Far too often we hear that if we increase the minimum wage it will lead to an increase in prices, eliminating the benefit realized, and will lead to job losses in our ecosystem. Recent Research challenges this popular theory.

Increased wages and the pass through effects on prices is much less pronounced then is often reported. From the UpJohn Institute for Employment Research ” By looking at restaurant food pricing during the periods of 1978-2015, they found that prices rose by just 0.36% for every 10% increase in the minimum wage. They also observe that small minimum wage increases do not lead to higher prices and may actually reduce prices. In fact, small minimum wage increases could lead to increased employment in low wage labor markets. Read “The Effects of Increasing the Minimum Wage on Prices: Analyzing the Incidence of Policy Design and Context, by Daniel MacDonald and Eric Nilsson, to take a deeper dive into the issue.

The “marketing message” of Trickle Down and the “scarcity message” that is broadcast to us needs to be challenged. Wage increases can actually lower prices, increase employment, thus moving us closer to designing an ecosystem where “we all win, when we all win.” On my travels, I have observed that we need to start recognizing the “value” that we all have, so isn’t it about time that we start designing a better system?

Recent headlines have given me pause. In a June 6, 2019 article in Axios, the writer, Dion Rabouin, reported the following: “Wealthy People and Corporations have so much money they literally don’t know what to do with it.” In 2018, companies bought back $1.1 trillion in stock buybacks, and have record cash holdings of close to $3 trillion. The top 1% of U.S. Households are holding a record $303.9 billion in cash, before the financial crisis this cohort held just under $15 billion in cash.

So when I read the following headline on CNBC “It is no longer a question of if the Fed will cut interest rates, but when.” It caused me to ask, are they looking to ensure that the Top 1% continue to suck the “value” to the top? At it’s most basic level, the Stock Market is a system of trust that “values” businesses listed on its exchange and rewards those who take the risk of “investing” in that business. While there are no guarantee’s, lowering interest rates, reducing borrowing costs, encouraging companies to take on debt, thus allowing for an increase in stock buybacks, providing additional cash reserves to people already flush with funds, strikes me as odd.

Yes, lowering interest rates makes mortgages more affordable and keeps student loan interest rates from spiking, but if all that value, is sitting on the sidelines, how are the “incentives” in our ecosystem working at solving the issues that confront us?

I am always struck that the “conventional” wisdom is when there is a weak jobs number, that the prescription is to lower borrowing costs, to spur investment, but are surprised when the “numbers” demonstrate that that isn’t happening. This feedback loop has been the soundtrack playing throughout our ecosystem, and makes me feel like Bill Murray in Groundhog Day.

As an economic journeyman, I have earned a wide range in wages and one thing is always a constant. I am more willing to fertilize local businesses, merchants, purveyors of food, and the cinematic distraction when my wage allows me to pay it forward. There is logic in Henry Ford’s belief that it is always “good business” to pay ones workers wages that allow them to be a positive force in their ecosystem. Isn’t it time we start to see the “value” in this part of our ecosystem? Or, if we truly want to reap the benefits of what Einstein deemed humanities greatest invention “compound interest”, how about every company provide a workers dividend that allows the workers that make the Executives profit possible to enjoy a share of those record buybacks?

Before we enter the working world we find ourselves being students. Some of us look out the window of the bus and see a pasture, others walk to school through the alley on a city street. Some of us are fortunate and get the support at home, and some have to find that support anyplace they can find it. The Coach, Teacher, Janitor, or Lunch room staff.

What I have come to learn is that vacuum makes it harder for people to spend the quality time they would like with their kids. So, by increasing those wages, you create positive energy in a persons economic ecosystem, and that energy can help feed their children. Kids sense stress, I know I did, watching my Mom struggle to provide the support our family needed. So alleviating this stress can do wonders for a kids stress, freeing up time to be a kid and student.

When they enter that school, it seems to me that the “values” and “creativity” needed to navigate our economic ecosystem should be a focus. Perhaps teaching kids to color inside and outside the lines in a way that allows them to travel across our ecosystem with a diverse skill set should be encouraged? The Old Industrial model of the 20th century does not work in today’s world. In our dynamic ever-changing world there should be tools in the tool belt that make kids feel comfortable with risk, exploration, and failure.

In the world of Academic orthodoxy this means that the higher educational nudge should be less pronounced, still an option, but one among many. Producing an ever larger number of college graduates with large student loan balances is not always a healthy outcome. So, here if we present the option of higher education, then we need to present them with the tools that allow them to manage and minimize that debt. We also need to evolve and adapt in our thinking, so that acquiring skills is more widely available and at a reduced cost. A teacher where I work told me that he helped a kid highlight four lines of his computer code, and that effort, landed the student an internship with a large company, where he is getting paid $26 an hr. The tools needed in today’s economy can be found in a multitude of area’s and not always in the “traditional” classroom. If we approached education in a way that empowered kids with the intellectual, emotional, and spiritual equivalent of a Swiss Army knife, they might better be able to employ those tools on their travels in our ever changing world?

Ever wonder why the Stock Market goes up, they say the Economy is growing, but wonder why it might not have appeared in your economic ecosystem? In our current system there is a disconnect between the value that work produces and how we choose to reward it. Wages have not increased appreciably since the late 70’s but costs across the board have increased. So, why has it happened?

It has happened because the rules we have created have built an incentive structure that suck the value created in the system to the top. Entrepreneurs and self starters are not the enemy, it is the system created in Washington through regulatory capture that has created rules where we have dramatically moved away from the idea, that “we all win, when we all win”. So, what I hope to do through my writing is highlight some area’s I have seen where we could do better. Buckle up, and enjoy the journey.

Travels within our Economic Ecosystem

Systems are designed based on values, So what are ours?