We Must Stop Paying Attention to 80-Year-olds Reminiscing About Politics
Robert Reich is an example.
A friend shared a video of Robert Reich. I am a subscriber to his Substack account, not because I agree with him, but because I usually disagree with him. The video was no exception.
The gist of the video was that before 1970’s, minimum wage tracked with productivity. After the 70’s, productivity continued to increase but minimum wage did not. He then points out that executive salaries skyrocketed. The implication was that executives were taking all the money rather than sharing it with employees at the lowest end of the economic scale.
That may sound good to those who feel victimized by management. Workers often buy into the idea that they are the reason the company is profitable, not management. They have never started or run a company. They have no idea. In fact, most of those employees who try to go out on their own are bankrupt within a few years.
Think about how labor productivity is measured. The U.S. Bureau of Labor Statistics has a good explanation of how productivity is measured. The calculation is made by dividing output by the number of hours worked. The numbers are massaged to attempt to factor in the change in labor demographics. Higher educated and older workers will probably have a higher output than inexperienced and poorly educated workers.
Reich’s first fallacy is comparing the average improvement in productivity (which includes many more highly educated and experienced workers) to minimum wage earners whose productivity may not have improved much. Think of servers in a restaurant. They have been doing the job essentially the same way for decades.
Reich’s second fallacy is stating that based on productivity, minimum wage should be $25 per hour. Looking forward, minimum wage is not the problem. Soon there will be no minimum wage jobs. Robots will be doing them. I have now been served by robots in two different restaurants. That is an improvement in productivity for those restaurants who use them. Soon there will be no jobs. Robots are performing surgery. Robots are making pizza.
Reich also states that in the 60’s and 70’s more people were in unions. He believes that is why they were making more money. He goes on to say that when lower paid employees make more money they spend more. He states that helps drive the economy. That is true.
Reich also believes we must tax corporations and wealthy individuals much more. That also is music to the ears of the victimized worker, but does it actually help the economy?
I doubt that Reich has ever had a profit from his company, made plans to increase output, and realized that he couldn’t expand because of income tax. I’ve seen that. Taxes reduce supply.
If we increase demand with higher wages and reduce supply with higher taxes, the result is shortages and inflation. That is Reich’s third fallacy. His ideas are what are causing inflation. The government increased demand by giving workers money during COVID and decreased supply by shutting down business. That caused inflation.
Reich’s fourth fallacy is that executive pay increases are due to decrease in worker salaries. I am listening to a class called Transformational Leadership. I just learned that many startup companies do not have training for their executives. Startup companies lure away talented and proven executives with pay packages. How do companies keep the executives that they have trained? They have to meet the other offers. The increase in salary has little, if anything, to do with minimum wage.
I see many people sharing Reich’s videos. He has a following. I subscribe just to give me ideas. He is nearly 90 years old. We must look forward and stop paying attention to 80-year-olds reminiscing about politics.