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July 6, 2015

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Letter to the editor:

Low wages aren’t the problem

In response to the op-ed by Dorian T. Warren, “Low-wage workers rebel against modern Gatsby:” Here we have an associate professor of political science as the purveyor of bad economics.

Warren finds it ironic that the Gatsby film displays an era of “excess and greed” while retail and fast-food workers are striking all across the country.

However, the real irony that Warren fails to note is that Gatsby and his excesses wouldn’t have been “great” were it not for government intervention; namely, Prohibition. It was Prohibition that created the black market for alcohol along with organized crime syndicates, and it stands as one of the best examples of failed government policy.

Warren states that low-wage jobs have fueled the growth in CEO pay. This is a completely ludicrous statement.

Capitalism is not a zero-sum game. Whether Warren or anyone else believes it, wage rates are predominately determined by the supply and demand for labor.

What is most disturbing is that he goes on to promulgate the continuing and destructive myth that low wages are dragging the economy down, and the notion that labor unions and a $15 minimum wage would help small businesses and create jobs. Increased union activity along with wage and price rigidity is what drove unemployment to nearly 25 percent in the 1930s.

What most people fail to understand is that the problem is not with low wages. The problem is with the purchasing power of those wages. Therefore, we need to address the real problem: the increasing burden of our federal government and the inflationist monetary policy of the Federal Reserve.

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  1. Here we have an argument against a "purveyor of bad economics" that purveys its own warped history of Prohibition and the Great Depression that is apparently sourced in some parallel universe.

    While Warren's approach may be clumsy, it addresses the problem of a disappearing American middle class faced with stagnant or declining wages... a condition not shared by most CEOs. Check out the stock market and you would think the country was wildly prosperous. Look elsewhere and the story is not so good. But apparently a small percentage are able to prosper quite well despite "the increasing burden of our federal government and the inflationist monetary policy of the Federal Reserve."

  2. Bad news is good news for the stock market these days. A reversal of the usually expected consequences. Why? Since 2008, Federal Reserve [FR] Chairman Ben Bernanke has eased money supply and liquidity with Quantitative Easing [QE] 1, 2, 3, 4 and to infinity. Currently the FR buys $85 Billion in U.S. bonds monthly to keep money, albeit inflated, in the markets. This reduces interest rates to zero and forces big money into stocks for the best returns. At some point, and Mr. Bernanke does not know when, he must "taper" off: Stop buying the bonds and let the markets find their own momentum else risk super inflation. The recent bad news was the jobs report for May, and previously months that were adjusted, and the higher unemployment rate. Thus, the FR, Mr. Bernanke, has to keep the brakes off monetary policy--good news for stocks.

    Carmine D

  3. BTW economic gurus predict at the current rate of U.S. growth it will take 6 years to reduce the unemployment rate to 5 percent from current levels. 6 years. This contradicts OMB forecasts in 2008 that the $900 Billion government stimulus would reduce the unemployment rate to 5 percent by 2010.

    Perhaps OMB meant 2020 and was off by a decade.

    Carmine D

  4. CarmineD

    Since the $900 billion economic stimulus happened in 2009 and George Bush was still President in 2008, I wonder if your dates are off too....or are you just making stuff up again?

  5. Ben Bernanke was and still is the Fed Chief. By all accounts the official start date of the current recession was the Martin Luther King Holiday Weekend in January 2008. You might recall the event that supposedly triggered it. The rogue investor overseas that caused the markets to sink suddenly around the world. Perhaps you don't. Ben Bernanke remembers. Par for the course for Ben Bernanke he was pulling an all night all day sleepover at the office while you and government employers were enjoying a 3 day holiday weekend.

    Carmine D

  6. "Here's the headline from the Wall Street Journal on January 23, 2008. Because of the age, it's not available on line any longer. I remember it very well.

    "Fed Rate Cut Halts Market Free Fall, But Recession Fears Are Mounting
    Foreign Shares' Tumble Prompts Bernanke Call; Biggest Trim in 20 Years"

    Carmine D

  7. When the facts are on your side, you don't need to make them up.

    Carmine D

  8. The minimum wage is too low in America. Here in Ontario it is $10.75 an hour, so those employees fortunate enough to secure a full time job (or a couple of part-time ones) allowing them to work 35 hours per week can earn $376.25 per week which works out to $19,565.00 per year.
    At your rate of about $7.25, the same employee only makes $253.75 per week or $13,195.00 a year.
    I've had an idea about how the escalating income disparity between low and high level employees can be moderated. Instead of giving every employee an annual inflation raise of about 2.5%, I suggest that the lowest paid full time workers (let's say with an annual wage of $20,000.00) get that raise but that more highly paid employees only get the raise on their first $20,000.00 of income. This system would work very well for government workers. It seems tragic that under the current system the lowest echelon's cost of living increase amounts to only $500.00 while someone much further up in the hierarchy making $100,000.00 gets $2,500.00. Just a thought. Something is going to have to be done to stop runaway government spending and the above concept would certainly assist in that goal.

    Donald W. Desaulniers

  9. Good wages and rich benefits lead to self sufficiency. Those that don't have the above have crime and welfare.
    There is a substantial spread between what Americans make and what things cost. The gap is closed by generational wealth transfers,crime and welfare.
    Carmine is making it up. The Philly fed report promulgated a couple years ago reflected 12 years to get unemployment to 5.5% with 3% aggregate growth. In the current world economic climate a significant drop is nearly impossible. Much of the world is back in recession with unemployment at 25% in some OECD countries.
    In 2009 the OMB did put out a report that the stimulus would keep unemployment at 8%. They were wrong. Making economic prognostications is very difficult on a good day.

  10. Regarding the letter writers wage comments. The chairman of BMW was asked why he pays American auto workers $15.00 an hour when the Germans make $75.00 an hour for the same work. His response,"I can get away with it".
    Americans are to dumb to demand better pay and working conditions so they get food stamps.

  11. Mr. Desaulniers...The minimum wage analysis is a bit off. Crime in the US runs $800 billion to $1.5 trillion per annum. If you read the Walmart reports they lose billions a year to employee theft. In retailing it is called ,"inventory shrinkage". No one in this country lives on 7 bucks an hour. People level the playing field. Walton said many years ago the greatest threat to retaining was theft. Nothing else even came close.
    In terms of executive compensation it is ludicrous. Buffet has discussed this for many years.

  12. Zippert, Weber, etal, should put their money where their mouths are by investing their own money (if they actually have any) in opening businesses. Then they can pay their employees whatever "living" wage they want - 10, 15 or 20 dollars an hour. They whimper and moan about the "poor" underpaid American worker, but do nothing tangible about it. Perhaps they haven't the drive, ingenuity or guts to put their own money (again, if they actually have any) at risk. As a successful business owner on more than one occasion, I heard the same apcray from fiscally illiterate patrons such as they on a regular basis. They thought since they ate a burger in a restaurant it made them experts at operating one. They were mistaken, as are Zippert and Weber, both showing they are stunningly ignorant of what it takes to successfully run a business. If I'm wrong, they can prove it by opening a business and running it profitably for, say, five years. Don't hold your breath waiting, folks, It ain't gonna happen! Not with those two!

  13. "Meantime, those super rich WalMart republicans pay their employees the lowest wages possible because they know US taxpayers will subsidize their "team member" puny incomes."

    75-80 percent of W*M execs and managers started out at the entry level jobs paying the least amounts. Just as military and Federal civilian government employees. The low paying jobs are entry level and not expected to be a career opportunity for the employees unless they chose them to be.

    Carmine D

  14. Jerry.. My goodness gracious! For a guy that wouldn't know me if he fell over me you make a lot of ridiculous comments. You know absolutely nothing about me. I started investing as a teenager and owned an adult entertainment company based in Santa Rosa in my late 20s. I've owned real estate in New Jersey, Los Angeles and currently am invested in several properties, both residential and commercial in Las Vegas. I've been continuously in the financial markets for about 40 years. My family and my wife's family owned bars, restaurants and gas stations on the East and West Coast from 1947 on.

    I have been involved in securities litigation over the 1987 stock market crash, the tech bubble in which thousands of companies failed due to the fact that most didn't even have viable products, as well as the current debacle caused by hybrid financial instruments.

    I was one of the chief architects of the entire ERISA medical reimbursement trust industry and worked on healthcare issues in this country for many years.

    Insulting people that you have never met and know nothing about is the ultimate ignorance.

    Read the below case. Schwab sold close to $700 million worth of what were supposed to be AAA rated securities. 40% turned out to be worthless junk. These types of corporate practices have cost millions of working Americans their life savings.

    Mr. Fink.. You've been a successful business owner on more than one occasion? A simple public records search indicates you own nothing. Without your Social Security check and your Medicare card you'd be dead by happy hour.

  15. Carmine.. How many Walmart workers make it to the ivory tower. Almost none! They start out at eight bucks an hour and get a $.50 a year raise. That's all most will ever have to look forward to. There are countless millions of Americans who have been in the workforce all of their lives that are still making entry level wages. Walk into any Walmart store. Most of the workers are not entry-level teenagers. Median income for a full-time working woman in this country is about $35,000 a year. That's enough money to buy a family health insurance plan and live in a flophouse. Medical alone is going to exceed $20,000 for family this year.

  16. /Increased union activity along with wage and price rigidity is what drove unemployment to nearly 25 percent in the 1930s./

    Pat - your history is fabricated from your political ideology. Your words are such nonsense that addressing them is a complete waste of time.

  17. Zippert1 (gerry hageman), 8:36 a.m. notes "In retailing it is called ,"inventory shrinkage".

    And in the employee circles of low-wage retailers, it's known as "part of the pay I'm due" or "compensation for working for this f*&^% company until I can find a GOOD job!"

  18. Cut social welfare benefits to LESS THAN what a person could earn in a minimum-wage job REGARDLESS OF HOW MANY KIDS THEY HAVE. Supply and demand of workers: 7 million illegals in American jobs while Obama facilitates more invaders.

  19. zippert and friends: Walmart wouldn't hire many of us because we aren't "Walmart material." They hire people who will do what they are told, will do menial work without complaint, people who have trouble finding other work, people with serious arrest/conviction records, people you DON'T want to see in the parking lot... And then the Walmart shoppers include those who can't do the math to see that GROCERIES ARE CHEAPER AT SMITH's, people who can't plan much ahead--to have enough diapers in the larger packages rather than run in for immediate "needs" and buy the small packages. Walmart has indicated that near the end of the month, when assistance benefits are running low, their sales volume changes to the smaller packages. So you can't purchase the big size diapers this month with every free cent and then next month buy the large size of something else?

  20. Adult entertainment? That's a euphemism for porno, isn't it, Zippert? As for knowing you, your posts tell me all there is to know: that we are polar opposites when it comes to politics, philosophy and handling finances.

  21. "Most W*M employees couldn't make it with out government assistance...."

    Same is true for married soldiers and civilians in the military and Federal work force. At the entry positions many qualify for welfare. The point is they don't stay at those levels very long. They move up through the ranks and grades with time and experience on a quick and prescribed time bases.

    Carmine D

  22. "Carmine.. How many Walmart workers make it to the ivory tower."

    How many employees make it to the corner office, period!

    I am not a W*M shopper nor a big box retail store customer. I prefer to use the local mom and pop stores. I was one myself. Small businesses create and employ more than 60 percent of the American workforce. Small businesses are the backbone of the U.S. economy and business market.

    Carmine D

  23. The true shame is how so many people hold on so tightly to economic fallacies and misconceptions.

    Long-held historical myths continue to this day in serving to hobble economic recovery as it did in the 1930's.

    One of the biggest that still infects liberal thinking is that low wages and the lack of purchasing power is a drag on the economy. The crash of '29 was a result of the inflationary policy of the Fed during the latter half of the '20's. As this boom was artificial and unsustainable, a contraction was inevitable and necessary.

    A market economy thrives and grows when the per-capita amount invested in labor causes increases in productivity which in turn lowers costs to business, lowers prices for consumers, which in turn cause wages to rise and, due to lower prices, increases the purchasing power of those wages. This is the capitalist mechanism which improves standards of living for the whole of society.

    When an economic correction is needed due to distortions created by government and monetary intervention, it has been customary to employ ever more wrong-headed and destructive interventions which only serve to prolong any real and sustainable recovery.

    So, in 1930 Herbert Hoover--WHO NEVER IN HIS LIFE ESPOUSED ANY LAISSEZ-FAIRE BELIEFS WHATSOEVER--successfully convinced businesses to maintain wage rates and thus the purchasing power of labor (Henry Ford paid his employees more not so they could buy cars, but to combat the high turnover in mundane assembly-line jobs). But during the initial down-turn, prices were falling, which has the natural effect of raising wages and their purchasing power.

    So then more wrong-headed economic intervention was employed to maintain price floors. These two opposing interventions served to increase the costs to business which led to the fall-off in production and the increase in unemployment.

    But that wasn't enough for the "laissez-faire" Hoover. The Smoot-Hawley tariff greatly increased costs for businesses and dealt a great blow for farmers. In a vain attempt to help farmers Roosevelt gave us the AAA policy of plowing under crops and destroying hundreds of thousands of livestock to maintain higher prices. I guess destroying wealth to create prosperity and puting people in bread lines so they can make ketchup sandwiches is the type of logic that infects Progressive minds.

    Then in 1932, Hoover,the "do-nothing, laissez-faire, capitalist", with his Progressive logic undaunted, gave the American people the largest tax increase in U.S. history with the signing of the Revenue Act of 1932. As a result, total receipts fell for the next year. Shocker!

  24. It's no wonder FDR won by a landslide. What's not commonly known is that Roosevelt campaigned on a platform of balanced budgets and smaller government.

    Therefore, the incessantly regurgitated claim of "totally unregulated laissez-faire capitalism" is nothing but a grossly disingenuous red herring that displays a massive lack of logical reasoning and critical thought. Typical herd-mentality. Moo.

  25. Lvfacts101 (Jerry Fink) comments (at 8:36 p.m.): "Adult entertainment? That's a euphemism for porno, isn't it, Zippert?"

    Only in your mind, Jerry. To me it's not watching exclusively cartoons on TV. For that matter it's reading a book with the TV OFF. It's having dinner at a restaurant that doesn't have "chicken" nuggets on the menu and doesn't even have a drive-thru lane. It's going to Yosemite and climbing half-dome. It's going to Owl Hole Spring (west of the south end of Death Valley, toward Camp Irwin) to camp for a low-tech week-end. The possibilities for "adult entertainment" are limited only by the specific adult mindset.

  26. Prohibition and unions? Did I step into an episode of the Twilight Zone? All these years I've believed "banksters" caused the Great Depression. Holy crap, sometimes this stuff can make a semi intelligent, reasonable person want to just give up. Keep watching the McNews, you tools.