Recreating the Depression

There is a movement among the left to push for higher wages for traditionally low-paying jobs such as fast food or Wal-Mart. A recent column by Harold Meyerson typifies this. At the same time, Mayerson's column is so goofy that it deserves some close examination.

He begins by reciting sales figures for retail chains. They are not good. Wal-Mart's same-store sales have declined slightly. Other chains have reduced their forecasts as well. But Meyerson has a simple solution - give everyone at these stores a big raise. The extra money will boost the economy.

He even has a historic precedent for this. He quotes Edward Filene, whose family owned the Filene's department store. In the 1920s, Filene pushed for a wide list of economic reforms. Meyerson goes on to say:

They were well compensated for their clear understanding of how to make an economy thrive: During the 30 years of broadly shared prosperity that the New Deal reforms made possible, department stores catering to the vast middle class were a smashing success.

So, what's wrong here? A lot. To start with, Filene was ousted from the management of his family's business by the time he was pushing for these reforms. This column has to the the first I've ever seen that calls for a return to the good old days of the 1920s economy. Everyone else uses the 1920s as a cautionary tale since it led to the 1929 crash and the Great Depression. Meyerson ignores the fact that the New Deal and the Great Depression go hand in hand and that the 30 years of broadly shared prosperity happened after most of the New Deal was dismantled during WWII.

The 1930s provide a valuable lesson for those who want to raise the minimum wage to $15/hour. In the early days of the Depression, the country actually suffered from deflation - the value of the dollar went up instead of down over time. By all rights, wages should have dropped to match the new buying power. Instead the government intervened and kept employers from lowering wages. Since the dollar was worth more, that gave them a huge increase in buying power - something like 50%. But it also raised labor costs that much and acted as a long-term inhibition on employment. Employers just couldn't afford to hire people at the new rate so they didn't.

That is what Meyerson and the others would cause in today's economy. They see corporate profits going up and see it as money that rightfully belongs to the workers (a very Marxist view) but they don't bother to do the math. There isn't enough corporate profits to pay for the pay increases they want. Product costs would have to go up and sales would go down. The people on the bottom might find themselves marginally better off but everyone else would be squeezed. At best, we would see a return of the inflation of the late 1970s were price increases wiped out wage increases. At worst we would see a second Great Depression where those who have a job would be fine but a large portion of the population would be unemployed.

Meyerson needs to look further than low-wage workers. Except for health care, the economy is not really growing. Instead of trying to turn all jobs into good jobs, we need to see what is impeding the growth of good jobs. This might be painful for Meyerson since he supports Obamacare.