January 27, 2014
Dean Baker
Truthout, January 27, 2014
See article on original website
The advance word is that inequality is going to be the central theme in President Obama’s State of the Union Address on Tuesday. That’s certainly good news, since it is a huge problem. The question is whether President Obama is prepared to talk about inequality in a way that gets to the core of the problem as opposed to just clipping away at the edges.
It’s a safe bet that we will see the latter. Obama has indicated that he will redouble his efforts to push for a $10.10 minimum wage. This is good news. This will mean a substantial increase in the wages for people at the bottom of the income ladder. The bulk of the gains from a higher minimum wage will go to people who really need it.
The days are long over when minimum wage workers were high school kids from middle class families picking up spending money working after school. The workers who will benefit from a minimum wage hike are overwhelmingly adults, many of whom are supporting children. The higher minimum wage will also put a substantial dent in the poverty numbers, reducing the share of the population in poverty by 1-2 percentage points, close to 5 million people.
Anyone who thinks a $10.10 minimum wage is too high should consider that from 1938 to 1968 we raised the minimum wage in step with productivity growth. If we had continued with this practice the minimum wage would be over $17 an hour today.
A higher minimum wage is great, but it won’t benefit most people, for the rest of the population we’ll have to look for other items on the president’s agenda. One of these is likely to be universal pre-kindergarten. This is a good policy that Obama has pushed in the past. It’s a proven winner in terms of the benefits to children. It’s also important as a form of child care for working parents. But as a way to address inequality, universal pre-kindergarten is at best limited and certainly long-term. It will not have a noticeable impact in this decade or possibly even the next.
There are some items on President Obama’s agenda that push in the wrong direction, most notably his plans for the Trans-Pacific Partnership (TPP). This is wrongly billed as a “free-trade” agreement. In reality it has very little to do with free trade.
The TPP is about imposing a regulatory structure that will give corporations more power over the political process. It will make effective health, safety, and environmental regulation more difficult. It may also shield the financial sector from efforts to rein in the sort of abuses that led to the financial crisis. And, it will make drugs more expensive. The TPP is about redistributing income upward; it has no place on a serious inequality agenda.
It is possible to envision a trade agreement that would reduce inequality. If a deal focused on opening the doors to more foreign doctors and other highly paid professionals, it would lead to lower incomes for many in the top one percent and lower cost health care, legal services, and other serviced provided this overpaid group. We could also open the door to low-cost generic drugs, saving tens of billions of dollars annually on prescription medicine.
Trade agreements can also be an avenue for reducing our chronic trade deficit. If we used a deal to negotiate a drop in the value of the dollar against the currencies of our trading partners, it could move us toward balanced trade. If we were to eliminate the trade deficit completely, it would directly create over 4 million jobs, the bulk of which would be relatively high-paying manufacturing jobs. Adding in the indirect jobs created from these workers’ spending, the increase in employment would be over 6 million, getting us most of the way back to full employment.
Getting back to full employment really should be at the center of any inequality agenda. Full employment matters not only for the unemployed workers who would get jobs and the underemployed workers who could work more hours, it also leads to tighter labor markets. As a result, workers at the middle and bottom of the pay ladder would be able share in the gains of economic growth as they did in the late 1990s boom.
Unfortunately, full employment does not seem to be on anyone’s agenda right now. The budget cuts that slowed the economy and cost us millions of jobs over the last three years are now largely behind us, but no one seems prepared to push an investment agenda or the sort of trade policy that can bring us back to full employment any time soon.
That means we will see little real progress in addressing inequality based on President Obama’s agenda. An increase in the minimum wage is an important goal with substantial benefits but it should not be confused with an inequality agenda.
Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout’s Board of Advisers.
