September 8, 2018


Bernie Sanders Is Wrong About Workers on Welfare (Michael R. Strain, September 5, 2018, Bloomberg)

Whether motivated by concerns about inequality, as the Vermont senator is, or by the increasingly common view on the political right that when it comes to certain corporations, big is bad, both Sanders and Carlson betray a fundamental misunderstanding of economics and of the proper ordering of society.

Forces in a market economy will push the wage earned by workers toward the amount of revenue they generate for their employer. It is simply unrealistic to expect a company to pay, say, $15 per hour to a worker who is only generating $9 per hour of revenue for the business. Under such an arrangement, the company is losing $6 every hour the worker is on the job. That situation is untenable.

My argument may sound off given the amount of attention currently paid in some circles to issues like "market concentration," "monopsony power" and the like. To be clear, I do not deny that these factors play a role in determining wages. But particularly in the low-wage labor market, a worker's productivity plays a very important role in determining his wage. And large gaps between wages and productivity are ultimately unsustainable for many workers.

So in some sense, Sanders and Carlson have it exactly backward: Walmart, Amazon and McDonald's are not being subsidized by taxpayers because some of their employees receive assistance from safety-net programs. Instead, employers of lower-wage workers are surely reducing safety-net rolls. In the absence of these jobs, more people, not fewer, would likely be receiving government assistance.

The logic underlying the claim by Sanders and Carlson also leads to a place that the senator at least probably doesn't want to go. Sanders argues that if Amazon has employees on Medicaid, then taxpayers are subsidizing Amazon. At the same time, the senator supports single-payer national health care ("Medicare for All"). Should we view any national health-care program as a multitrillion-dollar taxpayer subsidy to business?

Of course not. And we shouldn't view food stamps as a subsidy to business, either. Doing so reflects a fundamental misunderstanding of how U.S. society has chosen, through politics, to assign different roles to different actors.

No one who works full time and heads a household should live in poverty. Making sure this doesn't happen is a social goal, and resources from all of society should be marshaled to achieve it. The responsibility for achieving this goal should not fall exclusively on the employers and customers of low-wage workers, as Sanders and Carlson implicitly argue.

Of course, McDonald's and Amazon have a role. But so do hedge-fund managers and upscale retailers and publishing houses and economists -- that is, those who don't employ low-wage workers.

I am pointing to a system of work-based income redistribution, a key component of the U.S. social-safety net. Wages are determined in markets, and taxpayer-funded government programs are used to further the goal that working households do not fall below a baseline level of material well-being.

As Mr. Strain's own argument shows, no one is really ready to face a system of income redistribution after work has been displaced nor where the cost of creating wealth approaches $0.

Posted by at September 8, 2018 7:28 AM