Friday, September 19, 2008

In search of a numerate left

Here is what I would like to know: Why do so few individuals on the political left trouble themselves to address economics? As my brother likes to point out, one of the primary things we lefties have got on our side is Reality. As on the curve above, in certain circumstances--some of us would argue, virtually all circumstances--the bleeding heart solutions are, really, the best solutions on all sorts of levels.

Let's take the living wage vs. the wage ratio approach. The wage ratio approach is so far out there, so radically bleeding heart, that one doesn't even hear it discussed on a legislative level . . not even a little bit.

Judging by our bleeding heart criteria, a living wage initially seems like a great idea. . . but it sort of floats out there by it's self, a fantastic humanitarian notion unsupported by all those Hard Nosed Ideas about Economics and The Reality of Doing Business that the right so likes to pretend are their own.

So we'll move along to a different wage policy instead. I suggest (as I'm sure various other people have suggested at various times) that instead of putting a price floor on labor, it become illegal to pay the lowest paid employees of a company less than 1/5 the pay rate of the highest paid employees.

From an economically literate standpoint, this makes more sense in several ways. Firstly, as the libertarians and neo-cons should be pleased to note, it avoids the market inhibition of a cost floor.

It's true that a 500% boss can be living pretty well while the bottom tier employees basically starve, but I'm not terribly worried about this scenario. . . we don't see a much reduced demand for labor from the price floor currently in place (the minimum wage) because the level of that price floor is very close to market price. So yes, some people might end up, at some point, having to sell their labor for low prices. . . but it leaves the neo-cons and "hard nosed realists" No Room To Complain. No matter how little your company is making, there is always enough to pay your employees 1/5 as much as you take home.

My favorite thing about this approach is that it strikes directly at inequality. I don't think we need more than a 500% inequality factor*; I think that's enough to still give plenty of incentive to innovate and perform well. While maintaining those incentives, it reduces the treadmill effect that "economic growth" combined with increasing inequality creates.

It also reduces incentives for companies to become so mamoth sized, thereby encouraging them to remain small and diverse, protecting competition for the consumers. I think that's worth the fact of some reduction in economies of scale.

Now, don't get me wrong; I don't think this policy would be enough to make it worth abolishing the minimum wage all on it's own. With certain other protections in place, that might be good. . . but even without them, if I had to choose** between a living wage and 20% of the CEO's wage, I'd choose 20% of the CEO's wage any day.

Sadly, the second-largest reason this sort of policy is unlikely to be adopted by the mainstream left is that minimum wage laws are infinitely easier to pass. The largest reason, striking more at the heart of the matter, is that an inordinate amount of funding comes from individuals who make a lot more than five times as much as their employees.

To me, these kinds of solutions seem to be all over the place, and it also seems that no line of defense short of sacrificing babies to the free market on the new moon could defeat them.

So why aren't we talking about them?

*and due to variance between companies, inequality could still be a lot more than 500%.

**given that there would still be various firms competing for my labor. BTW, if anyone out there wants to school me on labor markets and the like, have at.

*** Also, thanks to Indexed for the illustration.