The Wages of Orthodoxy

“If men were angels,” wrote James Madison, “no government would be necessary.” Government, he added, is “but the greatest of all reflections on human nature.” 

Madison’s philosophy of human nature—that we are simultaneously ordered to communal flourishing and likely to tear each other apart if left to our own devices—underpins his commentary. Without the aegis of government, humans inevitably prey upon each other. Government and law, therefore, are requirements for human flourishing. 

Most Americans, especially conservatives, who subscribe to republicanism in general agree with Madison in principle, though they quibble over the size and scope of government in practice. For many of them, however, this skeptical, even pessimistic view of human nature does not seem to apply to economics. In other words, the problem with the market is the government—not tragically flawed human nature. If we simply could get the government out of the market, all would be well, and humans would treat each other fairly because of the “profit motive.” 

A Good Capitalist

The distance between the Communist utopia and the free market utopia isn’t as great as it seems at first glance.  

In reality, there are really only three ways to improve the lot of workers: unions, minimum wage laws, and tariffs. It’s worth briefly reflecting on Karl Marx’s support for free trade and free-market economics. 

In general, he said, “the protective system of our day is conservative, while the free-trade system is destructive.” He acknowledged that free trade drove down wages while disintegrating national barriers and particularism. “It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution.” After making many of the same observations conservatives make in order to laud free trade today, Marx declared in January 1848, just before the Communist Manifesto was published: “It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.”

Marx was as good a capitalist as any conservative today because he saw the acceleration of capitalism’s brutality as a vehicle for the anti-capitalist revolution. He correctly observed that the contradictions in capitalism could sow the seeds of the sort of populist revolt that gave us Bernie Sanders and Donald Trump. 

Conservative Sacred Cows

Though Trump helped to popularize tariffs on the Right once again, contemporary conservatives still generally oppose tariffs, minimum wage laws, and unions. The current state of unions in the United States makes minimum wage laws a more pragmatic policy tool. Given the rising acceptance of tariffs once again on the Right, it is worth noting as Matthew C. Klein does, that traditional economic arguments for tariffs can also apply to the minimum wage.

“The two most intelligent arguments in favor of tariffs are remarkably similar to the two main arguments in favor of the minimum wage,” Klein wrote in Barron’s. “They tilt the playing field in favor of domestic workers, and they can make societies more prosperous by encouraging productivity-enhancing domestic investment.” 

Klein adds that more recent research suggests that “businesses respond to higher minimum wages by increasing productivity. Sometimes that means investing in new machines to complement or replace existing workers, sometimes it means getting existing workers to be more efficient, and sometimes it means getting managers to be effective at using their finite resources productively.” He points to a study by CEPII, a French research group specializing in international economics, that shows “even when a higher minimum wage drives low-margin companies out of business, the economy as a whole ends up better off because the remaining companies are more productive and are able to grow enough to employ the discharged workers.” Though that particular study looks at China, the conclusion is broadly applicable. 

Despite this many conservatives remain vehemently opposed to the minimum wage. But if the so-called “realignment” of the Right to make its movement more friendly to a healthy working class is to be anything more than a slogan, there remain many sacred cows of conservative economic consensus to slaughter. 

The Minimum Wage

To start, conservatives have come to view the minimum wage as the pay acceptable for merely showing up to work and, essentially, breathing. But this is actually something of a recent phenomenon. The change in the perception of the meaning of a minimum wage might be caused by the decline in its real value; the minimum wage went from a true floor—a substantial wage—to a benchmark for minimal effort. 

In 1968, the Economic Policy Institute reports, a minimum wage worker earned $10.59 per hour in inflation-adjusted terms, which is 46 percent more than today’s $7.25 federal minimum wage. Moreover, an exhaustive meta-analysis of over 200 relevant empirical studies shows that higher minimum wages raise the wages of both workers on the minimum wage and those who had previously been earning above but close to the new minimum.

An increase would not, as conservative orthodoxy holds, only help a small subset of the population. That point is worth stressing as the United States is increasingly defined by a massive service economy of low-paying jobs, even as the GDP has grown. 

As David R. Howell noted in ProMarket, the “anecdotal evidence is overwhelming: most full-time full-year workers cannot generate a decent standard of living for themselves, much less for a small family.” Howell was reacting, in part, to Trump’s much-lauded job boom. He contends, rightly, that an explosion of low-wage jobs is more of an indictment of the American system than an achievement. 

“This indictment is confirmed by the statistical evidence: last year, half of all workers were paid below $18.80 per hour (the median wage), and 20 percent were paid less than $11.91,” he writes. Howell points to the Economic Policy Institute’s family budget calculator, which shows a wage of $14 to $18 per hour for a single full-time worker is required to cover a basic-needs budget. That figure jumps to $24 and $32 for a single adult and one child. 

As a result, millions of Americans are forced to work more than one job, which leaves less time for starting or raising a family. And despite working multiple jobs, roughly 40 percent of American adults wouldn’t be able to cover a $400 emergency with cash, savings, or a credit-card charge that they could easily pay off, according to the Federal Reserve’s 2018 report on the economic well-being of U.S. households. About 27 percent of respondents said they would need to borrow the money or sell something to come up with the $400.

Overrated Trumponomics

Howell’s argument should give pause to those who believe a $15 minimum wage is a full solution to the problem of low wages for most workers. It clearly is not. If progressive proponents of a minimum wage hike truly cared for the workers’ plight, they would also support an immigration moratorium and worksite enforcement. Yet Howell’s argument should also encourage conservatives to reconsider the free-market economic gospel.  

On the one hand, Trump’s tax cuts and deregulation approach did not have the enormously positive effect many of his supporters insist it did. According to a Capital & Main analysis of U.S. Census data, national median family income growth during Trump’s first three years was almost identical to the growth rate in the last three years of Obama’s presidency. Moreover, median household income growth slowed during Trump’s first three years to 2.1 percent annually compared with 2.6 percent annually during Obama’s last three years. Measured by typical household income, 26 states “saw slower growth under Trump even before the pandemic,” Jessica Goodheart and Danny Feingold wrote for Capital & Main, citing the Cook Political Report.

On the other hand, the Tax Cuts and Jobs Act actually incentivized and accelerated job offshoring. More jobs went overseas under Trump’s first term than during Obama’s. Rather than investing revenues in better wages, corporations engaged in stock-buyback sprees. None of this should be a surprise, considering the principal architect of the TCJA is Gary Cohn, a former Goldman Sachs executive. 

Minimum Wage Hikes Helped Trump

The great irony of the Trump moment is that when pay for low-wage workers did rise, it was in no small part due to states increasing the minimum wage, according to an analysis of Labor Department data by the National Employment Law Project. From 2013 to 2018, in states where the minimum wage rose, inflation-adjusted median hourly pay increased 3.8 percent, while real median pay decreased by half a percentage point in the 24 states where no increase occurred. This continued through Trump’s tenure. 

The mantra cited by most conservatives when arguing against things like the minimum wage is, for example, that teenagers will become unemployed en masse if we raise the pay floor. But a 2017 study by the Massachusetts Budget and Policy Center found minimum wage increases did not lead to a meaningful decline in teen employment. Employment among teenagers between 16 and 19 is at its lowest level since 1999 when the minimum wage was $5.25, roughly half of the state’s current $11-an-hour pay floor. 

According to traditional conservative economic theory, this should not be possible. And yet another study by American academic Christopher Flinn in Econometrica came to a similar conclusion. 

Flinn found the increases in the federal minimum wage during the late 1990s most likely increased youth participation in employment. The level of teen unemployment that did occur was due primarily to a larger increase in the labor force participation rate. In other words, he found that raising the minimum wage entices more young people to enter the workforce than there are jobs at any given moment, which arguably improves the economy because of the boost to productivity, increased consumer spending, and growth in the long-term. 

Similarly, a 2019 report of the international evidence on the impact of the minimum wage prepared by Professor Arindrajit Dube found that the median employment effect of the minimum wage across studies of low-wage workers is negligible. In general, minimum wage hikes have not led to the kind of catastrophic job losses conservatives claim would be the case.

An Embarrassment of Gravediggers 

None of this is to say that the minimum wage comes without costs, but that the long-term social benefit is worth the short-term pain its implementation may incur—just as an immigration moratorium or a bill ensuring billionaires do not pay fewer taxes than working-class Americans would be. 

Conservatives can militate against unions, decry the minimum-wage as socialist, refuse to bother engaging with the realignment in earnest, and settle for clever quips about facts and feelings. But they will ultimately have only themselves to blame for electoral success tied exclusively to how unhinged the Democratic Party behaves when it’s in power. What conservatism produces above all, to paraphrase Marx, is its own gravediggers. 

The key question is not the minimum wage or any single policy but the likelihood of a new social philosophy, beyond Right, Left, conservative, or liberal, that puts people and the nation above gross domestic product and outmoded ideology. 

About Pedro Gonzalez

Pedro Gonzalez is associate editor of Chronicles: A Magazine of American Culture and an Adjunct Fellow of the Center for American Greatness. He publishes the weekly Contra newsletter. Follow him on Twitter @emeriticus.

Photo: iStock/Getty Images

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