The Huge Economic Productivity of Divine Monarchs

Republished from The Unz Review

When I first began investigating the minimum wage a couple of years ago, one of my early surprises was its sharp decline across the decades, having fallen by roughly one-third in real value since its 1968 peak.

This drop was greatly magnified when we considered the economic growth of American society given that our per capita GDP had roughly doubled during that same period, meaning that the minimum wage had declined by almost 70% relative to average income.  A 70% drop in a crucial parameter of our wage structure is quite remarkable and clearly explains why lower wage workers could generally support their families a few decades ago, but today subsist in desperate poverty despite massive government social welfare subsidies.  I emphasized some of these statistics in my December 2013 New York Times piece on the subject, pointing out that even raising the minimum wage to  $12 per hour would merely make up a fraction of this long lost economic ground.

I was hardly the first person to note these remarkable facts, and earlier that same year Sen. Elizabeth Warren had pointed out that if the minimum wage had merely kept pace with the growth in average per capita income, it would have reached a rate close to $22 per hour.  Given such figures, the increases to $9 or $10.10 advocated by the Democratic leadership in Congress stood revealed as the paltry and pusillanimous goals that they were.

The devastating power of this simple economic point is easily apparent to the business lobbyists tasked with blocking an increase, and they have regularly suggested that this argument is totally misleading because it ignores that the gains in national economic output have hardly been uniform across all sectors.  The doubling in real per capita GDP has been driven almost entirely by increases at the high end, in sectors such as computer software, finance, and biotechnology, with little of it due to changes in the value of the work produced by janitors and waitresses.  They argue that wages must follow productivity and if the output of nannies is roughly unchanged from forty years ago, it is absurd to expect their real hourly wages to double or triple.  On the face of it, this rejoinder seems quite telling, and I have never seen an effective rebuttal provided in the numerous articles and columns by liberal wage advocates I have read on the subject.

However, let us step back a little and ask ourselves to consider the definition of “productivity,” especially for a service-sector worker of the sort we are considering.  Now as both I myself and my sharpest libertarian critics have emphasized, I have absolutely no professional expertise in the “dismal science,” but productivity is obviously directly related to the rate at which economic value is generated and economic value is defined in terms of market prices.  So if the hourly wage of a cleaning lady is $9 and the price charged for her service is $11 (including overhead), those figures represent her productivity.

But suppose the minimum wage were raised to $11, boosting her personal wages to $12 per hour and the all-in cost of her services to $14.  Assuming her job remained in existence, which it probably would, the market price and productivity of her work would have grown by one-third, although her scrubbing and washing remained completely unchanged.  And her new, higher wages would remain just as closely aligned with her new, higher personal productivity as had been the case earlier since productivity is defined based on wages and costs for the service involved rather than the other way round.

Moreover, minimum wage critics have endlessly touted the recent CBO report analyzing the impact of a wage hike.  Yet according to that report, some 98% of impacted low-end workers would see dramatic rises in their wages while only about 2% might lose their jobs as a consequence.  So according to this analysis, the proposed minimum wage hike would raise the economic productivity of 98% of America’s low-wage workforce—could any politician ask for a better talking-point?

Perhaps my self-declared economic ignorance is shining through at this point, and my expert critics in the economics professoriate can seize on these naïve suggestions to ridicule and humiliate me.  I urge them to do so.  But it seems to me that much of modern economics is more intended to obfuscate and confuse rather than enlighten, and the disastrous American economic policies of the last decade or so tend to strengthen my suspicion in this regard.

These days, a large fraction of the more vocal and visible economics experts draw much or most of their incomes from the financial subventions of our Oligarch class, and perhaps coincidentally, their claims and the personal interests of their benefactors seem rather closely aligned.

We have been discussing the productivity of low wage workers, but let us now consider the productivity at the other end of the economic spectrum, which has allegedly risen so rapidly over the last few decades and thereby supposedly justifies the massive financial rewards there accrued.

How do we measure the productivity of a hedge-fund manager, a service-sector worker who annually earns $50 million for his management skills and financial manipulations?  Unless I’m missing something, the only metric available is the market price he charges for his services, namely that same figure of $50 million per year.  So just as has been claimed by those pro-market pundits, his income closely corresponds to his productivity, but his is merely a restatement of the relevant definitions.  If the painter of blotchy canvasses can sell them for tens of millions of dollars, his economic productivity is enormous even if his artistic skills are minimal.

This same argument would presumably apply on the international scale as well.  If an African dictator or the current God-Emperor of North Korea’s Kim Dynasty allocates to himself 5% of the entire national income of his impoverished country, the annual dollars involved may reach into the billions, demonstrating that his economic productivity exceeds that of almost any brilliant American business tycoon, even though the likely benefits he provides to his suffering country are hugely negative.  Perhaps the Sultan of Brunei may spend most of his days playing polo or watching TV, but his ongoing productivity—as manifested in the diligent 24-7 gushing of his oil wells—remains far greater than that of any investment banker or elite lawyer.

So when regular columnists in Forbes or other publications cite the fact that over the last generation or two, the economic productivity of our elites has skyrocketed while the productivity of most other Americans has stagnated, I suspect they are simply restating the leftist claim that the rich have gotten richer while no one else has.  But it’s nice to hear those sentiments coming directly from such a contrary source.


Meanwhile, on a more practical matter, I’ve become much more hopeful that a California minimum wage hike along the lines of that contained in the initiative I failed to qualify for the November ballot may soon be achieved via different means.

A few weeks after my $12 minimum wage initiative began receiving considerable media attention, State Sen. Mark Leno of San Francisco introduced a bill in the California legislation topping my proposal by raising the minimum wage to $13 per hour.

I’d assumed the measure had little chance of passage.  Last year the Legislature had been unwilling to consider a figure higher than $10 per hour and leading Democratic constituencies had actually criticized my initiative as unreasonable and unwarranted when it had surfaced.

However, it appears that the huge shift in the political and media momentum on the issue over the last few months, perhaps partly due to my own efforts, may have altered that ideological situation, especially in California.  After recently meeting and talking with Sen. Leno and his staff, I now believe his legislation has a reasonably good chance of being enacted this year at least in some form, which is very heartening.

Obviously, I would have very much preferred that my own initiative be the vehicle for raising the California minimum wage and a successful initiative campaign might have been a powerful means of nationalizing the issue in November.  But with the failure of my attempt to qualify the measure for the ballot, I am glad to endorse Sen. Leno’s effort and will do whatever I can to help it become law.

Although a state-level minimum wage of $13 would be by far the highest in America, the figure is not at all unreasonable.  California’s cost of living is about 30% above the national average, so a $13 rate here is roughly the same as a $10 minimum wage at the federal level, a figure now backed by the Obama Administration and almost all the Democrats in Congress, and even endorsed by conservative Bill O’Reilly on his FoxNews show.

Democrats hold super-majorities in both houses of the California legislature and they only require a simple majority to raise the minimum wage.  So all that is necessary for enactment is that they retain the support of the sizable block of moderate Democrats and Gov. Brown, and this would surely be facilitated by the number of prominent conservative Republicans who have now endorsed a large hike in the minimum wage.  Just within California, influential moderate billionaires such as Eli Broad and Rick Caruso have now also endorsed a minimum wage hike in that range or even higher, as has Peter Thiel, a billionaire who has strongly rightwing views on economic matters.

If my recent initiative drive to substantially raise the California minimum wage helps spur legislation producing a roughly similar result, I’d count my project a considerable success regardless of the particular circumstances under which the result was achieved.

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