Wednesday, January 16, 2008

The "Nixon Stimulus": Avoid Recession?

Introducing the "Nixon stimulus":

My stimulus of preference would be shifting income to people who will spend more (save less) via a sizable jump in the minimum wage. There should be plenty of headroom for a minimum wage jump since today's federal minimum wage is several dollars below LBJ's, 1968, minimum wage of $9.50/hr ($380/wk, adjusted -- at 50% of today's average income, yet).

Dick Nixon (far left winger by many contemporary Democrat's standards?) one-jumped the minimum from $7.50/hr (it had fallen $2!) to $8.50/hr in 1974 (at 60% of today's average income, yet). Of course this was the same Nixon who instituted federal block grants to the states (another current stimulus proposal), so he may be too much of a radical for contemporary Democrats to emulate.

Serial-jumping the minimum wage from $5.15/hr to $12.50/hr ($500/wk!), over as many years as you wish, would add all of 3.5% to the cost of GDP output (and presumably no more direct inflation, not counting other wages pushed up) -- about how much we grow every couple of years -- and could wipe out poverty (and most crime?).

Last time I looked, John Edwards proposed hiking the minimum in serial steps to $9.50/hr by 2012 -- nominally the same as LBJs minimum of 1968. But inflation may cut Edward's minimum by as much as 20%, landing us back between Eisenhower's minimum ($7.50/hr) and Nixon's minimum ($8.50/hr -- at more than double 1968's average income, yet) -- typical contemporary progressive proposal.

Why not give the lowest paid, longest suffering American workers a double break from inflation: why not index Edwards' projected minimum wage target ($9.50/hr), and all the serial steps in between, for inflation, so that by 2012, their wages might actually catch up with 1968?

If LBJ had only indexed his minimum wage for inflation we might have no poverty in this country today (certainly on ghetto projects infested with drug dealing, mostly out of desperation, gangs): a ratchet effect might have boosted the constant-dollar minimum wage by at least occasional jumps to keep pace with average income growth. If any two people could earn $1000/wk doing anything, how much poverty could there be (after doubling the average income of LBJ's time)?

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