Why Welfare Is Another Corporate Subsidy
The conservative cliche that government should be run as if it were a business has been repeated so many times that it's become tiresome. This is in spite of the fact that comparing the management of a nation-state to the management of a local kid's lemonade stand is a completely irrelevant analogy. But let's consider an example a little closer to reality -- the idea of running a household as a business.
As a business, a household (and I'm including the possibility of a household of one here) must also generate income and pay expenses. The difference is that the consequences are more severe for a household when the income can't cover the expenses. It's not a matter of going out of business -- it's a matter of not being able to put food on the table or seek medical care or meet other basic needs of survival and quality of life.
This is a series of short posts that I wrote for Facebook using the idea of a household as a business to make the case that the lack of living wages for so many workers essentially amounts to a giant government subsidy for the largest and wealthiest corporations.
PART 1 of several:
A basic lesson in personal economics. Assume that you're not unemployed or underemployed and that you work 40 hours a week. In exchange for providing your labor for 40 hours per week, you receive a wage or a salary. Part of that money goes to taxes. Ideally, those taxes help to maintain the basic infrastructure of an orderly society -- roads, schools, police departments, the military, libraries, universities, a stable economy, safe food, safe water, and so forth. That leaves the amount of money you actually bring home after working those 40 hours.
PART 2 of several:
Out of the money that you earn from your labors that you actually bring home once taxes are taken out, there are certain items of "overhead" that you have to cover -- much like a company or small business. You need a roof over your head. You need adequate food. You need electricity, a phone, and other basic utilities. You need transportation. You need health care. All of those "overhead" expenses have to be covered, one way or another, in order for you to function. For the moment, I'm going to completely ignore any luxuries or discretionary spending, or saving.
PART 3 of several:
Now we move to basic math. The money that you've brought home from Part 1 of this series has to be enough money to cover your basic "overhead" expenses that I discussed in Part 2. In a business, this is what we call remaining solvent. If a business cannot even cover its overhead expenses with the money it makes in income, the business fails and folds. Unless the business is a huge bank, in which case the federal government, using the taxes that you pay it from YOUR meager income, will back a truck full of money up to the back door -- but I digress. Ahem.
PART 4 of several:
So assume that the business we're discussing isn't a bank and there will be no truckload of money from the government arriving. The business can't cover expenses, so it goes out of business. Now the equivalent of this for you as an individual is a little more serious -- you don't simply close up shop and move on to something else. If you can't even meet the BASIC needs that allow you to stay alive and have a basic level of functionality in society, you're in a lot more trouble than that. You HAVE to meet your basic needs SOMEHOW. There is no other choice.
PART 5 of several:
Now it's no secret that the minimum wage has basically lost purchasing power for the past half-century. Just to get back to the level of purchasing power that the minimum wage had in 1968, we would have to immediately raise it to over $10 per hour. Of course, this is nowhere on the horizon. And remember, that $10+ per hour is NOT what can be called a LIVING wage -- ie, enough money to provide for a basic decent standard of living in a modern society. $10 an hour would merely get us BACK to the level of purchasing power that the minimum wage had in 1968.
PART 6 of several:
So if you've read the first 5 parts of this series, here's where we are. We have basic living expenses that have steady gone up since 1968 (what economists call inflation) and a minimum wage that has gone DOWN in purchasing power over the same time period, because inflation means that a dollar today isn't worth as much as a dollar in 1968. That means we have a huge number of people at the bottom of the economic ladder who can't even pay their basic living expenses. Again, my assumptions for this thought experiment are that these people are working in full time and steady employment and are not spending ANY money on any luxury items or savings.
PART 7 of several:
So what happens when the money that a person earns providing their labor for 40 hours a week is still not enough to pay for that person's basic "overhead", ie, living expenses? Well, they can turn to government assistance programs, they can turn to charity, or they can turn to crime. But there is no option to ignore the problem and NOT cover basic needs. At this point, let's add a further assumption to our experiment: that crime is not a viable option.
PART 8 of several:
A company pays a worker (let's assume it's the hourly minimum wage) because the company gets more value out of that hour of labor than they pay the worker as a wage. Economists call it surplus value. And that surplus value contributes to the company's profit. By profit, I mean the amount of money left over after all the costs of doing business are paid. These costs include the cost of labor as well as the costs of obtaining products or providing services. The cost of labor includes wages and benefits (such as health insurance) that are paid to workers.
PART 9 of several:
Again, we follow the math. If your goal as a company is simply to make as much money in profit as you can, there's two ways to do this: Sell more stuff so that you bring in more money or cut costs so that less money is going out. An hour of labor is a cost. But that hour of labor also creates surplus value for the company. So let's assume that an hour's worth of labor earns the company $30 per hour in value. If the company is paying that worker $15 per hour, the company is earning a profit of $15 per hour. But if the company can push wages down -- say, to the federal minimum wage of $7.25 an hour -- the company is now earning $22.75 in value for each hour of labor that a worker puts in. This means more profit.
PART 10 of several:
So our hypothetical worker is now earning a federal minimum wage of $7.25 an hour instead of a living wage of $15 an hour. This means our worker has lost $7.75 per hour in income. Meanwhile, our hypothetical company has added that amount to its bottom line. But wait a minute -- we have a problem here. That hypothetical worker still has to cover basic overhead (living expenses), only now they have to cover it with only the most meager of income. So what does the worker do when he/she can't cover the overhead?
PART 11 of several:
In most cases, what our hypothetical worker does is turn to government assistance to make up for the shortfall in covering their basic needs. They use programs like food stamps or Medicaid. These are programs that ALL OF US pay for, because they're covered by tax money. And since we have more workers being paid far less than a living wage because companies keep driving down wages to increase their own profits, the cost of these government-run programs goes up.
PART 12 of several:
Thanks for bearing with me through this thought experiment, because the key point is coming up. So we have the costs of providing government assistance to people making low wages going up. But recall from Part 9 that the money our hypothetical company saved on labor costs has already been transferred over to higher profits. But these higher profits are in fact A MIRAGE. Why? Because the ACTUAL cost of an hour of labor includes the costs that our hypothetical worker has to cover just to continue to function and continue working. In other words, the cost of that hour of labor isn't the minimum wage -- it's the LIVING wage.
PART 13 of several:
What our hypothetical company has done here is performed a little sleigh-of-hand trick -- it's ARTIFICIALLY lowered the costs of doing business by shifting some of those costs over to the government. Or to put it another way, to the taxpayers. Or to put it a third way, the PUBLIC (which includes all of US) is now sharing in the costs of running a PRIVATE business. We are, in effect, providing private corporations with a nice little subsidy so that money they would otherwise have to spend on the cost of labor becomes profit instead. Now that sounds like a pretty raw deal, but it gets worse. Because while taxpayers share in the costs and the risks of companies conducting private business, we DON'T share in the profits.
PART 14 of several:
But our raw deal gets even worse. Remember all the fuss about Apple hiding huge profits in Irish tax shelters so that it wouldn't have to pay US taxes? Companies do this all the time. So while the cost of government programs that subsidize the living expenses of workers steadily goes up, the amount of taxes the government receives from these same companies steadily goes down. And this is on top of the extra profits the companies already made from lowering wages down to starvation levels. Is it any wonder that the government is running huge deficits? Is it any wonder that economic equality continues to get worse?
The thing to remember is that the assumptions I've made for this thought experiment are far too optimistic to reflect the true day-to-day circumstances of the working poor. The reality is much worse. Millions of people are either unemployed or under-employed and thus are even worse off than our hypothetical worker making minimum wage for forty hours each week.
My example also did not factor in any kind of savings, either for emergencies, retirement, or building up assets. Nor did I take into account the costs of education or the workers who begin their adult lives under the crushing burden of tens of thousands of dollars of student debt while holding down jobs as baristas at Starbucks.
There are a lot of people who don't like government social service programs because they object to their money going to what is viewed as a free handout. But allow me to turn that argument on its head. I'm not as concerned with helping those who are down on their luck as I am with the fact that so many people with full time or near full time jobs have the need to seek government assistance.
People who are working forty hours a week should be able to cover the basic costs of living, and maybe even save a little for a rainy day, out of the income they earn at their jobs. Their labor provides value to the companies that employ them. I don't think it's fair that companies can pay their workers so little that taxpayer money has to be spent on supplementing the incomes of people who work full-time. When that happens, what's really going on is that the government is paying for a portion of companies' labor costs, allowing the companies to artificially cut their costs and increase their profits.
It's laughable that so many of the same people who oppose government assistance programs are also against requiring companies to pay people a living wage for their labors.
As a business, a household (and I'm including the possibility of a household of one here) must also generate income and pay expenses. The difference is that the consequences are more severe for a household when the income can't cover the expenses. It's not a matter of going out of business -- it's a matter of not being able to put food on the table or seek medical care or meet other basic needs of survival and quality of life.
This is a series of short posts that I wrote for Facebook using the idea of a household as a business to make the case that the lack of living wages for so many workers essentially amounts to a giant government subsidy for the largest and wealthiest corporations.
PART 1 of several:
A basic lesson in personal economics. Assume that you're not unemployed or underemployed and that you work 40 hours a week. In exchange for providing your labor for 40 hours per week, you receive a wage or a salary. Part of that money goes to taxes. Ideally, those taxes help to maintain the basic infrastructure of an orderly society -- roads, schools, police departments, the military, libraries, universities, a stable economy, safe food, safe water, and so forth. That leaves the amount of money you actually bring home after working those 40 hours.
PART 2 of several:
Out of the money that you earn from your labors that you actually bring home once taxes are taken out, there are certain items of "overhead" that you have to cover -- much like a company or small business. You need a roof over your head. You need adequate food. You need electricity, a phone, and other basic utilities. You need transportation. You need health care. All of those "overhead" expenses have to be covered, one way or another, in order for you to function. For the moment, I'm going to completely ignore any luxuries or discretionary spending, or saving.
PART 3 of several:
Now we move to basic math. The money that you've brought home from Part 1 of this series has to be enough money to cover your basic "overhead" expenses that I discussed in Part 2. In a business, this is what we call remaining solvent. If a business cannot even cover its overhead expenses with the money it makes in income, the business fails and folds. Unless the business is a huge bank, in which case the federal government, using the taxes that you pay it from YOUR meager income, will back a truck full of money up to the back door -- but I digress. Ahem.
PART 4 of several:
So assume that the business we're discussing isn't a bank and there will be no truckload of money from the government arriving. The business can't cover expenses, so it goes out of business. Now the equivalent of this for you as an individual is a little more serious -- you don't simply close up shop and move on to something else. If you can't even meet the BASIC needs that allow you to stay alive and have a basic level of functionality in society, you're in a lot more trouble than that. You HAVE to meet your basic needs SOMEHOW. There is no other choice.
PART 5 of several:
Now it's no secret that the minimum wage has basically lost purchasing power for the past half-century. Just to get back to the level of purchasing power that the minimum wage had in 1968, we would have to immediately raise it to over $10 per hour. Of course, this is nowhere on the horizon. And remember, that $10+ per hour is NOT what can be called a LIVING wage -- ie, enough money to provide for a basic decent standard of living in a modern society. $10 an hour would merely get us BACK to the level of purchasing power that the minimum wage had in 1968.
PART 6 of several:
So if you've read the first 5 parts of this series, here's where we are. We have basic living expenses that have steady gone up since 1968 (what economists call inflation) and a minimum wage that has gone DOWN in purchasing power over the same time period, because inflation means that a dollar today isn't worth as much as a dollar in 1968. That means we have a huge number of people at the bottom of the economic ladder who can't even pay their basic living expenses. Again, my assumptions for this thought experiment are that these people are working in full time and steady employment and are not spending ANY money on any luxury items or savings.
PART 7 of several:
So what happens when the money that a person earns providing their labor for 40 hours a week is still not enough to pay for that person's basic "overhead", ie, living expenses? Well, they can turn to government assistance programs, they can turn to charity, or they can turn to crime. But there is no option to ignore the problem and NOT cover basic needs. At this point, let's add a further assumption to our experiment: that crime is not a viable option.
PART 8 of several:
A company pays a worker (let's assume it's the hourly minimum wage) because the company gets more value out of that hour of labor than they pay the worker as a wage. Economists call it surplus value. And that surplus value contributes to the company's profit. By profit, I mean the amount of money left over after all the costs of doing business are paid. These costs include the cost of labor as well as the costs of obtaining products or providing services. The cost of labor includes wages and benefits (such as health insurance) that are paid to workers.
PART 9 of several:
Again, we follow the math. If your goal as a company is simply to make as much money in profit as you can, there's two ways to do this: Sell more stuff so that you bring in more money or cut costs so that less money is going out. An hour of labor is a cost. But that hour of labor also creates surplus value for the company. So let's assume that an hour's worth of labor earns the company $30 per hour in value. If the company is paying that worker $15 per hour, the company is earning a profit of $15 per hour. But if the company can push wages down -- say, to the federal minimum wage of $7.25 an hour -- the company is now earning $22.75 in value for each hour of labor that a worker puts in. This means more profit.
PART 10 of several:
So our hypothetical worker is now earning a federal minimum wage of $7.25 an hour instead of a living wage of $15 an hour. This means our worker has lost $7.75 per hour in income. Meanwhile, our hypothetical company has added that amount to its bottom line. But wait a minute -- we have a problem here. That hypothetical worker still has to cover basic overhead (living expenses), only now they have to cover it with only the most meager of income. So what does the worker do when he/she can't cover the overhead?
PART 11 of several:
In most cases, what our hypothetical worker does is turn to government assistance to make up for the shortfall in covering their basic needs. They use programs like food stamps or Medicaid. These are programs that ALL OF US pay for, because they're covered by tax money. And since we have more workers being paid far less than a living wage because companies keep driving down wages to increase their own profits, the cost of these government-run programs goes up.
PART 12 of several:
Thanks for bearing with me through this thought experiment, because the key point is coming up. So we have the costs of providing government assistance to people making low wages going up. But recall from Part 9 that the money our hypothetical company saved on labor costs has already been transferred over to higher profits. But these higher profits are in fact A MIRAGE. Why? Because the ACTUAL cost of an hour of labor includes the costs that our hypothetical worker has to cover just to continue to function and continue working. In other words, the cost of that hour of labor isn't the minimum wage -- it's the LIVING wage.
PART 13 of several:
What our hypothetical company has done here is performed a little sleigh-of-hand trick -- it's ARTIFICIALLY lowered the costs of doing business by shifting some of those costs over to the government. Or to put it another way, to the taxpayers. Or to put it a third way, the PUBLIC (which includes all of US) is now sharing in the costs of running a PRIVATE business. We are, in effect, providing private corporations with a nice little subsidy so that money they would otherwise have to spend on the cost of labor becomes profit instead. Now that sounds like a pretty raw deal, but it gets worse. Because while taxpayers share in the costs and the risks of companies conducting private business, we DON'T share in the profits.
PART 14 of several:
But our raw deal gets even worse. Remember all the fuss about Apple hiding huge profits in Irish tax shelters so that it wouldn't have to pay US taxes? Companies do this all the time. So while the cost of government programs that subsidize the living expenses of workers steadily goes up, the amount of taxes the government receives from these same companies steadily goes down. And this is on top of the extra profits the companies already made from lowering wages down to starvation levels. Is it any wonder that the government is running huge deficits? Is it any wonder that economic equality continues to get worse?
The thing to remember is that the assumptions I've made for this thought experiment are far too optimistic to reflect the true day-to-day circumstances of the working poor. The reality is much worse. Millions of people are either unemployed or under-employed and thus are even worse off than our hypothetical worker making minimum wage for forty hours each week.
My example also did not factor in any kind of savings, either for emergencies, retirement, or building up assets. Nor did I take into account the costs of education or the workers who begin their adult lives under the crushing burden of tens of thousands of dollars of student debt while holding down jobs as baristas at Starbucks.
There are a lot of people who don't like government social service programs because they object to their money going to what is viewed as a free handout. But allow me to turn that argument on its head. I'm not as concerned with helping those who are down on their luck as I am with the fact that so many people with full time or near full time jobs have the need to seek government assistance.
People who are working forty hours a week should be able to cover the basic costs of living, and maybe even save a little for a rainy day, out of the income they earn at their jobs. Their labor provides value to the companies that employ them. I don't think it's fair that companies can pay their workers so little that taxpayer money has to be spent on supplementing the incomes of people who work full-time. When that happens, what's really going on is that the government is paying for a portion of companies' labor costs, allowing the companies to artificially cut their costs and increase their profits.
It's laughable that so many of the same people who oppose government assistance programs are also against requiring companies to pay people a living wage for their labors.