Nick and Goldy answer your questions! If we had progressive taxation, would we still need means testing? Can we send ultra-rich people away to their own economy? What are the best economic indicators for the progressive economy? And more!
Thanks to Lisa from Indianapolis, Rick from Baltimore, Jacob from Portland, Sean from Philadelphia, Linda from Seaside, and Frank from Georgia who left the great voicemails included in this episode! If you have any questions for a future AMA episode, leave us a voicemail at 731-388-9334.
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Jacob:
I have a question. How do we get democratic lawmakers to fix their economic messaging?
Lisa:
Why is the minimum wage a flat dollar amount instead of a percentage tied to the cost of living?
Jacob:
And I’m just curious what the best economic indicators might be for us who are kind of watching the economics of the country to reflect market humanism, as you called it.
Lisa:
Thank you so much for taking my question
Speaker 3:
From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer. The best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
Nick Hanauer:
On this week’s episode of Pitchfork Economics, we are doing another AMA, Ask Me Anything, and we have some awesome questions. So let’s get to it.
Lisa:
This is Lisa from Indianapolis. Why is the minimum wage a flat dollar amount instead of a percentage tied to the cost of living? Thanks.
David Goldstein:
Well, the answer, Lisa, is politics. Obviously, we shouldn’t have this fight about raising the minimum wage. It should be indexed to something. Nick, what would you index it to?
Nick Hanauer:
Lisa’s this idea is something that I never actually have considered. It’s a fascinating idea. And of course the intent of the minimum wage is that it does represent some reasonable fraction of what it costs to live. And for sure her question highlights a really important issue, which is that the minimum wage, national minimum wage, in the past has not been indexed to inflation or cost of living increases. Which means that you have to have this ridiculous political fight every five or 10 years to raise it again. Of course, if we just passed a national minimum wage and indexed it to productivity growth or inflation or some other thing, then it would continue to help folks maintain some kind of minimal standard of living.
But I mean, Goldy, of course, you’re right. The answer to the question is politics, powerful forces at the Chamber of Commerce, want the minimum wage to be as low as possible so profits can be high as possible. That’s the answer.
David Goldstein:
Right. And one way you keep it low is to erode it by inflation.
Nick Hanauer:
Correct.
David Goldstein:
To know, Lisa, here in Washington state, our state minimum wage has been indexed to inflation for over 20 years. It’s over 13.50 now tied to inflation. Of course, we did the $15 minimum wage in Seattle, and it’s over $16 indexed for inflation. Had it been indexed to productivity, it would be a $23 an hour today. And the reason why I raise productivity is that in practice, the minimum wage did rise with productivity over its first 40 years. Originally the minimum wage was, for no special reason, it was a 50% of the median wage. And the median wage rose with productivity. So did the minimum wage. And I think there’s a strong argument for that type of index today.
Nick Hanauer:
Absolutely. And in fact, Goldy, Seattle’s minimum wage, which people think in their heads is $15 an hour, is actually now $16.69 per hour.
David Goldstein:
Right.
Nick Hanauer:
By the way, that’s for everyone including tipped workers who earn 16.69 plus tips. Not $2.13 cents plus tips. That’s been a big help for folks who are in that wage.
David Goldstein:
Right. So if we index the minimum wage, great idea, Lisa, we should. We would achieve two things. One, we would avoid this political fight that has allowed the minimum wage to languish for the past 10 years hurting the lowest wage workers. And the other thing is it would be great for the economy because what is it that you say, Nick? When workers have more money.
Nick Hanauer:
Businesses have more customers and hire more workers.
David Goldstein:
Right. That is the virtuous cycle that we talk about a lot on this podcast. And that’s what we’ve seen in Seattle and elsewhere, these municipalities and states that have raised their minimum wage.
Nick Hanauer:
Yeah. And just the 16.69 number sticks in my head, Goldy, just because it’s such an exemplar of what utter nonsense the neoclassical view that when you raise wages, it kills jobs. Because here in Seattle, Washington, restaurant workers earn not 8% more, not 80% more, but 800% more per hour than they do in other places that only pay $2.13 plus tips. And so if there was ever a natural experiment available on planet earth to compare if raising wages was a job killing big government attack on freedom, this is it, right?
David Goldstein:
Right.
Nick Hanauer:
And in fact, we have a higher density of restaurants in places like Seattle than they do-
David Goldstein:
… And San Francisco.
Nick Hanauer:
In Alabama where you earn $2.13 plus tips or whatever it is. And it’s just such a black and white example that it’s really worth surfacing.
David Goldstein:
Nick, our next question came by email from Rick, from Baltimore. He asks if we can establish an effective progressive tax rate, will we still need means testing? For example, if we agree a child tax credit is a good thing, why not just give it and not worry about how much this family or that family earns? Basically to sum up the rest of his question is, if we could get a truly progressive tax code, Nick, couldn’t we just abandon means testing?
Well, I’d say again, Rick, I’m going to answer the same way, that the answer to your question is politics. That’s why we have means testing. And it’s bad politics. And I think a lot of the people who demand means testing understand it’s bad politics because they’re trying to destroy public support for these programs. Of course, if we just taxed rich people like you, Nick, we could afford for everybody to receive these benefits without means testing. Which by the way, makes it really, really difficult to be poor. It locks out a lot of people who qualify for these benefits and it means that people who don’t qualify don’t support it.
Nick Hanauer:
Yeah. One of the magical secrets to social security, of course, is that everyone gets it. And therefore, everyone supports it. And means testing programs tends to be a thing that weakens support for it. I’m not quite as hardcore about eliminating means testing as you are, Goldy, but certainly in many, many, many circumstances it’s counterproductive. And when you live in a society where almost nine out of 10 families are effectively struggling to make ends meet and have demonstrably been left behind by the last 40 or 50 years of economic growth. When you think about it, if 90% of the folks in the society really should be getting the benefit, the cost of giving it to the extra 10 is pretty low. Even if you include people like me getting these benefits, the net cost is low and the net political benefit is quite high.
David Goldstein:
The net value to you is low. And also not only is the cost low, but the cost of administering mean tests is very high, both to the government and to the people receiving the benefits.
Nick Hanauer:
That’s right.
David Goldstein:
We’ve talked about this before. It’s hard work being poor.
Nick Hanauer:
Yeah.
David Goldstein:
It’s hard work qualifying for these benefits and proving to all these separate agencies that you are under 200% of the poverty rate or whatever the standard is. And constantly having to prove that you’re not cheating. And worried about these benefit cliffs, where if you earn a little more this month, you lose your health insurance subsidy or you no longer qualify for your rent subsidy. It’s a terribly complicated and mean and dehumanizing system. So just give it to everybody and raise taxes on the wealthy. And even though the wealthy received the benefit, great, they’re paying more taxes too. So it’s a wash in the end.
Nick Hanauer:
Yes, Goldy, all of that is true. And at the end of the day, the problem here is not that the programs that we have to support poor people aren’t adequate. The fundamental problem is that in a majority of cases, if companies were required to pay people enough to live in security and dignity, they would need these programs. The core problem here is not the adequacy of the government programs or frankly how much we tax rich people. Although, we should tax people more. The real money is in wages. That’s where the bulk of the economic system lies.
The best way to solve these problems is to require companies, particularly large companies, to pay people enough so they don’t need any of these programs. So you don’t even have these conversations. And if they did that, the whole system would work better. Taxes ideally could come down. They wouldn’t have to go up because people would not need these services. And that’s where the core of our political and advocacy energy should go.
David Goldstein:
Yeah. It’s important to remember that the bulk of the people receiving these benefits are the working poor. These are people with jobs.
Nick Hanauer:
That’s right. They have jobs.
David Goldstein:
They have jobs. The problem is not that they don’t earn enough money. It’s that their employers don’t pay them enough money. It’s not their fault.
Jacob:
Hi, my name is Jacob from Portland. I have a question. How do we get democratic lawmakers to fix their economic messaging? Presenting the infrastructure bill as a jobs bill was a good start. But why when they talk about Medicare for all do they tend to ignore the cost savings that would be passed on to the individual as well as all the small businesses?
David Goldstein:
Well, Nick, this is what you’ve been hammering at for a decade.
Nick Hanauer:
Yeah.
David Goldstein:
Why is it so hard to get democratic lawmakers to fix their economic messaging?
Nick Hanauer:
Yeah. The core of the problem on the democratic side has been that really until the Biden administration, virtually every significant political leader on the left, with a couple of notable exceptions, subscribe to the neoliberal and neoclassical economic framework. They all effectively believed the Republican talking points about raising wages, killing jobs, and tax cuts for rich people, creating growth, and any form of regulation destroying productivity and economic growth and all the rest of it. I know this for a fact, because I have been in one-on-one dialogue and conversation with these folks for almost 20 years trying to fight through this nonsense.
And so the fundamental problem with democratic economic messaging up until really Joe Biden has been that they tried to have an economic message, but based it on all of the false assumptions conservative economic theorists subscribe to. And in that case, you’re trying to talk out of both sides of your mouth and nothing you say really makes sense other than, “We feel really sorry for these people so we should help them.” Which has no economic message at all. That’s not a theory of growth. That’s a theory of pity. Which is a terrible way to litigate these issues. It’s just very, very effective.
David Goldstein:
Now, to be fair, this is what they all learned in college in their Econ 101 class.
Nick Hanauer:
Right.
David Goldstein:
And this is what they’re still teaching in college and Econ 101.
Nick Hanauer:
Right.
David Goldstein:
You’ve got Joe Biden who took Econ 101, if he took it, before the neo-liberal revolution, before the Reagan revolution. He learned his economics in 1960. He learned his economics from The New Deal and from The Great Society. And so, in a sense, his age actually put him in position to be a pre neo-liberal president. I think also, we’re painting with a broad brush. There’s a lot of Democrats who have tried valiantly on this issue. I think you have to give a lot of credit to Elizabeth Warren for changing the conversation. But most of all, let’s be honest, it’s Bernie Sanders, the socialist, who really hammered that this for years and years and years. And that first run for president in 2016 sparked a huge shift in the way people think and talk about the economy. How well he has done politically, I think has taught other Democrats that, yeah, maybe we can change our narrative a little bit.
Nick Hanauer:
Yeah.
David Goldstein:
But getting back to Jacob’s question, what do you think of the idea of shifting the narrative? Are costs savings that are passed on to individuals and small businesses, do you think that would be an effective narrative on Medicare for all?
Nick Hanauer:
Yeah, I absolutely do. The American healthcare system is the world’s largest price fixing scheme. It’s literally by almost a factor of two, the most expensive system per citizen in the world. With outcomes that are either at par or worse than our peer nations. And as a consequence, we devote almost twice as much of our GDP to healthcare as many other countries. I think a big part of reforming the system is teaching people that the system that we have embraced is expensive for everybody. It’s not just consumers, but also for businesses. I think that that angle of attack could be very, very fruitful in trying to reshape how we think about healthcare and how we should solve the healthcare crisis problems.
Speaking as a business person, you’re sort of trapped and held hostage by the healthcare industrial complex. Believe me, if you could check a box and do it differently and deliver high quality healthcare to your employees for the price that they get to do it in Canada or Australia or England, people would happily do that. But the existing private health insurance companies and the whole hospital system, they effectively have a stranglehold on the system. They want it to continue as is because that’s the way to make the most money. I mean, look, it tells you a lot about how powerful this stranglehold is that no large company, despite their massive amounts of power and resources, has found a way to break away from the system. Just think about it. Do you really think that these giant businesses don’t want to save money on healthcare? Of course they do. It’s a remarkable thing that nobody has found a way to break the back of this sort of price fixing scheme.
Sean Whiting:
Hey, Nick and Goldy, my name is Sean Whiting and I live in Philadelphia. I’m just curious what the best economic indicators might be for us who are kind of watching the economics of the country to reflect market humanism, as you called it or middle out economics? We know that stock market is just a reflection of how rich people are feeling. What do you guys look at to say, “This is how the economy is really doing for the working class?” Thanks so much, really appreciate the show.
Nick Hanauer:
If it was me, the number one metric I would look at is median worker income or median family income, and whether it’s growing or not. Because I think my own sense is that that is the best proxy for how the economy is doing overall and how well it will do in the future. Because rising wages for the majority of citizens cures all ills. It really does. A, of course, it makes people’s lives better as individuals. But the knock on effects are insane. If people earn more money, they pay more taxes. They pay more taxes, government deficits decline. If people earn more money, they buy more stuff. If they buy more stuff, there are more jobs created. And on and on and on. GDP, for example, is a terrible measure because it hides that because it’s an average.
GDP can go up and one person in the entire economy can be the beneficiary of all of that growth and everybody else can be stagnant. And it still looks like the economy is increasing. So focusing our attention on what’s happening to the typical family, I think is the best way to understand what’s happening economically.
David Goldstein:
Yeah. I absolutely agree with you, Nick. The median is the message. Median wage.
Nick Hanauer:
Correct.
David Goldstein:
Median income. Of all the metrics, that’s the easiest one.
Linda Cunningham:
I’m Linda Cunningham. Today is June 8th. And ironically, the person you’re speaking to about this tax… Changes in tax rate, mentions that, “Yeah, at a certain point, it’s just about keeping score.” Which is exactly what I’ve been saying. For these ultra rich people, it’s really just about where they are on The Forbes Richest 100. Is there any way to move them into some kind of other economic financial money, monetary system? Like you won monopoly, you won the game. Now you’re just going to do something that keeps your score, but somehow still allows these corporations to pay their employees living wages? At some point, these people need to leave normal economy and the way they’re sucking up all the money and move to some other economy. Thank you so much for taking my question. Love your podcast. More people need to listen to it.
Nick Hanauer:
Yeah. Linda, it’s a really interesting question. And I think that if I could just sort of rephrase it back to you, about how at a certain point it’s not about the money. It’s about your relative status. It’s about keeping score. The thing about humans in general is that we are highly status conscious, but not everybody is as status conscious as others. And it turns out that many people who are very rich and who work hard at being very rich are extraordinarily status conscious. They are enormously driven by that. You’re absolutely right, does $2 billion change your lifestyle from one billion? No. But it is a very important status signifier for the group of people who compete in that world. And to be clear, they all know each other.
David Goldstein:
Yeah.
Nick Hanauer:
We belong to the same clubs. We go to the same restaurants. You hang out. And so in the same way that the folks that belong to a local tennis club can be very, very competitive with one another at their level of tennis. In fact, maybe just as competitive as world-class tennis players competing at the world level. I mean, everybody competes with their peer group. And so you have this pernicious effect occurring that is pretty hard to get out from under, given human nature and the kind of people who are drawn to these things. And so at the end of the day, I don’t think you can really change human behavior very much. What you can do is legislate changes that harness that ambition to public ends. And one of the best ways to do that is to tax the crap out of huge levels of income. Go ahead, work really hard, make a ton, but we get a lot of it to invest back into the broader society.
David Goldstein:
I would add to that, Nick, that obviously status and prestige and seeking these things that is human behavior. It happens in all societies. But different cultures achieve prestige and status in different ways. And it’s not always how many commas in your portfolio.
Nick Hanauer:
No. Of course it’s not.
David Goldstein:
It’s not always money. So I think there’s a certain amount of norm changing.
Nick Hanauer:
Okay. But Goldy, in Perestroika Soviet Union, people weren’t less competitive. They didn’t have commas behind their name or in their net worth, but they did have [inaudible 00:22:48] and power and prestige.
David Goldstein:
Yeah.
Nick Hanauer:
It made it just as hard for a different range of things. And I think you could make a very strong argument that ways in which that society engendered competition was even more pathological, less fruitful, less useful than what we have. You gather a large group of people together in a society, people are going to compete for status and power. The question is not, will they or won’t they do that? The question is how do you best harness that activity into an end that works for everybody? I’m not exactly sure what you mean by moving us to a different economy. In many ways, we already exist in a different economy. Certainly, the super yacht economy is not part of the normal economy.
The private economy is not part of the normal economy. I mean, yes, Gulf Stream does make some jets. And yes, there are people who actually are paid to fuel those jets. But it is not a meaningful part of the normal economy. And I think this is one of the big problems is that you have all of this… The Sotheby’s Auction House is part of a different economy. When somebody pays $50 million for some painting, this is clearly not economic behavior, which is useful to the broad public. It’s taking money and effectively pulling it out of the economic system and sticking it on somebody’s wall. Talk about slowing down the velocity of money. It doesn’t get slower than stuck to a wall. That $50 million could be used for people to get haircuts with. That’s a lot of haircuts.
David Goldstein:
Maybe we just need to prevent you super rich people from socializing with each other so you can’t measure your bank accounts against each other. If you were only hanging out with me, Nick, you’d feel really good.
Nick Hanauer:
That’s true.
Frank:
Hi, my name is Frank from Georgia, and I was just wondering, given many employers skirt wages and providing benefits by reducing hours, why is the minimum wage hourly instead of annual? Should there be a minimum annual wage or is hourly somehow better?
Nick Hanauer:
Frank, again, that’s a really interesting question about sort of a new way to think about the minimum wage. And you are dead right. We have allowed companies to game the system by, for instance, reducing hours for folks below the threshold by which they need to pay benefits. We have written extensively about this. And if you’re interested, you should check out our piece called Shared Security, Shared Growth, which you can easily look up on Google. But we are strong proponents of eliminating these cliffs. We believe that, among other things, an hour’s worth of work should generate an hours worth of benefit. There should be no way to not pay benefits to folks because they don’t work full-time. A lot of these problems can be solved if Congress would simply close these ridiculous loopholes and make it harder for companies to game the system.
An annual wage sounds a lot more like UBI. I’m not a big proponent of UBI myself, because I really do think that if you just require companies to pay adequate wages, you can get 95% of the way there.
David Goldstein:
To be clear, under that shared security system we’re talking about, we have three principles. That benefits should be universal, portable and prorated. And so prorated gets to what you’re talking about, Frank, that idea if you work under 30 hours a week now, you don’t qualify for benefits. Whereas, under a prorated benefit system, you get an hour’s worth of benefit for every hour worked. It completely takes away this incentive for employers to keep people part-time. It also, by the way, there’s a lot of workers who want to work part-time who are forced into full-time work because they need the benefits and it takes away that incentive as well. So it takes a lot of inefficiencies out of the market, which is a good thing. And it rationalizes the system so everybody gets the benefits they’ve earned.
Nick Hanauer:
Goldy, I think that’s all we have time for this week.
David Goldstein:
But don’t worry, we’ll be answering more of your questions very soon.
On the next episode of Pitchfork Economics, we’ll be talking with Kansas State Representative, Jason Probst, about the big Frito Lay strike in Topeka.
Speaker 3:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook @CivicAction And Nick Hanauer. Follow our writing on medium at Civic Skunk Works. And peek behind the podcast scenes on Instagram @PitchforkEconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.