The American standard of living is falling and debt is rising because wages have been stagnant and declining for decades. Yet 70% of our GDP is based on the purchasing power of consumers, which has been declining for decades. More money in the hands of the rich does not benefit the economy to even a fraction of the degree than does more money in the hands of ordinary people, who are more apt to spend it on products and services in their communities. In fact, tax cuts for the rich act to depress wages for everyone else, since those taxes used to act as a deterrent to the extreme compensation packages now seen. In 1960 the average CEO made twenty times that of the common worker – today it is often between 300 and 400 times.
On top of this, automation continues to increase productivity and make workers redundant, and we need to begin considering how to address the impending threat to the American worker. Fully 47% of our jobs are at risk of disappearing in the next few decades, and policymakers need to begin planning for the economy of the future – where we will have to begin taxing the robots instead of the workers’ income – rather than relying on the economic concepts of the 19th and 20th centuries.
At the risk of giving a short history lesson… Recognizing that workers able to afford his products would buy them, and thus increase his sales and profits, was the most significant innovation of Henry Ford, and the widespread adoption of the principle after World War II helped drive unprecedented growth in the United States – the longest sustained boom in our economic history, in fact. Since the 1970s, though, wages have been stagnant or declining. Adjusting for inflation to get at real purchasing power, workers today make about $2,000 less than when I was born, which has helped to price people out of home ownership, car purchases, and a whole range of daily purchases that could drive growth.
This is especially troubling when you consider that productivity gains of the past four decades. Since 1973 the hourly productivity of American workers has increased by 77%, while pay has increased only 12%. This is a level of exploitation that we can fairly call criminal. The benefits of American labor cannot be allowed to reside only with the 1% – people deserve to make a fair day’s wage for a fair day’s work. Economists have predicted for two centuries that the number of hours we needed to work would fall steadily with increased productivity, and this used to be true – it is not because of political choices, because we chose to keep wages down and let the profits be pulled out of the real economy.
The minimum wage must be a living wage, not one that leaves a large part of the American workforce dependent upon federal benefits like food stamps and rent control just to survive. Raising the minimum wage increases the spending power of workers, which directly fuels economic growth. If the minimum wage is increased nationally to $15 an hour, wages across the board are likely to rise as well, and the increased spending will fuel a great expansion in job opportunities and commerce. This would be a start, at least, but as the economy grows those figures should continue to climb. If we look at inflation rates and productivity gains, the average wage should be two or three times that, easily. Once we get onto the right track again, it can reach that naturally, without the need for direct policy intervention.
Again and again when increases are proposed in the minimum wage, or to wages in general, those in the business lobby cry out that jobs will be lost. This is simply not true. The data are clear about the effects of wage rises, and the logic should be obvious given the consumer basis of our economy – more money in the hands of workers means more money to spend, which means businesses can expand because they will sell more. Where small short-term drops in employment have happened, the reason is the uneven application of the policy. If wages rose across the country, employers could not move jobs out of the region.
Where the effects have been studied long-term we have always seen major benefits. The same business owners who, before a rise, complained that they would need to cut jobs and close facilities have instead repeatedly expanded their business and hired more workers. There are numerous examples of this process that can be seen in states like Washington and California which have raised wages on a city-by-city basis. If gains can work even in isolated municipalities, the effects if done nationally would be tremendously positive. A higher minimum wage, perhaps with future rises tied to inflation and the cost of living, would be good for workers and their families, good for business, and good for the economy as a whole.
Beyond this, we need to begin planning for the future economy in which we will live in a world where most workers are not needed. Millions of manufacturing jobs have already disappeared, and not on account of trade or immigration – robots took your jobs. The US today manufactures more than it ever has, but employs far fewer people to do it, and the number will keep falling. But it’s not just manufacturing – we are losing jobs in retail, truck driving, stocking and shipping, the restaurant industry, and even “white collar” jobs in offices. Tens of millions of jobs will be lost to artificial intelligence and robotics, and if we do not start thinking of the machines as the workers rather than people, we will see the real economy continue to crumble. Income taxes are slowly becoming outdated and we may need to eliminate them entirely in favor of taxing the digital transactions and machine producers. We are facing momentous changes, and we need elected officials willing to look at the problems and discuss options.