The Grand Illusion
Sometime around 7500 B.C., people began building clustered mud-brick houses at Catalhoyuk, Turkey. According to detailed archeological studies, for roughly the next thousand years, the same patterns of life persisted, apparently with all families living in the same fashion and with approximately the same level of goods and the same size houses. Analyses of the human remains show that men and women received the same level and type of food as well.
By around 6500 B.C., however, income and status inequality began to develop, and as it did, more violence also began to appear, including a significant number of individuals with healed head injuries, wounds that suggest to the archaeologists who have studied the site for more than forty years that such injuries were inflicted as a means of social control, but that such control was not necessary until pronounced income/resource inequality began to develop. This is, of course, a conclusion drawn by those studying Catalhoyuk, but it does appear without doubt that the society appeared more stable when the income levels were similar and that more violence occurred once income inequality began to develop.
I have to say that this scarcely surprises me. Historically, countries with high levels of income inequality have often had violent uprisings and/or revolutions, such as the French Revolution, the Russian Revolution, the Spanish Civil War, the Cuban revolution, the more recent violence in the Sudan, and the troubles in Colombia and Venezuela.
In looking at income inequality by country across the world, I was struck by several facts. First, among industrialized/technological nations, the United States has the greatest income inequality. Among all nations, there is a pronounced tendency for countries with high income inequality also to have high levels of societal violence, and that includes the United States.
All of which suggests that pushing for tax cuts on the wealthy and opposing increases in the minimum wage may well have costs beyond the merely monetary.
Good points, Sir! But I submit that a major cause of discontent is the high incomes perceived as unearned – those CEO and executive bonuses, for a start. A fuss is usually made about inherited wealth, but I don’t see it as a major problem because almost anyone with a family wants to leave an inheritance to them – the ‘confiscate inherited wealth’ brigade have always come unstuck when asked ‘OK, how much is too much to leave to my children?’. The traditional ‘man on the Clapham omnibus’ of British economic thought doesn’t take kindly to being told his savings are too high so he must give them to the state.
In my economics class we recently discussed trends on pay and pay raises after there was a great deal of discussion in social media concerning companies abandoning annual pay raises in favor of performance bonuses through out the year. The over all consensus amongst the class, the older individuals, was that any year without a raise was in effect, a pay cut due to inflation. Meanwhile the company continues to make more money this year than last. Targeted bonuses would help the achievers, but even they would suffer from a stagnating wage.
This led to discussions about the effects of a change in minimum wage. There was a strong feeling, again mostly amongst the older group, that any increase in minimum wage was a decrease in their wages. A person making $25/hour for their trained skill set gained through years of college education that cost them time and money, as well as experience and other training was being belittled and reduced in value by increasing the wages of unskilled labor. The skilled individual would see no change in their wages while at the same time the cost of living was bound to go up.
If companies had to pay more to their employees, they would not allow their bottom line to go down. There for they must pass on the cost increase from more costly payroll. Their goods cost more so the people buying them are spending more.
The class never came to a good compromise on what should be done. Granted that we’re armchair economists but how do you reconcile the cost to those who have worked hard to get where they are by an increase in minimum wage and the needs of the many who are trying to just get by on the existing minimum wage and failing?
The class seems to be missing one point. Individuals and families at the lowest income levels essentially spend all their income. People at the top don’t. If the people at the bottom get more money, they spend more, buying more goods and or services The money they spend goes to the companies making the goods or providing the services. Admittedly, if the companies put the money into stock buybacks rather than into increased salaries and wages, then higher paid-workers get screwed, but that’s not because the economy is slowed by a higher minimum wage, but because of the behavior of corporate executives, who then claim they can’t afford to increase wages.
Oh certainly it is agreed that a company which invests back in it’s talent would help it’s people, however it has been frequently observed that the majority of companies constantly act contrary to their long term interests. They cut back on personnel, repair parts inventory and supply inventory in the name of saving money which results in short term savings but long term costs that far exceed any short term savings when the system breaks down just once.
The class’s discussion got re-oriented to mostly focus on the impact to the middle class wage (both hourly and salary) caused by changes in minimum wage. I neither know personally, nor through any acquaintances (online or otherwise), of any company which has raised their wages for skilled workers in a response to a change in minimum wage. There was no consideration that the economy was better or worse in the discussions. The feeling for the economy’s strength was that the workers, generally speaking, would see no change in their pay if the economy fluctuated, provided that the company continued to remain in good business standing.