Krugman Won’t Stop

Stop making sense that is. It’s been a couple of weeks since I’ve mentioned Krugman. You are paying attention aren’t you ? He made me laugh today when he lumped Ron Paul supporters into the same category as Lyndon LaRouche supporters. It’s one of the few benefits of being older -- you’ve seen crazy/strange/weird before.

Krugman also shot down the talk about lowering the minimum wage to boost employment. (It doesn’t work.) He ran the numbers on how many jobs we need to create so that even a math dunce such as myself can understand it. If 300,000 jobs a month sounds like a big number (and it does) just think about all the lost wages and tax revenues a number like that represents. That’s why we’re still in such deep trouble.

And just as surely as someone is generating the buzz on lowering the minimum wage (now that you’re listening for it, you’ll hear it on the news), Krugman has helped generate the buzz on taxing bankers. Personally, I like the idea. But I just finished reading Kevin Phillips’ book, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, and I don’t need much convincing that “high finance” is bad for our economy. Or any economy for that matter.

It’s one of the central points of Mr. Phillips’ book. Nations that start making most of their money off of playing with other people’s money (instead of producing something) soon decline. He makes his case with the latest empires to dominate history -- Spain’s, Holland’s and the British Empire. Each grew wealthy from exploration, innovation and manufacturing. Each declined when finance grew larger than other productive endeavors. In America, manufacturing swapped places with finance in the 1980s . In 1950, manufacturing was 29% of GDP while finance was only 11%. By 2005, manufacturing was only 12% of GDP but finance was over 20%.

To make those numbers a little more real, Mr. Phillips also provides a contrast in pay. Or should we say, “executive compensation” ? In 1981, the top spot belonged to a Mr. Genin of Schlumberger. $5.7 million. By the year 2000, it was Mr. John Reed with Citigroup. He made $290 million. Now we have numerous hedge fund managers making a billion plus a year. Lest I forget to make my point -- oil field services (Schlumberger) to finance (Citigroup and hedge funds).

In 1981, the minimum wage was $3.35 and hour. In 2000, it was $5.15 an hour.

$3.35 to $5.15 -- is over 1.5 times as much.
$5,700,000 to $290,000,000 -- is over 50 times as much.

If the minimum wage had kept up with “executive compensation”, the kids at Burger King would be making right at $170 an hour. Let me write that out for you -- one hundred and seventy dollars an hour.

Now, if people find the thought of a minimum wage of $170 an hour outrageous then why don’t people think the same thing about $290 million a year ? I know the answer. But first, let’s look at today’s numbers.

The minimum wage is $7.25 an hour. John Paulson -- a hedge fund manager -- made $3.7 billion in 2007. (You can do your own math on that one.) A billion dollars (much less $3.7 billion) is a little hard to wrap your head around so here’s a visual for you. Twelve pallets stacked with $100 dollar bills.

And what’s the difference between an outrageous minimum wage and a “redefining“ amount of wealth ? Envy. Greed. And the ability to buy positive (or negative) press. We allow the spin meisters to portray the minimum wage earner as some teenager slinging burgers instead of the single-mother cashier trying to raise a couple of kids without any health insurance. And the hedge-fund manager becomes the epitome of success -- instead of the guy that helped put 8 million more Americans out of work while almost bringing the world an economic collapse.

A billion dollars can buy a publicist, a TV station (maybe a whole network), a few dozen Congressmen, a few Senators, a health care Bill or even an election. But it can’t buy right.

Don Brown
December 12, 2009