Here is David Brooks’ advice about how the President can bargain with both parties to make progress towards fixing some of our long-term problems:
Most important, the president will probably have to take advantage of the following paradox: bigger is easier. If he just tinkers around the edges with modest proposals, then everybody will be on familiar ground. But if he can expand the current debate, then, suddenly, everybody is on new ground.
The general approach should be to offer the left something it really craves. Then offer the right something it really craves. Then, once you get them watering at the mouth, tell them they’re going to have to bend on the things they don’t care about in order to get the things they do.
Now I don’t agree with the things Brooks’ calls for giving the Democrats, but I can think of one thing Obama should give the Republicans and the Democrats should happily give up: get rid of the minimum wage. Wait, wait, don’t roll your eyes and close this window! Stay with me!
Economists from both sides of this debate agree that the minimum wage is less important than most people think and politicians act. Futhermore, there is widespread agreement it is a highly imperfect way to make poor people better off. The Earned Income Tax Credit is better targeted at low-income families instead of middle class teenagers, and it doesn’t have the downsides of potentially causing disemployment. So Democrats should be glad to trade this policy in for a smarter, more effective, and more efficient one, and in doing so cash in on Republican’s emotional attachment to this issue.
Yes, it would be a huge symbolic loss for Democrats. But like Brooks said, getting reform done is going to require giving and taking, so a good strategy for both sides to maximize actual real benefits is to give when the policy is symbolic, and take when the policy is most efficient and beneficial.
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Friday ~ December 17th, 2010 at 1:41 pm
Hal
I confess that I’m more than a little confused by this post. Where were you guys over the last 2 years – heck, the last 10? Just sticking to the last 2, we have consistently seen that the Republicans turn down compromises that were identical to the positions they held mere years ago on the precise issues at hand. Heck, one just has to look in the last month over the battles over pretty much everything and it seems baffling to come up with the idea that all people need to do is offer the Republicans a juicy steak and they’ll bite, swallowing the hook embedded in it.
I happen to agree with the minimum wage issue, but as far as a negotiating strategy, I’m pretty sure that’ll just get giggles from the freshmen class of Republicans waltzing in this January.
Let’s not forget that the last 2 years, the Right has been driven by Glenn Beck, Michelle Bachman, and a stable of complete and utter whackos. Maybe you think that they can be negotiated with, but I must confess that I can’t see the evidence behind such an assertion.
Death panels? Birthers? Socialism? Gold standard? Government takeover starting with health care? The president is a Nazi? These aren’t just fringe ideas, these seem to be the core ideas of the freshmen class starting in January. Perhaps in the genteel past of 30 years ago, Brooks suggestion would be a reasonable strategy. But I cannot conceive of how it would work when the opposite party in the negotiations appears to be bat shit crazy and doubling down on it.
There’s a saying that one shouldn’t bring a knife to a gun fight, but I’m starting to wonder if a corollary to this might just be: “Never bring an economist to a political fight”.
Friday ~ December 17th, 2010 at 2:11 pm
Chris Wegener
I appreciate your belief in theory. The problem is the data just doesn’t show a rise in unemployment following an increase in the minimum wage.
Further, as you seem to be a facts based economist, can you name any Republican position or policy that has improved the economy or the welfare of the majority of Americans?
Democratic policies and administrations have consistently provided improved economic performance and benefits for the American People.
Since the Oil shocks of the late seventies and the demonization of ‘liberals’ the median wage has not budge except during Bill Clinton’s administration.
What republican policies do you suggest to improve on that reality?
Friday ~ December 17th, 2010 at 4:52 pm
Adam Ozimek
Chris and Thorstein, even the most ardent defenders of the minimum wage would say evidence is at best mixed. See this post: http://modeledbehavior.com/2010/10/12/what-the-new-minimum-wage-research-says/
Friday ~ December 17th, 2010 at 6:25 pm
Chris Wegener
That is my point. There is no significant evidence that the minimum wage causes unemployment. The reality is that a ‘living wage’ alleviates poverty. Certainly the Earned Income Tax Credit is a positive but building a floor under which people cannot sink is essential.
Friday ~ December 17th, 2010 at 8:32 pm
Adam Ozimek
There is lot’s of evidence. There is conflicting evidence, but you’re saying there is no significant evidence, which is very different. Could you tell me why the 16 studies identified by Neumark and Wascher as providing credible evidence of negative employment effects do not constitute “significant evidence”?
Friday ~ December 17th, 2010 at 2:39 pm
Thorstein Veblen
There is no hard evidence that moderate changes in minimum wages have any effect on employment, and plenty of natural experiments which seemed to have turn up nothing.
On the other hand, when the federal minimum wage started to become irrelevant in the 1970s and 1980s, inequality began to increase, and the decline in the minimum wage was part of the story.
So, if starbucks and walmart start paying their employees less, and their executives take more, how does that really help things? Many companies labor demands are fairly inelastic… The starbucks next to campus which is always packed has monopoly power, rakes in hundreds of thousands a year. If they pay their employees $7.50 vs. $7.00, they are not going to reduce their hours or close the store, b/c coffee shops in prime real-estate tend to be wildly successful.
There’s not much in the econ theory literature which tells us how labor, executives, and shareholders should split profits. You seem to saying that labor shouldn’t “get” it.
Friday ~ December 17th, 2010 at 11:01 pm
Niklas Blanchard
“On the other hand, when the federal minimum wage started to become irrelevant in the 1970s and 1980s, inequality began to increase, and the decline in the minimum wage was part of the story.”
Then how do you explain similar trends in France and the UK?
France: http://www.strategie.gouv.fr/IMG/pdf/presentation_C.landais.pdf
UK: http://tutor2u.net/blog/index.php/economics/comments/trends-in-uk-income-inequality/
The sort of work that is paid minimum wage is largely done by supplemental income earners — particularly teenagers, who account for ~30%.* Of course, you can retort about “spillover effects” onto other marginal workers, but then you are getting into the same vague category of “hard to identify effects” that you are criticizing.
Even Card and Krueger have observed that the minimum wage is woefully inadequate to deal with poverty. Much more useful would be to to ensure that no low-income families pay the primary tax (currently income).
*http://www.economist.com/node/8090466
Monday ~ December 27th, 2010 at 7:15 pm
Lawrence MacDonald
OK, so, what would the right give up in exchange? How about tax cuts for the top 2 percent? (oops, I guess not). Opposition to action on climate? Evidently not. An increase in the earned income tax credit that could then be nibbled away by inflation or otherwise restricted and erroded over time? Now we’re talking!