Chomsky and Krugman Remind us why Minimum Wage doesn’t Matter

Today I followed a clickbait headline to an article in which Noam Chomsky talks about the minimum wage – and it tells me two things about the minimum wage debate that I think are worth mentioning.

The first has to do with a significant, and apparently ineffective, minimum wage hike in 1974. This is the source of the clickbait headline, actually, which is "Noam Chomsky: Richard Nixon Was ‘Last Liberal President’." I guess you’re supposed to say "OMGOMGOMG! But Nixon is the hated enemy! How can he be a liberal? Isn’t he the guy that guy on Family Ties idolized?" Which of course that only works on people who took Family Ties seriously. Nixon was about as conservative as Ted Heath, which is to say that in the early 1970s there weren’t any conservatives on the ballot anywhere. Anyway, among the many "liberal" things Nixon did while president was sign a law raising the minimum wage by a whopping 40% in 1974. The link goes to his statement about how awesome he felt doing this.

My point? Check the date. Isn’t 1974 a couple of years after Paul Krugman thinks the great stagnation in workers’ wages began? It’s hard to pin him down on an exact date, but the answer seems to be "yes." In this one it started in 1973. Whereas this one makes it look like 1971 or 1972. Point being, the 1974-5 40% rise in the minimum wage that President Nixon signed into law doesn’t seem to have been very effective at stopping the trend in its tracks, which rather begs the question of what kind of policy Krugman et al think will?

Granted, the 1970s were a time of great inflation, so maybe Krugman will argue that 40% back then isn’t the same as 40% now. Which would be both true and misleading: yes, inflation was higher back then, but it wasn’t anything like 40%!

But at least with Krugman he isn’t actually trotting a huge minimum wage hike out as a panacea for income inequality. Despite what a lot of people on the web would have you believe, I can’t find any place where Krugman actually came out in favor of a $15/hr minimum wage. The closest you can get are some recent interviews in which he "explains" that the adverse effects of the$15/hr minimum wage that McDonalds workers are demanding would be much less than you think ("explains" in shock quotes because he mostly confines himself to international competition – which he argues wouldn’t be a problem in the food service industry because you can’t drive to China to get fries and a burger – and for everything else just points to "a[n unreferenced] body of research"). That isn’t the same as endorsing it – though it’s easy to see why you might get that impression. He has, however, come out in favor of the proposed $10.10/hr federal minimum – which is still higher than the standard economic proscription against raising the minimum wage higher than 50% of the mean wage (currently around$17/hr – implying the cutoff point for a minimum wage policy should be no higher than \$8.50/hr).

With Chomsky, by contrast, you get this kind of absurdity:

Part of the neo-liberal assault was the minimum wage in real value started declining, and not growing. As GDP of economy grew, as productivity grew, minimum wage stagnated. So it should be raised considerably.

Typically, he won’t tell us what "considerably" means, but he seems to be wrong about the real value of the minimum wage. The Pew Research center has a study on this, and while it’s true that it’s stopped growing much, it isn’t declining either. The overall trend in purchasing power has bounced around a lot but seems to have held more or less steady since 1980. Which, really, is what such a policy should aim at in the first place – decide what’s the minimum you’ll accept in your society as a legal level of compensation and adjust the nominal level as needed to keep that in line with prices.

The other has to do with the supposed multiplier effect of raising the minimum wage. Chomsky:

"In fact it’s a simple economic problem, it’s cutting back economic growth," Chomsky said. "It means that ordinary people can barely consume, which of course cuts back economic growth."

At which point you just want the man to make up his mind. Because just as often he takes the line that consumption wants are artificial, instilled in people by advertising to keep them generating empty profits for the elite:

The goal for the corporations is to maximize profit and market share. And they also have a goal for their target, namely the population. They have to be turned into completely mindless consumers of goods that they do not want. You have to develop what are called “Created Wants”. So you have to create wants. You have to impose on people what’s called a Philosophy of Futility. You have to focus them on the insignificant things of life, like fashionable consumption. I’m just basically quoting business literature. And it makes perfect sense. The ideal is to have individuals who are totally disassociated from one another. Whose conception of themselves, the sense of value is just, “how many created wants can I satisfy?” We have huge industries, public relations industry, monstrous industry, advertising and so on, which are designed from infancy to mold people into this desired pattern.

So remind me again why we want to stimulate consumption? Which is it, Noam?

Maybe he doesn’t know himself. Maybe on the one hand he wants to help low-wage workers get as much stuff as the rest of us, but on the other hand he stays up at night worrying that giving the working poor more stuff will only play into the hands of the evil corporate conspiracy to alienate us from each other? He can go back to bed: minimum wage workers are only about 2.6% of the total workforce. Somehow, raising the wages of the least-paid 2.6% of the workforce doesn’t seem likely to set off a virtuous (vicious? Noam?) cycle of consumption that would actually result in any real stimulus. Especially when you remember that at some level these gains turn into losses when they price able-bodied people out of work – because whatever else it does to their choices, unemployment doesn’t typically encourage people to spend.

My overall point is that the minimum wage is a sideshow, and I kind of wish people would stop talking about it. If Krugman is going to be a convert to minimum wage politics, he needs to tell us what he thinks raising it will accomplish, since it evidently won’t accomplish reversing the "stagnation" in worker compensation that he’s chronically complaining about. And perhaps one of the reasons that dramatic increase in it wasn’t effective in the 1970s is because no one actually works for minimum wage. Or, if they do, they’re mostly young people who aren’t in their career job anyway. 2.6% of the working population, about half of which are young and part-time, isn’t much, people. So can we move on?

One thought on “Chomsky and Krugman Remind us why Minimum Wage doesn’t Matter”

1. Jose says:

I am a cofounder of the fight for 15 and you really couldn’t be more wrong. My team spoke to 20,000 low wage workers and most were over the age of 25, and most had families. You are only counting the people making min wage or less? How about the people making 10 cents over the min wage? Or 50 cents over? How about a dollar over? In places like Chicago there are people that stay without a raise for years. Anyway…hell no we cant just move on. Raising the min wage buys the lowest class time that they need.