Oren Levin-Waldman

  • 03 Apr 2017 3:21 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune


    The collapse of the Republican Healthcare reform bill illustrates a fundamental point that has been lost on many, which is that moral obligations cannot be met through competitive markets


    In my last column, “The Only Viable Health Insurance Reform is a Single Payer SystemI noted that healthcare really is not a normal market. On the contrary, to ensure that all are covered requires the type of moral commitment that can only be met through non-market intervention.


    In a traditional competitive market, individuals satisfy their preferences and healthcare, like all other markets, obtaining it would be like any other preference. Those who can afford it will get it and those who cannot will not. When politicians talk about free markets, they aren’t telling you that the market is really about preferences and wants, and that those preferences are allocated through a price system.


    Healthcare is not a preference or a want, but a need. Preferences, after all, imply that they really aren’t needed. We all need healthcare at some point in our lives and at some point that care will be extremely costly. From a moral standpoint, a society that prizes life cannot allow people to get sick, suffer and ultimately die because they could not obtain healthcare by the rules of the traditional marketplace.


    The language of markets also allows for the fiction that we have choices. If simply a preference, we would purchase health insurance as a matter of choice, and if enough individuals opted not to because the price was too high, then insurance companies would be required to reduce their prices in efforts to get more individuals to buy. Of course, if a need, and we all need it, then insurance companies don’t have to compete for customers and can raise their prices.


    On one level there were those who voted against the bill because it was not pure market enough. Too many subsidies were still available. On another level, there were those who voted against it because too many people would be left without insurance because it would simply be unaffordable and subsidies through tax credits were going to be available to people based on their age rather than their income.


    From an insurance standpoint this makes perfect sense. If the goal is to increase the insurance pool with young healthy individuals who otherwise might opt not to purchase, offering them subsidies might entice them to do so. But older people, who because they are most likely to have health problems, would not have received much and would see their costs rise. Again from an insurance perspective, it does not make sense to insure them at all. After all, the goal of insurance companies is to make money.


    One way to look at the problem is that free markets are a convenient argument for maintaining a particular status quo. Moreover, it allows those with wealth and power to mask their selfish intentions, which is not to have to pay for others. Because we subscribe to a free marketplace, any policy that interferes with that marketplace is inefficient. There is no question that the Affordable Care Act is inefficient. But its replacement with the Ryan plan would not have made it any more so.


    Another way to look at the problem is to look at markets for what they truly are: amoral arenas where we can purchase goods and services, and where those goods and services will be allocated on the basis of price. To say it is amoral is to say that it is neither moral nor immoral. To then say that the provision of access to healthcare is a matter of moral obligation is to recognize that the marketplace is ill-equipped to meet moral obligations.


    The principal reason that we have public policies is because of market failure. We have unemployment insurance because the market often fails to ensure that there are enough jobs for everybody all the time. We have public assistance and other programs to help the working poor because the market fails to ensure that everybody has the opportunity to earn a living, or if people do work they earn enough to support themselves. When policy begins to cover social issues it is because market failure has become larger social failure.


    The problem is that it isn’t just a matter of market failure. Take the labor market as an example. We might say wage floors are necessary because the market place fails to pay workers enough to live on. But this overlooks the power dynamic. Employers can pay their workers less because the labor market, like the healthcare market isn’t a normal market either.


    Workers are needs traders while employers are wants traders. A worker needs to eat and therefore is forced to accept whatever job may be offered regardless of how little it pays in order to do so. The employer, however, with resources does not necessarily need to hire workers if their wage demands are too high. S/he has the luxury of holding off until workers are willing to accept less in exchange for work. The principal difference between the worker and the employer is that the latter has market power, while the former does not. Labor market institutions like unions and minimum wages give workers a degree of market power so that they can almost be on an even playing field.


    Remember that the market place is amoral and cannot see the immorality of the power imbalance. Similarly, the marketplace cannot see the immorality of a competitive market that would allow people to go bankrupt in order to get essential medical care, or worse allow people to die because they cannot.


    If anything, this past week’s debacle only demonstrates the amorality of the marketplace and why we cannot rely on it to solve problems which at root are moral obligations. Even if we acknowledge that a market approach could be found through employer vouchers going to their workers to purchase their own policies on the open market, there would still be a degree of moral hazard: people behaving in perverse ways. Even if in the short-term prices came down to attract customers, they will still rise in the long-term because more demanding insurance, especially when armed with vouchers to purchase it, will only shift the demand curve outward, thereby raising the equilibrium price.


    At the end of the day it is a question of recognizing which set of consequences are less bad than others. But if we can recognize that the marketplace is not equipped to solve all of the nation’s problems, then we can move beyond the traditional theory of competitive markets. Perhaps this failure last week should be viewed as an opportunity by President Trump to endorse the single payer system and dare Democrats to oppose him.


  • 01 Mar 2017 2:24 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online by the Yonkers Tribune.


    Dr. Oren M. Levin-Waldman, Ph.D.

    Dr. Oren M. Levin-Waldman, Ph.D.

    I

    t would be convenient to dismiss states like New YorkNew Jersey‘ and Connecticutthat have raised their own minimum wages in recent years as simply blue states. After all states with Democratic governors, except New Jersey, and Democratic legislatures are no doubt more likely to raise minimum wages than Republican controlled red states. Moreover, states in the tristate area are high cost of living states, which almost makes increases in the minimum wage an absolute necessity.


    Although living costs should be a factor, the real question is what other variables might also drive the need for a non-market intervention. In other words, to discuss wage floors as a necessity in an environment of stagnant wages is to recognize that the market place, or the changing demographics of the labor market, have forced down wages that all that is left at the moment is a legislative solution.


    Let’s consider the following: Between 2000 and 2015, according to data from the Current Population Survey (CPS) Professional and Technical occupations increased by 9.7 percent in New York and by 22.8 percent in Connecticut, but decreased by 9.8 percent in New Jersey. In all other states Professional and Technical rose by 24.2 percent. During this time the median hourly wage was approximately $26.44 in 2015 dollars in 2000 and was $26.44 in real dollars in 2015.


    Of course minimum wages, unless we are talking about wage contour effects, won’t really have much impact on those in Professional and Technical Occupations. The real changes appear to be among craftsmen, operatives, and laborers: so-called blue collar occupations. Those working as craftsmen decreased by 19.8 and 34 percent in New York and New Jersey respectively, between 2000 and 2015. In Connecticut there was a 3.5 percent increase, while there was a 16.3 percent decrease in all other states.


    Those working as operatives decreased by 28.9, 8.7, and 38.9 percent in New York, New Jersey, and Connecticut respectively. In all other states, the decrease was only 11 percent. And those working as laborers decreased by 13.9 percent and 3.4 percent in New York and Connecticut respectively. There was no decrease between 2000 and 2015 in New Jersey.


    The median wage for craftsmen in 2000 was $14.18 an hour in real terms and $19.23 an hour in 2015. When adjusted for inflation, craftsmen were earning $19.52 an hour in 2000. The median wage for operatives was $10.58 an hour in real terms in 2000 and $15.38 an hour in 2015. When adjusted for inflation, the operative was earning $14.56 an hour in 2000. So while the craftsmen’s hourly wage fell sightly, it rose a bit for the operative, but not by much. The laborer, however was earning $8.46 an hour in real terms in 2000 and $12.02 an hour in 2015. The laborer, however, was actually earning $11.64 an hour in 2015 dollars in 2000, meaning that the laborer too received a sight pay increase.


    We can already see the decline in what might be considered skilled or semi-skilled jobs, but wages have all but stagnated. It is in the services that we have seen increases. In service private household services, there was an increase of 12.5 and 71.4 percent respectively in Connecticut and New Jersey respectively, but a 9 percent decrease in New York. In all other states, there was also a 71.4 percent increase. Among service workers, non-private household, there was an increase by 10.0, 9.7, 30.4 and 6.6 percent in New York, New Jersey, Connecticut and all other states respectively.


    Service workers in private households earned $4.81 an hour in real terms in 2000 and $9.62 an hour in 2015. These workers were earning $6.62 an hour in 2015 dollars in 2000. Service workers in non-private household were earning $8.00 an hour in real terms in 2000 and $12.02 in 2015. These workers were earning $11.01 an hour in 2015 dollars in 2000. Workers who then can be said to have seen their wages rise were service workers: 45.3 percent for those in private household and 9.2 percent in non-private household.


    On the industry side, particularly in New York, there have been steep declines in manufacturing and increases in Entertainment and Recreation Services. Those working in manufacturing decreased by 58.4, 32.2, 45.7 and 30.9 percent in New York, New Jersey, and Connecticut, and all other states respectively during this period. Those working in Entertainment and Recreation Services decreased by 8.3 percent in Connecticut and by 4.5 percent in New Jersey. In New York, however, there was a 65.2 percent increase and an 18.2 percent increase in all other states among those working in this industry.

    Manufacturing workers earned $14.42 an hour nationally in real terms in 2000 and $20.68 an hour in 2015. Manufacturing workers were earning $19.85 an hour in 2015 dollars in 2000, which means their wages only rose by 4.2 percent amidst steep declines in manufacturing jobs. Those in Entertainment and Recreation Services were earning $12.12 in real terms in 2000 and $16.82 in 2015. When adjusted for inflation, these workers were earning $16.54 an hour in 2000.


    Objectively speaking, wages across the board, for the exception of certain types of service jobs, have been stagnant. But it is also clear that there has been a decrease in higher paying jobs, especially for those lacking in skills. At the same time, there has been a significant decrease in union membership. On the basis of the CPS sample from 2000-2015, union membership was only 3.2 percent in 2000 and 1.8 percent in 2015. It was 6.0 percent in New York in 2000 and 3.6 percent in 2015. In all other states union membership declined by 10.5 percent between 2000 and 2015, but by 18.2 percent in New York.


    Unionized workers are accustomed to being paid more. In New York, the median union wage was $16.45 in real terms, which was $22.64 in 2015 dollars. The median wage for non union members in New York was $14.73 in real terms, which was $19.72 in 2015 dollars, a difference of 14.8 percent. In 2015, however, the median union wage of $21.35 in New York was actually lower than the median non-union wage of $21.64. This might be because of the growth of jobs requiring more skills in sectors that were never traditionally unionized.


    Nationally, however, there was still a difference, or what we might call a union premium. The median wage in the U.S. in 2000 was $17.00 an hour, which was $23.40 in 2015 while the median non-union wage was $13.26 an hour, which was $18.25 in 2015 dollars, a difference of 37.6 percent. In 2015, the median union wage was $25.00 an hour while the median non-union wage was $19.23 an hour, a difference of 30 percent.


    Although blue states may be more likely to pass wage floors and have laws that make unionizing efforts easier, it should become clear that in the tristate area, at least, there is a need for labor market institutions like unions and minimum wages simply by the sheer force of the labor market shifts that have been occurring. Unions clearly make a difference, and where unionism is in decline, then legislated wage floors are essential to bolster the wages of workers.

  • 16 Feb 2017 2:59 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune


    Something strange happened on the way to the 2016 presidential election. Many states that previously voted blue — Democratic — flipped and voted red — Republican. And yet the demographics of blue states and red states are quite revealing. On the face of it, it would appear that more workers in red states tend to be less educated and/or skilled, and are in occupations and industries that have perhaps been left behind by the forces of globalism.

    I

    t is already understood that President Trump won mostly white blue collar voters in fly-over states. Many of these states in what is often referred to as the rust-belt were once home to a thriving manufacturing base. Promises that manufacturing could be lured back certainly resonated with these voters. Though it would be convenient to suggest vast cultural differences between blue states and red states, many of the differences are demographic.


    In 2015 blue states had higher rates of income inequality than did red states. Educational attainment in blue states was also higher. Although red states had a higher percentage of workers that attained less than a 12th grade education than did blue states, they also had 5.8 percent more high school graduates and 6.0 percent more people with associates degrees than did blue states. But blue states had 5.4 percent more people with a B.A. degree than did red states and 33.5 percent more people with graduate and professional degrees.


    The greater number of people in blue states with higher education would appear to explain why there may be greater inequality in blue states. It is certainly consistent with the neoclassical argument that rising income inequality is due to technical change biased towards those possessing skills. But industrial and occupational compositions suggest that blue states would indeed require more skilled workers. And to the extent that the old manufacturing base is being replaced by industries and occupations requiring greater skills, it would certainly explain a large portion of the electorate feeling left behind in today’s global economy.


    In terms of occupations, blue states had 23.2 percent more people employed in Professional and Technical occupations and 17.2 percent employed as Managers, Officials, and Proprietors. Red states, however, had 15.4 percent more people employed as craftsmen, 15.9 percent more people employed as operatives and 15.8 percent more people employed as laborers than did red states.


    In terms of industries, red states had 30.8 percent more people in Agriculture, Forestry, Fishing and 900 percent more people in mining than did blue states. Red states also had 16.1 percent more people in construction than did blue states. Blue states, however, had 17.9 percent more people working in Finance, Insurance, Real Estate, 40 percent more in Entertainment and Recreation Services, and 12.9 percent more in Professional and Related industries than did red states.


    On one level it would appear that red states had more people employed in rural type industries and occupations, while blue states had more people employed in urban type industries and occupations. On another level, however, it is clear that blue states have more people in higher paying industries and industries perhaps requiring more skills. In other words, it might be possible to conclude that Democratic politicians arguing for open borders and more investment into training programs were merely speaking to their base whom they assume are in many respects already adjusted to the realities of a global economy.


    It is also worth noting that there is actually more poverty in red states than in blue states. Red states had 6.7 percent more people receiving food stamps than did blue states, and 17.9 percent more people living below the poverty level. On the other hand, despite low levels of union membership generally, blue states had 100 percent more union members than did red states. High unionization in blue states is certainly no surprise. Many red states, particularly in the deep South, are right-to-work states which prohibit closed shops, thereby making unionization more difficult.


    Still, these demographics reveal serious differences between blue and red states that go beyond the standard liberal-conservative divide. The economic bases are still different, and perhaps not in ways dissimilar to differences that existed between the industrial North and the agrarian South prior to the New Deal. New Deal planners in the 1930s sought to modernize the Southern economy that was seen as lagging behind the North. Workers earned less and were less educated. Then a national minimum wage was seen as a needed step in the economic development of the South. Southern states, of course, resisted, all federal policies because they were seen as interfering with their way of life.


    There is no question that globalization is destroying a familiar life style for many. To flippantly dismiss the economic hardship and dispossession of those in the red states as simply not understanding the essential ingredients for progress really isn’t helpful. There is no easy answer here. And if truth be told, candidates for national office don’t really need to hire opinion pollsters; they need to study these types of demographics to understand the mood of today’s voter. Had the Democrats done that, they probably would have won.


    Are there solutions that we can glean from any of this? Labor economists who have long argued that there is a high school premium, and that because fewer people have been graduating high school over the last few decades, will no doubt argue for more investment in education and training programs. But as I have said in this space many times before, we still need a rebuilding of our labor market institutions. To invest in education and skills training — to invest in human capital — takes time. Workers need immediate relief.


    In the meantime, the work that they are left with needs to be accorded greater dignity. This can only come about through measures to lift their wages. It was unions that gave dignity to otherwise low-skilled factory work during the late Nineteenth and early Twentieth centuries. And it is unions that can confer dignity on low-skilled service work, even if it means organizing workers on an industry-wide basis rather than a firm-wide basis. And for those not covered by unions, they need to have higher minimum wages.


    Of course, given the interdependence in the economy, the greater demand for goods and services in the economy spurred by greater purchasing power, particularly for those at the bottom, will spur growth and perhaps lead to the opening of new manufacturing enterprises here in the U.S. Granted that voters in red states may not have understood economics, but they certainly understood that nobody had been listening to them and taking their plight seriously.


  • 09 Feb 2017 8:37 AM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in The Yonkers Tribune.


    The global economy is very much a product of the neoliberal policies pursued since the end of World War II. These policies stressed free trade, open borders, less government spending, privatization, and flexible wages. If unions stood in the way of wage flexibility, capital mobility across national borders would serve to weaken them by exporting union jobs. It was assumed that these ingredients would lead to greater prosperity.


    Although there is no reason to believe that Trump’s cabinet picks signals a reversal of these policies, especially his anti-labor pick to be Secretary of Labor, the question nonetheless arises as to whether we may be seeing the birth of what could be called neo-mercantilism. The old mercantilism involved the placement of overall national economic interests above those of the summation of self-interests. This meant policies that protected industries could be pursued for the sake of the national good.


    Because protectionist policies have long been viewed as an obstacle to growth and prosperity, there has been a focus on free trade. If we can sell more American goods and services abroad the nation as a whole will be more prosperous. Free trade, however, means that cheap foreign goods enter into the American market, and while this may be good for American consumers, it may not be good for the American worker.


    The challenge that free trade agreements in a global economy pose is that in order to be competitive with other nations where wage rates are significantly lower, wage rates inevitably have to fall. The only way to counteract the impact of lower wages in another country which could significantly lower the overall price is to impose an import tariff so that the price of American produced goods and foreign produced goods are nearly equivalent.


    In recent weeks, however, we have been hearing about U.S. companies following meetings with President Trump agreeing to stay in the U.S.. This may have begun with the decision by Carrier not to move its Indiana operations out of the U.S.. Despite whatever deal may have been struck by then President-elect Trump and the company, this was viewed as a positive development. Of course the neoliberal choir decried the deal on the grounds that Carrier’s labor costs would be considerably higher and this was simply contrary to economic common sense.


    The new administration appears to telling CEOs that it will reduce regulation, but if they take jobs abroad, their imports back into the country will be hit with a high tax. The idea of putting the American economy first is not a new idea. It is very much a mercantilist concept. And after years of neoliberalism, it appears to be the foundation of what will be referred to as neo-mercantilist economic policy.


    In the past when lawmakers attempted to pass restrictive legislation on capital mobility making it more difficult for plants to close in the U.S., the argument against such attempts was that such legislation violated the spirit of free trade. Restrictions on plant closings, they said, would amount to nothing more than restrictions on plant openings. Moreover, it violated the property rights of managers in a free market economy to dispose of their property as they saw fit.


    A dynamic capitalist economy, it was argued, required “creative destruction” whereby the old and obsolete would be replaced by the new and technologically more advanced. This creative destruction, after all, was merely finding expression in plant closings and capital mobility, which were really part and parcel of neoliberalism.

    Creative destruction always assumed that those who were displaced would merely be reabsorbed back into the economy. Although many were, it was a reabsorption into a lower paying service economy. The low-skilled factory jobs were replaced by low-skilled service jobs, but low-skilled service workers did not have labor market institutions like unions to bolster their wages.


    Because many of the new jobs were also requiring greater skill, we saw a widening gap between highly educated/skilled and paid workers at the top and poorly educated/skilled and paid workers at the bottom. To a large extent the 2016 election represented a populist rejection of the neoliberal policy agenda. Policies that simply benefit financiers and don’t help Main Street cannot stand. Free trade policies that allow imports to accompany the export of American jobs are simply unacceptable. Jobs that don’t pay respectable wages are simply un-American.


    Nobody campaigned for the explicit continuation of neoliberal policy, but they did campaign for key elements of it, most notably Trans-Pacific Partnership (TPP) and open borders. The same voices are arguing against renegotiation of NAFTA. Neo-mercantilism essentially holds that after the destruction is left in the wake of neoliberalism it is time to place the national economic interest above the interests of separate corporate interests.


    There is no reason that a corporation that gets billions of dollars each year to build weapons systems for the Defense Department should not be required to keep its consumer producing operations in the U.S. as a condition of the defense contract. If firms want tax breaks, they should be conditioned on keeping jobs here in the U.S.. If Congress wants to offer a stimulus package to consumers, how about a rebate of say $3,000.00 per family on the condition it be spent on goods and services in the U.S. within 90 days? If you simply want to throw it in the bank, then you lose it.


    More needs to be done. We still need to restore labor market institutions like unions and minimum wages in order to bolster the wages of service workers. While we can certainly attempt to prevent more jobs from leaving, we still need to accept that the service sector is in the Twenty-First Century what the manufacturing sector was in the early part of the Twentieth Century. Service workers need to be organized on an industry wide basis for the same reasons that factory workers were organized during the late Nineteenth Century: to afford workers dignity in their work. This dignity would come about through the bolstering of wages.


    Neo-mercantilsm, then, can be differentiated from the old mercantilism by not only placing the national economy first, but by placing workers first. Were we to build an economy where a premium was attached to workers, we would then see a full repudiation of the neoliberal policies that not only gave us the global economy, but the rising levels of income inequality we have seen over the last several decades. Whether voters were aware of it or not, they appear to have voted for a more neo-mercanilist agenda.



  • 17 Dec 2016 8:43 AM | Mike Lillich (Administrator)

    First published online in the Yonkers Tribune.


    By Oren Levin-Waldman


    It used to be that those who worked could claim that they were truly independent. Today with wages declining and middle class job opportunities drying up, it may no longer be the case that one who works is truly independent. A low-wage worker often needs government subsidies just to make ends meet. And yet even those who earn livable wages may no longer be truly independent, as increasingly workers work at the whim and mercy of their employers.


    In today’s economy we all work in a wage-labor economy. What that means is that we work for the wages we are paid and the employer owes us little more than the actual wages paid. In the older feudalistic economies of centuries past, the lords of the manors had a moral obligation to take care of their serfs. In today’s wage-labor economy, once wages have been paid to workers for their actual labor, employers have no further obligations.


    Although many employers offer health insurance and pension contributions as part of their benefits packages, they technically are not obligated to. That they do means that these benefits are merely part of the wages they pay. Again, beyond those wages, there is no further obligation. And yet, one might think that there would be a moral obligation for transparency, especially when it comes to managerial decisions that could profoundly affect the lives of their workers.


    Let’s start with the basic assumption that the value and profitability of any firm is affected by the labor that went into it. It is a fallacy to think that a company like General Motors is profitable because of smart decisions made by managers. The decisions they make with regards to investment, strategy and marketing may contribute to the company’s profitability. But if not for the labor of those workers assembling cars in plant, there are no cars to sell, and the company has no value.


    Workers’ labor, then, should entitle them to more than their wages. Should they not be entitled to share in the profits? And yet, it is the manager and shareholder who shares the profit. And in today’s limited liability corporation, when the manager makes a reckless decision that could result in the loss of profits and mass layoffs, it is the worker who first pays the price.


    Prior to limited liability corporations a factory owner who made a bad decision stood to lose all. Because the owner assumed the risk associated with investment decisions, s/he was entitled to reap to profits when those decisions turned out to be good ones. Now the manager, who really doesn’t own anything except shares, does not lose all. On the contrary, on the advice of investment banks, the manager following a reckless decision merely cuts through retrenchment. Of course retrenchment is a nice euphemism for laying workers off.


    When a manager really makes reckless decisions and is even fired by the board for losing money, that manager all too often gets a nice golden parachute. Not the worker who is paying the price for decisions made by others. One might think that by virtue of the time and effort that workers invest into their labor to collectively make the company profitable, they would be entitled to some voice in those decisions that profoundly affect them. Of course, that would be the essence of economic democracy.


    Arguably true democracy would require that individuals have a voice in all decisions that profoundly affect their lives; not just the political ones. But to give workers a voice in the decisions of their companies is contrary to the essence of the capitalist market place. After all, managerial decisions are guided by the twin axioms of maximizing profits and minimizing costs. This is, after all, the very meaning of efficiency.


    A company that opts to disinvest in the U.S. and set up operations where labor costs are a fraction of what they are in the U.S. is said to be making a sound and efficient economic decision. Carrier’s decision to keep its plant open in Indiana and maintain over a thousand jobs in the U.S. has been criticized for being economically inefficient. In a global economy capital moves to where it can get the best return on investment. And to allow workers a voice in those decisions would simply be inefficient. After all, if workers could vote on matters of capital mobility, how many would vote to effectively lay themselves off?


    Still, what is good for an individual company is not necessarily good for a national economy. What is good for the financial managers who move money around in search of growth, even if that entails massive layoffs, is not good for those working on Main Street dependent on economic development. Lest we forget, that is in part what the 2016 election was about.


    It may be impossible to “restore” the economy to its greatness, whatever that means. But what is clear is that the nature of the typical labor contract needs to be redefined. The wage labor economy that has characterized most of the world’s economies since the Industrial Revolution may now be obsolete.


    We no longer live in a world where one farming one’s plot of land has no impact on others. Everything is interdependent. Investment decisions and other managerial decisions have profound impacts on the lives of many, including workers and the communities they live in. To live in a democratic society but claim that those rules don’t apply to the private marketplace is unconscionable. When management makes decisions that affect others, then there needs to be some type of accountability. Why? Because the independence and autonomy of others is at stake.


    Ideally, we would attach some form of property rights to workers’ labor because it is their labor that ultimately adds value to their companies. Workers should have some voice that corresponds to the time and effort they invest in their countries. Managers shouldn’t only be held accountable by their corporate boards of directors, but by their workers who are also stakeholders. We really need to get away from the shareholder economy and think more in terms of the stakeholder economy.


    Perhaps the future of unions isn’t just the back and forth over wages, benefits and work rules, but worker voice and management transparency. A stakeholder economy would also remove many of the controls that employers already have over their workers. Many pension plans are already portable through 401Ks. We also need portability in health insurance. If we are not ready for a single-payer system, then employers should provide health benefits in the form of vouchers that allow workers to purchase their own insurance on the open market. After all, movement towards a stakeholder economy would be aimed at achieving greater independence, or developing what Amartya Sen has referred to our capabilities.

     

    Prof. Oren M. Levin-Waldman will engage in a discussion of this very subject matter on the Wednesday, December 14, 2016th broadcast of Westchester On the Level with Narog and Aris at 10am EST by accessing the following hyperlink… http://tobtr.com/9649585… to hear the program “Live” or “On Demand”. Listeners are welcome to ask a question or share their perspective with respect to this subject.


  • 30 Nov 2016 3:56 PM | Mike Lillich (Administrator)

     By Oren Levin-Waldman


    First published online in the Yonkers Tribune.


     http://www.yonkerstribune.com/2016/11/public-choice-models-of-democracy-and-the-2016-election-by-oren-m-levin-waldman-ph-d


    Various public choice theorists have argued that rising income inequality can be dangerous to democracy because one possible response might be a popular uprising. One such model holds that authoritarian elites are likely to democratize when they are fearful that a mass uprising could lead to their overthrow from power. Hence in response to a possible revolution, the elite takes revolutionary steps by offering greater democracy, which at a minimum means offering greater procedural equality.


    As a variant on this theory, the median voter theorem holds that the greater the level of inequality the greater will be the gap between median income and society’s average income, and it is the size of this gap that determines the tax rate for the purposes of redistribution. In other words, the median voter theorem holds that when there is a rise in income inequality, governing elites will seek to redistribute income from those at the top of the distribution to those at the bottom of the distribution through taxes.


    This, of course, raises an interesting question: Is redistribution in any way comparable to a revolution? Or is it simply akin to the elite in the first model attempting to democratize? Instead of offering procedural equality, the masses are now being offered a form of economic equality. Of course, things can never be fully equal; so the quiescence of low income voters is simply bought with programs.


    Of course, nobody is going to argue that the 2016 presidential election represents a revolution against rising inequality. And yet, if we substitute new terms for the terms in the first model of democratization, we ironically enough can see the 2016 election. First and foremost, a revolution of sorts is bound to occur when the elites are unresponsive to the concerns of the masses.


    And yet, here we have a backlash against the standard response of “democratization” through the purchase of quiescence through redistribution. Can anybody deny that the forgotten members of the middle class that voted for Trump were really saying no more to programs? They were clear: We want decent paying middle class jobs that allow us to live autonomous lives in dignity.


    In the 2016 election, we certainly had a backlash against those elites who long assumed that they knew what was best for everybody else. The growth policies that long formed the basis of a bi-partisan consensus since the end of World War II were effectively repudiated. The public made it clear that policies predicated on free trade in a global economy where decent wages cannot be guaranteed are simply not good enough. The idea that an economy that falls short in producing sufficient opportunity can be supplemented with redistributory programs was effectively rejected. Politics of diversion — where the focus is diverted from the economy to a host of social policy distractions, most notably identity politics — was also effectively rejected.


    The median voter theorem effectively holds that in a democracy we can theoretically vote on a tax rate that redistributes income. But what happens when the political system is unresponsive to a so-called democratic vote on the tax rate? A pseudo right wing backlash? If we modify the models we can understand what happened. There is a call for redistribution of sorts here, but not as we traditionally understand it. By rejecting the open borders policies of the establishment as represented by both parties, the voters effectively said they want resources redistributed from Wall Street and financial managers who only promote growth to Main Street where there is economic development that will create decent jobs for the middle class.

    I

    t is too simple to dismiss the election as rural America rebelling against urban America. It might be more accurate to suggest that Main Street — where goods and services are produced — rebelled against Wall Street — where growth occurs simply by moving money around. Not only is there growth from moving money around, but there is growth when jobs are destroyed.


    This is what the voters rejected, and it is also what the political elites with their allies in the media could not get a handle on. After all, who wouldn’t be satisfied with low paying jobs and social supports as supplements? There is no question that the mantra of “making America great again” may conjure up some negative images. But to create a narrative that only means that white America wants to return to positions of dominance really misses the point and trivializes the concerns of the middle class that has fallen through the cracks. For many it meant nothing more than living in an economy where one can work, earn a respectable wage and be self-sufficient without having to be partially dependent on the government for supplements.


    Based on the 2016 election, we might postulate the following: A political elite during a period of rising inequality will seek to purchase the quiescence of low-income voters by offering them programs that will be paid for by higher taxes on the wealthy. In, other words, it will redistribute. When the elites cannot agree on a tax rate in accordance with the median voter theorem, these same elites may seek to ignore the fundamental issues that caused the rise in inequality, most notably the changing economy and labor market, by refocusing the public debate on various social issues. That is, they engage in the politics of distraction.


    Redistribution is simply being substituted for democratization. Because inequality is merely the symptom of larger structural economic issues, there is a limit to both redistribution followed by changing the subject. When those limits are reached, we can expect there to be a mass response, even at the most nominal level of voting. When this voting results in an apparent sea change in the composition of government in terms of both ideology and public officials, it becomes clear that on a political level that the voters have brought about a figurative revolution. This is precisely what happened in the 2016 election, but instead of the elites offering greater democratization, the masses engaged in their own grassroots democracy.


    Of course, another way to look at it is to say that the public responded with a statement that it really did not want the traditional approach of redistribution in response to rising inequality. Rather it wanted the approach that accords with core American values: A return of good paying jobs that allows workers to be self-sufficient.


    If, however, we aren’t likely to see a return of the manufacturing base, then we need to think in terms of making the service economy one that pays better. Here the answer is to have higher wages, if even through a wage policy that serves to bolster wages of not only the bottom of the distribution, but the middle class as well. Higher wages are preferable to policies of redistribution through higher taxation. Rising wages of those at the bottom and in the middle can also narrow the gap between the median wage and society’s average wage. Do we really need to ask again what the voters were signaling they prefer?


    Just published: Wage Policy, Income Distribution, and Democratic Theory:
    http://www.routledge.com/books/details/9780415779715/#review

  • 29 Sep 2016 11:32 AM | Mike Lillich (Administrator)

    (First published online by the Yonkers Tribune.)


    By Oren Levin-Waldman


    It would appear that neither of our political candidates really gets it. For Donald Trump all we need to do is grow the economy by 4 percent and if workers could be more flexible in their wage demands, then all will be good. And of course, Hillary Clinton tells us that measures that enable more to go to college free of debt will ultimately help the middle class. This is the answer to stagnant wages? Both overlook the obvious that labor market institutions matter, and it is because of their decline that the middle class has been suffering.


    Both appear to subscribe to the neoclassical argument that inequality has grown and the middle class has shrunk because of an oversupply of unskilled labor. For Trump growing the economy will generate more opportunity thereby pushing up wages. And for Clinton, educating workers will in theory enable them to command higher wages. It isn’t clear that an oversupply of more skilled and educated workers won’t also exert a downward pressure on wages. And yet, the issue isn’t an oversupply of unskilled workers, but an oversupply of workers lacking market power.


    The fundamental difference between the neoclassical school and the institutional school is that the latter recognize that in the market place the balance of power between workers and employers is asymmetrical. The neoclassical model assumes that workers bargain with their employers equally. The institutional model makes no such assumptions. And yet the distinction between an oversupply of unskilled workers and workers lacking market power may appear to some a very subtle distinction. Why? Because the lack of skills may be the reason for the lack of market power. This may be partly true, but it misses the role that labor market institutions play in achieving a more fair and equitable economy.


    Let’s rehearse the neoclassical model. An equilibrium wage or market clearing wage is when the demand for labor intersects the supply of labor. As the prices of labor decreases, more employers will demand labor services, thereby employing more. Of course, each worker presumably has a wage, known as a reservation wage, beneath which s/he will not work. So how much of their supply of labor services is contingent on the wage being offered? Should there be an oversupply of workers lacking skills, we would expect to see a shifting out of the supply curve, thereby resulting in an even lower equilibrium wage. Only if the demand curve were to shift out would we see that equilibrium wage returns to where it was.


    In this model, then, there cannot be unemployment because workers can always lower their wage demands until their labor services are demanded. Hence the argument that it is wage rigidity, i.e. the refusal of workers to accept lower wages, that results in them being unemployed. Moreover, institutions that artificially raise wages like unions and minimum wages only prevent workers from accepting lower wages.


    Much of economic policy in the U.S. has been predicated on the assumption that this model is in fact correct. And yet, there are serious flaws. First of all, it really matters not how low workers’ wage demands are. If there is no aggregate demand for goods and services, then workers can lower their wage demands to zero and there will still be no demand for their labor. Moreover, if workers were to all accept lower wages during economic downturns, then they would lack the wherewithal to purchase goods and services, thereby resulting in less aggregate demand, which would make more unemployment a foregone conclusion. Of course, the neoclassical model assumes firms will similarly lower prices, but there is a limit to how much price adjustment there can be given that there are fixed costs.


    The second major flaw is that the model assumes that workers negotiate as equals with their employers the terms of their employment. Obviously those with more skills can command higher wages. But in the real world the only real negotiation that occurs is that workers are offered jobs and told what they will be paid. They are then free to either accept or not accept the offer. If after a while wages don’t increase, the only option that workers have is to leave in search of something better unless all the workers can stand together, backed up with the threat of a strike, and demand more.


    What is often missed is that employers are “wants traders” while workers are “needs traders”. Employers, after all, have resources which enable them to wait it out until workers accept their terms of employment. Workers are “needs traders” who often have no choice but to accept what is being offered if they don’t want to starve. In short, employers have market power; workers do not. Hence the need for market power.


    When the National Labor Relations Act, otherwise known as the Wagner Act, was enacted in 1935, the effect was to give workers market power, or what some would refer to as a degree of monopoly power. By legalizing collective bargaining and giving workers the strike weapon, workers effectively achieved voice through their new market power. This was not such a revolutionary concept. Even Adam Smith in his “Wealth of Nations” recognized the need for workers to band together in the face of employers colluding with one another to drive down wages. The minimum wage, then, only extended that market power to those workers who weren’t covered by unions.


    Do these institutions artificially raise wages? Yes. But so does the market power of employers in artificially suppressing them. In other words, there is no such thing as the “natural” market place. If we accept the neoclassical premise that only if workers have skills, i.e. something employers need, can they demand higher wages, we have to accept that similarly if they have market power they can also demand higher wages. After all, without either, employers will use their market power to drive wages down because the fundamental axiom of economics is maximization of profit and minimization of costs.


    Here is where the candidates seem to miss the point. Workers need neither to be more flexible nor to receive more programs. They need institutions in place that will boost wages. Only by raising wages can we grow the economy because the greater purchasing power that accompanies them will result in greater aggregate demand for goods and services. Restoring the middle class requires restoring institutions. Until our candidates begin speaking about institutions, we will have one more election where the candidates succeed in nothing more than speaking past one another. And while they continue speaking past each other the middle class continues to decline even more.

  • 27 Jul 2016 3:54 PM | Mike Lillich (Administrator)

    By Oren M. Leven-Waldman


    First published online in the Yonkers Tribune.


    In this most unusual election the Democratic party appears to be moving leftward with a call for a $15 an hour minimum wage, free college for in state residents in families earning less than $125,000 a year, and a variety of other programs to assist those at the bottom and in the middle of the income distribution. Meanwhile, the Republican nominee is calling for greater protection of American industries to protect American jobs from the ravages of globalization. In essence, both sides are rejecting the fundamental tenets of free markets, which have been at the heart of America’s core philosophy of individualism for more than two centuries.


    Of course, free markets since the New Deal in the 1930s have not meant the same thing they did during the era of laissez-faire and robber-baron capitalism of the late Nineteenth Century. But adherence to free markets has surely been the defining characteristic of Republican party politics since its inception in the 1850s. Moreover, the regulations sought by Democrats beginning in the 1930s were always with the intent of preserving the foundations of free markets. What we see in this election year raises an interesting question: Have we reached a point where capitalism no longer works?


    Clearly those on the Left do not believe that the economy is working for them. Middle class wages have been stagnant for more than four decades now, and inequality has risen. A strict adherence to free market ideology would mean that government does not intervene when the marketplace fails to provide sufficient opportunity for individuals to support themselves and live independent lives. It also means that it does not provide social supports to those who cannot make it on their own, and it does not regulate working conditions or consumer product safety.

     
    If the result of globalization is that the living standard of workers falls because wages also have to fall in order to compete, then so be it. After all, this is the essence of a free market, which also creates the conditions under which individuals can achieve the ultimate in human agency and individual freedom. But those who challenge this free market ideology are really saying that human agency and individual freedom are unattainable under these conditions.


    And yet, it would appear that many of the angry voices that are supporting Donald Trump’s candidacy for president are also acknowledging that an economy that no longer sustains a viable middle class because it has failed to provide enough good paying middle class jobs is similarly one that encroaches upon their freedom and enslaves them to the whims of capitalists whose loyalty is no longer to U.S. territory. These voters clearly want to be protected and are rejecting a fundamental tenet of capitalism: free trade.



    Although it is true that free trade may appear to be resulting in fewer opportunities in a global economy as the need to compete applies a downward pressure on wages, the real issue, and not altogether unrelated, is that new technology has been the driver of wage inequality as greater skills leads to higher wages at the top and an oversupply of lower skilled workers will lead to lower wages at the bottom. To upgrade everyone’s skills for the new economy would require massive investments into education and training. Even if those investments were made, there is no guarantee that wages would be higher, as an oversupply of more skilled workers would result in more downward pressure on wages.


    So let’s ask again: have we reached the point where capitalism no longer works? Is that what voters are telling us? Or are they really saying that it really does not comport to core American values of human agency, personal autonomy and freedom if it only benefits the elites and not the masses? It would appear that they are saying that what we have in the U.S. is no longer capitalism, or even regulated capitalism characteristic of the 1930s, but crony capitalism.

     
    It will be recalled that Marx astutely observed that capitalist markets left to their own devices would implode underneath their own weight. Firms would seek to lower labor costs in order to remain competitive, and as more workers would find themselves too poor to maintain demand for goods and services in the aggregate, the system would come crashing down. With the middle class effectively disappearing under the weight of greater globalism, we can see that Marx’s observations were essentially correct.


    Although Marx called for a communist revolution in the name of greater democracy and equality for all, the alternative to the revolution has been Burkean style conservatism: the idea that radical steps need to be taken in order to conserve the traditions of the past. Regulation of the market place and other interventions such as legislated wage floors were considered to be radical steps aimed at preserving the market place.


    It isn’t so much that capitalism no longer works as it is the appearance that it no longer works because of the deterioration of labor market institutions and the distortions in the tax structure. Wages for the middle class have stagnated and inequality has risen in large measure because union membership has declined and the minimum wage has failed to keep up with inflation. European countries with more centralized wage setting institutions have lower levels of inequality. Distortions in the tax code have favored economic growth at the expense of development


    We would all benefit from a simpler tax code that has two or three flat rates with no deductions. But the elites won’t entertain the idea of tax reform because it would deprive them of the vehicle by which they can purchase votes through the dispensation of goodies. Political elites, after all, need to be reelected and if they cannot appeal to those making large contributions, they won’t be. You will recall when I noted in this space a few weeks ago, the quiescence of low-income voters is purchased with programs that increase their money utility, which in turn allows politicians to pursue policies favorable to wealthier interests — the same interests that will contribute to their campaigns.

    But what if the angry voter on both the Left and Right is simply falling through the cracks? Well most democracy models suggest that they will call for a different type of revolution. This could be occurring in some respects with the leftward movement of the Democratic party with the adoption of many of Bernie Sanders’s proposals. And it could be occurring on the right with the embrace of Donald Trump’s protectionism and isolationism. Perhaps the problem is that the voters understand that the elites don’t really care about the middle class, and it is the middle class that is hurting. Contrary to the laissez-faire view that capitalism requires a strict separation between the public and private sectors, it requires a more effective public-private partnership.


  • 14 Jul 2016 7:39 AM | Mike Lillich (Administrator)

    By Orin Levin-Waldman


    First published in the Yonkers Tribune.


    As we approach the November election with what appears to be a not very good choice between an apparently corrupt and dishonest Democrat and a somewhat buffoonish Republican, we are left to ponder the real issues that aren’t being addressed. Hillary Clinton offers the same bromides we have heard before. She’ll fight hard for working Americans by providing more subsidies where needed, and in an appeal to Bernie Sanders’ voters free college for those families whose income is less than $125,000. And Trump, of course, will make America great again without really telling us what that means.


    It doesn’t take a rocket scientist to figure out that both candidates offer empty platitudes which explains much of why a large chunk of the American electorate is angry. Why, you might ask, should they be angry? Because wages have been stagnant for more than 40 years now? Because once well-paying manufacturing (and also unionized) jobs have been replaced with low-paying service jobs? Because higher paying service jobs require skills and the cost of higher education and other retraining programs are too high.


    Because the Affordable Care Act did not make healthcare accessible and affordable to all as promised. Because we are living in a global economy and we are forced to enter into trade pacts that only leave American workers more vulnerable. Because the demise of labor market institutions like unions and the minimum wage, that served to bolster wages in the past, have only resulted in growing income inequality, and hence the disappearance of the middle class.


    But these are only the economic issues that have piqued voters’ anger while the political class remains tone deaf. Are voters also not angry about politicians who seem content to ram unpopular legislation and/or executive directives down their throats? 


    After all, it is never the case that the policy is bad or misguided, rather the public wasn’t communicated with hard enough. Could it be that when terrorism hits our shores that Americans will have become tired of being told that it is a matter of insufficient gun control? Or maybe they don’t want to be told how to practice their faith by the President who proclaims to know more than everybody else.


    At the moment, the race would appear to be a statistical dead heat and there is no reason, other than the fact that nobody trusts Hillary Clinton, that she shouldn’t be leading Trump by double digits. It isn’t that Trump is any more trustworthy, rather he speaks what is on their mind, which is a political system dominated by insiders who instead of listening to the voters simply manipulate them. They see a system totally non-responsive to those without resources and totally unaccountable. When he says the system is rigged, he appears to speak what people believe.


    They see a president that says the Constitution and separation of powers is too inconvenient for him; so he’ll govern through executive orders. There is no question that the nation’s immigration system needs to be overhauled, but you don’t simply ignore the sensibilities of the American public and issue an executive order to immigration officials in the Executive branch to not enforce existing immigration laws. What many voters see is a president effectively saying that certain laws don’t apply to those who govern.


    They see a presumptive Democratic nominee publicly reprimanded by the FBI director for careless handling of classified information on an un-secured  private email server, but who will not face criminal prosecution because “no reasonable prosecutor” would bring forth charges. Why? Because she is the presumptive nominee and a criminal prosecution can upset a national election. Or is it because the Department of Justice is loathe to prosecute cases it isn’t sure it can win? And yet, what the American public sees is a two-tiered justice system: one for the elite, and another for the little people.


    What the American people see in Hillary is a 2016 version of Marie Antoinette: let the little people eat cake. Now they are going to trust her to make their lives better. And yet despite the promises made by Trump to make America great again and how amazing things will be, it is probably the case that few are under any illusions that a Trump presidency will bring back manufacturing and restore the middle class.

    To a certain extent, each candidate follows the established formula. Play to those who make the greatest contributions to their campaign. Then purchase the quiescence of others with different programs. After all, the goal isn’t really economic development and shoring up the middle class; it is about winning elections. And yet, the sad part is that many voters already understand this. Obviously the political elites have not gotten the memo.


    So let’s try this again. The election should be about the middle class and investing in people and their human capital. That requires a distinction between economic growth (which is what Wall Street is all about) and economic development, which is about actually investing in people and creating jobs. Our candidates are really concerned about growth. Shoring up the middle class at this point probably requires a pseudo mercantilist policy where the larger public interest takes precedence over the pursuit of individual self-interests.


    It isn’t enough to simply protect jobs; wages have to be protected too. A wage policy that will bolster the wages of the middle class is essential and so too is the restoration of institutions like unions that give workers voice. Just as American workers need portability in their pensions, they need it in their healthcare. This means that healthcare should no longer be employer based. We should either have a single payer system or employers as part of their benefits would give their workers vouchers so that they can purchase their own insurance. This might bring competition into the health insurance market, thereby driving down premiums.


    We need to recognize that manufacturing jobs are not coming back and that the service jobs are the new blue-collar jobs. That means they need to have the dignity that manufacturing jobs of yesterday had. Because this dignity came from unions, service workers need to be organized. If employers aren’t going to reward higher productivity with higher pay, then they need a little push with mandated minimum wages. A mandated minimum would enable employers who want to pay their workers more to do so without having to worry about being undersold by the competition that won’t.


    Alas none of the candidates are really talking about helping the middle class. They are simply following the standard formula of empty platitudes and where possible purchasing their quiescence. Perhaps that is why there is so much anger.

    Wage Policy, Income Distribution and Democratic Theory By Oren M. Levin-Waldman.

    Wage Policy, Income Distribution and Democratic Theory By Oren M. Levin-Waldman.

    Just published: Wage Policy, Income Distribution, and Democratic Theory:
    http://www.routledge.com/books/details/9780415779715/#review
    Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to:
    olevin-waldman@mcny.edu

  • 16 Jun 2016 8:28 AM | Mike Lillich (Administrator)

    First Published in the Yonkers Tribune.


    By Oren Levin-Waldman


    In his famous work, “An Economic Theory of Democracy”, published almost sixty years ago, Anthony Downs sought to apply public choice assumptions to the operations of democracy. According to the Downsian model, all actors, including political parties, interest groups and governments, behave rationally. Each party seeks to maximize its advantage or utility, which means that each is motivated by self-interest. Political parties, for example, will seek to maximize its utility by doing whatever is necessary to gain political support and win elections.


    The Downsian model, then, is based on the assumption that every government seeks to maximize political support. It is further assumed that the primary goal of government in a democratic society, where periodic elections are held, is reelection. Political parties, then, formulate policies in order to win elections; they don’t win elections in order to formulate policies. Politicians in the model, then, are motivated by a desire for power, prestige, income, and the “thrill of the game.” The relationship between what government does and how citizens vote is derived in the model from the axiom that citizens act rationally in politics.


    When voters make their voting decisions they are considering the utility they derive from government activity. Moreover, all citizens are constantly receiving benefits of one kind or another from government activity. Therefore, each citizen, according to this model, will vote for the party that s/he believes will provide him/her with the higher utility income, i.e. benefit and/or advantage. Rational people aren’t interested in policies per se, but in their own utility income.


    As government seeks to maximize political support, it carries out those acts of spending which gain the most votes by means of those acts of financing which lose the fewest votes. Government spending is increased until the vote gain of each marginal dollar spent equals the vote loss of each marginal dollar of financing. In cost-benefit terms, a government pursues a policy and/or program when each expenditure is said to be worth the cost in terms of votes.


    In the model, citizens only vote to influence government policies, and they are only interested in each party’s statements, positions, and/or ideologies to the extent that they serve as guides to the policies the party will pursue once in office. Also in lines with the Downsian hypothesis, parties also seek as their final ends the power, income and prestige that go with attaining office. All this means that a government may pursue policies that are in the interests of certain key players and not in the interests of others because the expected loss is not presumed to be great.


    This might then suggest that in the case of growing income inequality, if the interests of those who benefit from the inequality are served and these interests are the prime donors to those seeking office, and every actor is pursuing his/her self-interest, then there is no reason to address the issue of income inequality. We can only presume that there is no benefit to assisting low-income citizens who are more likely to be hurt by growing income inequality. A key reason for this might be that low-income citizens don’t have the resources to contribute to campaigns and they tend to be less likely to participate in the political process, even at the most nominal level of voting.


    Downs, however, suggests something a bit different, which ultimately forms the basis of the median voter theorem. He assumes that at some point low-income citizens will eventually tire of being discriminated against , or ignored, by government policy. To counteract the influence of high-income citizens and their domination, they may seek to form large collective bargaining units, similar to unions in the labor market. Once part of such a collective bargaining unit, or interest group, this individual voter will no longer feel that her vote is worthless because by joining others it ensures that her vote will count.


    And yet, Downs goes on to say that low-income citizens have essentially traded their political influence for money utility. This would seem to imply that as long as low-income voters get benefits in the form of money income, they will happily trade away any political influence to the government to in turn pursue policies that serve the interests of more affluent interests — interests that don’t need money income from the government per se, but do need policies that may enable them to become wealthier in the market place. And yet, everybody in this scenario is behaving rationally.


    If we apply this to the current labor market, we get the following scenario: Public officials don’t raise the minimum wage because it is not in the monied interests of those who donate to their reelection to do so. But in order to obtain the quiescence of low-wage voters, these officials provide the low-wage voters with subsidies, which we now know cost the taxpayers $152.8 billion a year. Low-wage voters, in other words, have traded their voice — political influence — away for money utility. The monied interests have gotten the policies that serve them, and public officials have been reelected.


    One view is to say this is corruption. Another view is to acknowledge that it is win-win and everybody is being represented, albeit in a perverse fashion. Of course, this is a classic case of the Marxist argument that the state throws the poor a bone. In order to obtain the quiescence of low-wage voters, who in more authoritarian regimes might rebel violently, public officials engage in redistribution. Remember, raising marginal tax rate on monied interests will not upset them because there are sufficient deductions to enable them to avoid paying higher taxes.


    Still, assuming that the quiescence of the poor is purchased through redistribution, it does not follow that redistribution has to follow the traditional model that tax rates need to rise in order to pay for programs. Rather redistribution can occur through wage policy. If all this is true, then policymakers ought to think of the minimum wage as the response to growing income inequality. Profits would be redistributed to workers in the form of higher wages. But low-wage workers would still be working for those higher wages, meaning that they are returning something of value.


    Of course, this doesn’t allow the monied interests to avoid paying more taxes through their deductions because the marginal tax rate would not be raised. And yet, they too could gain if the current tax code was replaced with a more flat tax. Then again, the politicians would lose their principal vehicle for purchasing votes. Is it any wonder that things are the way they are?

     

    Just published: Wage Policy, Income Distribution, and Democratic Theory:

    http://www.routledge.com/books/details/9780415779715/#review

    Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: olevin-waldman@mcny.edu


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