Marshall Auerback recently posted in support of raising the minimum wage, joining Jamie Galbraith in advocating for it. This caused some disagreement among bloggers sympathetic to Modern Monetary Theory (MMT).

In particular, Rodger Malcolm Mitchell expressed his disagreement with Marshall in a straightforward critique, proposing an alternative and much more comprehensive initiative designed to move the economy toward the 5 goals Marshall set out in his post. The dispute received a very good discussion at Mike Norman’s site, with the main point being that everyone would favor Rodger’s alternative if it could be passed, but that Marshall’s proposal was much easier to get passed.

To this point, beowulf, a blogger and commenter much respected in MMT and Modern Monetary realism (MMR) circles, added a number of lively comments about the desirability of raising the minimum wage that I think are worth blogging here. He said:

“Minimum wage laws are like hummingbird wings. In theory they shouldn’t work at all, in the real world they work pretty well.

Australia’s minimum wage was just bumped to A$15.96 an hour, US$16.84.hr at today’s exchange rate. Unemployment rate is 5.2%.

Think about that, their U3 rate is three points lower AND their minimum wage is more than double ours. Either the Coriolis effect makes neoclassical economics work backwards in the Southern hemisphere, or mainstream economists are a bunch of astrologers who think they’re Carl Sagan.

$16.84/hr is high enough that a full time worker making that here would be means-tested out of food stamps, section 8 and other income security programs.

So what’s going on is Australia puts the cost of a living wage for the working poor on their employers instead of taxpayers, enabling govt spending to be focused on other needs– like universal Medicare and a Social Security system so broad it would impress even Rodger Mitchell.

Then later on he added:

“One other thing, this John Stossel post last month may be the most mendacious thing I’ve read all year.

“Statists say that Australia is proof that minimum wage laws help workers. They point to Australia’s 5.1% unemployment rate… But statists ignore the details.

“Most people who earn minimum wage are young, unskilled workers. How are they doing in Australia?

“In June, Australia’s unemployment rate for workers age 15 to 19 was 16.5%.”

“That’s digging pretty deep for an unemployment stat. Curious that Stossel neglected to mention the comparable US stat (for workers 16 to 19). In June, their unemployment rate was…26.6%.

That Coriolis effect is CRAZY.”

And then he added a bit more:

”OK, this is really the last one…

“According to the Heritage Foundation/WSJ “2011 Index of Economic Freedom”, Australia’s “government spending as a percentage of gross domestic product (GDP)” is less than that of the United States; 34.3% vs 38.9%.

“Stop and think about that… universal Medicare (with dental!), a jumbo size Social Security system, a defense policy of jumping into the same wars we do (including Vietnam and Iraq) and Australia still spends less on government than we do. At risk of sounding hyperbolic, I”d say that Coriolis effect is strong enough to move hurricanes (and cyclones). :o)”

These are great comments, and I’ll draw out their implications a little further.

– First, Australia is one of many nations with minimum wage rates way above our own. They’re no exception. Internationally, they’re closer to the rule; and among major nations, we are the shameful exception.

– Second, a recent Credit Suisse study shows the United States is 24th in the world in Median Wealth per adult. One of the reasons for this certainly can be the sad state of the minimum wage rate compared to other nations.

– Third, when a prediction is correct in theory, but not in the real world; then the most likely explanation is that the theory that says it won’t work is wrong. Capish? And

– Fourth, when will American legislators, politicians and political parties treat American citizens and their constituents at least as well as the legislators, politicians, and political parties of other democracies?

That is the question that has been blowin’ in the wind for at least 35 years now. Time to retire this group of bozos, crooks, and corporate ideologues.

And while we’re at it, let’s not forget the Justices of the Supreme Court. At least five of them need impeachment badly before they complete the turnover of this country to the corporations!

(Cross-posted from Correntewire.com.)

Nobel prize winner Joe Stieglitz recently called for a second stimulus to reduce unemployment and get the economy working well again. But the Administration seems uninterested in pushing the idea or making it an issue in the election, because it has been unsuccessful in setting the necessary frame for persuading the public that its first inadequate stimulus was only a political compromise that has done some good, but left much more yet to do. Yet we badly need that second stimulus, and if the Democrats could get their act together, get people back to work this month, and were willing to get rid of the filibuster in the Senate, we could have it quickly, and they probably could even avoid catastrophic losses in November.

I don’t expect the Democrats to do that however. It seems like they’d rather berate their base, play guilt and fear cards, and make generalized promises than show working people they represent them by actually performing and producing good results. A second stimulus would be the centerpiece in a bailout program for working people. I think that stimulus program should incorporate the three elements in Warren Mosler’s plan for ending the recession: a payroll tax holiday for employers and employees; a $500 per person revenue sharing program to prevent job cuts at the State level; and finally the most important element in it, a Federal Job Guarantee (FJG) for all who want to work.

The FJG would be a permanent automatic stabilizer added to the safety net. In good times its rolls would be very thin and its expenditures low; during recessions they would both grow and provide a floor of aggregate demand, as well as a way for people to remain in the work force and add to their work experience and their skills. FJG jobs would have full fringe benefits including two weeks of vacation annually, and Medicare insurance coverage.

I’d add a number of elements to Warren Mosler’s program. First, I’d reduce the standard work week to 35 hours, while raising the minimum wage, to $10 per hour, a rate that would also apply to the FJG. Second, I’d freeze all mortgage foreclosures in the United States, until the current problems with proper documentation and right to foreclose can be resolved. This would put a lot of money into the pockets of people who haven’t been able to make their payments. For some it would result in their eventually getting legal title to their homes. For the big banks it would result initially in further devaluing of their real estate holdings and might cause them to seek another Federal bailout. I would not provide it. But, instead, would take them into resolution, and not spin them off to private capital again until the toxic assets were cleaned off their books, and the loan funds were flowing to consumers and small businesses.

Third, the Democrats should immediately pass legislation to limit credit card interest rates to a maximum of 6% above the prime rate. In giving the credit card companies nine months before the law was implemented to prepare for it, their credit card reform bill invited the companies to raise interest rates on consumer credit cards by 50% or more before the law went into effect. That is, the bill bailed out the banks and increased the burden on consumers. Placing a limit on interest rates, accompanied by a non-usurious profit margin for the companies, would immediately change the narrative about bailouts, and also make credit much more affordable for consumers. More importantly, it would drive sales of consumer goods and also create jobs.

So that’s my program. The whiny and feckless Democrats won’t implement it or anything like it, but if they did before the election, they could minimize their House losses, and be sure of retaining the Senate. A political party that has lost the courage to grasp its own historic identity is a political party that doesn’t deserve to exist. That’s the case with the Democrats today, and if things keep going as they have been, they may just split down the middle by 2012.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Given the problems the United States has been having and the unnecessary, misplaced, and wrong-headed, but very real angst of people about becoming insolvent if we continue to increase the size of the deficit, I find myself wondering why we have not turned to another time-tested and very effective New Deal solution to the problem of growing employment. That solution is the Fair Labor Standards Act.

Why not amend the Act so that the standard for a full-time work week is lowered to 35 Hours, while the minimum wage is raised to $10.00 per hour? While this would not by itself create full employment, because many of the already employed, will increase the frequency with which they work at second jobs, I think it’s likely to decrease the unemployment rate by 5% or so. Along with a Federal Job Guarantee program, which would cost much less if it were implemented in the context of a decreased normal work week and an increase in the minimum wage, the employment problem would be gone within 6 months, and the increase in aggregate demand would end the recession.

The benefits for working people of decreasing the hours in a full-time work week are fairly obvious, so I won’t say very much about them, but I do want to point out that doing this is one way of ensuring that some small share of the rapidly increasing productivity that has occurred since 1970 goes to working people, rather than just to the pocketbooks of wealthy Americans who have been enjoying almost all the fruits of that productivity increase over the past 40 years.

Such a measure would also be a cure for the reported $1.8 Trillion in cash that businesses are reluctant to invest, since higher wage costs would cut into the profits of large companies and force some of that cash off the sidelines. In addition, the projected rise of aggregate demand, will provide incentives for businesses to invest and get still more of that business cash off the sidelines.

Republicans, of course, will object to any such proposal saying that business, and particularly small business won’t be able to afford it in a recession. FDR faced similar arguments in 1937 and 1938. Of course, he won the day, and Americans have benefited from his courage ever since.

One of the most attractive aspects of this proposal to amend the Fair Labor Standards Act is that it will have a positive impact on the deficit, not so much because those working at the minimum wage will pay very much in income taxes; but they will pay FICA and unemployment insurance taxes, and their employment will reduce Federal safety net expenditures, as well.

So, politically this proposal could be cast simultaneously as a jobs creating/deficit reduction measure which could make it tough to defeat, if only a majority vote in the Senate is needed to do it. Of course, a super-majority will be needed in the Senate.

So, this measure, along with many other worthwhile solutions to America’s growing risk of problems can only be passed if the filibuster is ended first. If "the nuclear option" is used, this can be done at anytime. So, why can’t we do these things? Only because our political system is broken, and is no longer subject to the will of the majority.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).