do much better.

Much better than we’re doing right now. And much better than the “liberal fantasy” suggests we can do.

Since liberal mainstream economists are being left behind, all they can do is resort to a language of rainbows, unicorns, and puppies.

 

Note: Rainbows, Unicorns, Puppies—”a true multiband distortion, with 3 variable signal paths – each with adjustable gain, comp, and level controls – plus clean blend, FX loops, mid boost and master 3-band EQ”—does, in fact, exist.

Cartoon of the day

Special mention

 

Out of the mouths of. . .Fed officials

“Goldman Sachs Republican” Neel Kashkari, the new president of the Federal Reserve Bank of Minneapolis, has warned that the biggest banks in the United States “are still too big to fail and continue to pose a significant, ongoing risk to our economy.”

Although TBTF [Too Big to Fail] banks were not the sole cause of the recent financial crisis and Great Recession, there is no question that their presence at the center of our financial system contributed significantly to the magnitude of the crisis and to the extensive damage it inflicted across the economy. . .

Going forward

I believe we need to complete the important work that my colleagues are doing so that, at a minimum, we are as prepared as we can be to deal with an individual large bank failure. But given the enormous costs that would be associated with another financial crisis and the lack of certainty about whether these new tools would be effective in dealing with one, I believe we must seriously consider bolder, transformational options. Some other Federal Reserve policymakers have noted the potential benefits to considering more transformational measures. I believe we must begin this work now and give serious consideration to a range of options, including the following:

• Breaking up large banks into smaller, less connected, less important entities.
• Turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant).
• Taxing leverage throughout the financial system to reduce systemic risks wherever they lie.

I’m curious to see what liberal critics of Bernie Sanders have to say about Kashkari’s analysis.

Lowest is highest

According to a new report from the Economic Policy Institute [ht: ja], in the final quarter of 2015, the lowest unemployment rate for African-Americans, 6.7 percent in Virginia, was equal to the highest white unemployment rate, 6.7 percent in West Virginia.

And while the jobless rate for blacks was highest in Illinois, at 13.1 percent, that state did not have the largest gap between the white and black unemployment rates. That distinction was held by the District of Columbia and Michigan, where the black unemployment rate was 5.4 and 3.4 times the white rate, respectively.

Nationally, African-Americans had the highest unemployment rate, at 8.3 percent, followed by Latinos (6.3 percent), whites (4.5 percent), and Asians (4.0 percent).

Grate this!

Of all the nasty tricks capitalists have pulled in recent years, this one (as a third generation Italian immigrant) really grates on me:

Acting on a tip, agents of the U.S. Food and Drug Administration paid a surprise visit to a cheese factory in rural Pennsylvania on a cold November day in 2012.

They found what they were looking for: evidence that Castle Cheese Inc. was doctoring its 100 percent real parmesan with cut-rate substitutes and such fillers as wood pulp and distributing it to some of the country’s biggest grocery chains.

One might be tempted to think of this as a ripped-from-the-headlines episode of “NYPD Bleu,” except that the FDA wasn’t playing. Some grated Parmesan suppliers have been mislabeling products by filling them with too much cellulose, a common anti-clumping agent made from wood pulp, or using cheaper cheddar, instead of real Romano. Someone had to pay. Castle President Michelle Myrter is scheduled to plead guilty this month to criminal charges. She faces up to a year in prison and a $100,000 fine.

Cartoon of the day

Special mention

 

Ah, to be young and. . .working

A new report from the UCLA Labor Center [ht: ja], “I am a #YOUNGWORKER,” challenges the prevailing cliché of “young people as self-indulgent millennials who live with their parents, idly wait for the perfect job, and collect paychecks mostly for shopping and weekend leisure.”

In reality, many employers rely on youth to supply “cheap, surplus, temporary and easy-to-discipline labor” that can be recruited or disposed of according to the whims of the business cycle. Adults often portray these early jobs as brief interludes or rites of passage to justify the precarious conditions of “youth” forms of work.

The study focuses on workers between the ages of 18 and 29 in retail and food service, the two largest employers of young people in Los Angeles. Together, they employ a quarter-million young workers—almost half (42.6%) their workforce.

The authors of the report discovered that young workers are often employed in part-time jobs, they play an integral role in supporting their families, and one in ten live below the poverty line.

In addition, young workers struggle to balance work and school (“They need to work in order to afford school, and they need to attend school so they can get ahead at work”) and owe increasing amounts of educational debt (more than $19 thousand on average).

On the job, most (90 percent) do not have a set schedule, since they are forced to “depend on schedule assignments that are staggered weekly and build an intricate web of overlapping shifts that ensure that workers are constantly present on the store floor or stockrooms.” They are also vulnerable to various forms of wage threat (not getting paid for overtime or working off the clock), are often harassed by both bosses and customers, and do not receive the benefits (such as sick days, vacation, and health insurance) other workers have managed to secure.

As if that were not bad enough, the youth unemployment rate (11.2 percent) is more than twice the official rate (5 percent).

In other words, young workers today are often living on a “dead end street.”