Analysis - Facebook meme on Minimum Wage

A friend of mine commented on this meme posted on Facebook by the page "I Acknowledge Class Warfare Exists." I personally couldn't help but fact-check this particular meme, as it (and memes like it) have been circulating Facebook quite often recently.

I thought it sounded a bit spurious, so I decided to check it out in a few different contexts before looking at the exact context of the meme. It seemed like a good fit for matching the rate of increase of the United States's GDP since 1968.

First, one can visit the Bureau of Economic Analysis website and download an .xls spreadsheet titled "Current dollar and 'Real' GDP." Once you've done that, you can calculate the rate of increase of the current dollar GDP, create a new column and apply each year's growth rate to the base minimum wage of 1968 (non-farm minimum wage in 1968 was $1.60/hour). Once finished, your spreadsheet will inform you that the minimum wage, if it had increased at the same rate as GDP, would have been $27.57 per hour by 2012. Overshot by about 21%.

That metric is perhaps a bit unfair, however, since $1.60 in 1968 is equivalent to $10.34 in 2011 dollars (in case you were wondering how Dad afforded to pay his own way through college while working at McDonald's). So by that same measure, the minimum wage would actually be $34.45 per hour if it had kept up with percent increases in Real GDP (2011 dollars)... overshot by about 50%.

Then I thought that I'd actually heard this kind of comparison made before to CEO pay. However, CEO's in 1980 were making around 30-45 times the salary of their average worker, and by 2012 that figure had ballooned (at least in the US) to over 420 times the salary of the average worker. At that rate of increase, minimum wage would be well over $80.00 per hour... so that can't be right. Overshot again; this time by over 250%!

Then I checked out the actual claim made by the meme; I used a Google Image Search with search terms "income top 1% increase" and came up with results that looked like this*:


*I don't know where all of the information comes from, although most of these are sourced to the Congressional Budget Office.

The only one that includes data AFTER 2007 was one from the NY Magazine's website, which does not give a source for the data: http://nymag.com/daily/intelligencer/2012/05/mitt-romney-bain-capital-and-the-1-economy.html

So each of these shows pre-Financial Crisis incomes of different groups, with the one exception being the image from NYmag's article (which has un-sourced data). Most of these show Top 1% incomes to have increased somewhere between 270% - 350% since 1979/1980.

Federal minimum wage is currently $7.25/hour. In 1980, it was $3.10/hour. So if we don't adjust for inflation, then the minimum wage gain (if it were to keep up with the Top 1%) would be somewhere between 2.5 & 3.5 times $3.10 per hour. That's not even close to $22.62 (but on the high end, it still would be more than the current federal minimum wage).

If however, we were to adjust for inflation as I suspect the source data does-- then the 1980 "Real" minimum wage in 2013 dollars would have been $8.79. Comparing that to the growth of income of the Top 1% would certainly bring us in the range announced by this meme-- between $21.97/hour & $30.77/hour.

So the meme is correct, IF and ONLY IF we apply certain (undisclosed by the meme creators) metrics to the analysis.

1. Inflation-adjusted - this one always makes sense if we want dollar amounts to be meaningful in anyway across decades.
2. Start time - The Federal Minimum Wage was adjusted in 1980 from $2.90/hour to $3.10/hour
3. End time - data series is incomplete for years following 2007

However, I will point out once again that Federal Minimum Wage, adjusted for inflation, has actually decreased overall since the aforementioned inflation-adjusted 1968 rate of $10.34/hour. Since 1980, the Federal Minimum Wage has drifted significantly downward in Real terms, with only the adjustment in 2009 bringing minimum wage close to its 1980 equivalent value. Oregon State University did a study on this several years ago. Here is a graph of their findings:

Since minimum wage has never been legislated to increase with any kind of CPI adjustment, we frequently see "Real Dollar" amounts at peaks that fall for several years until a new adjustment is made at irregular intervals.

If minimum wage were designed to keep up with the Top 1%'s income growth, its growth would be wildly erratic, but it would still be growing. As it has been since 1968, federal minimum wage has shrunk, and none of the subsequent adjustments have ever come close to returning it to a wage comparable to the rate that was paid in 1968.

The analysis overall is that the meme posted by the Facebook page "I Acknowledge Class Warfare Exists" is technically correct.

Although it's only fair to point out that according to any/all of the alternate scenarios suggested, the minimum wage would be even higher than the one claimed in the meme... unless you don't adjust for inflation over the past 45 years*. But who doesn't adjust for inflation?

Oh. Right.



*According to the parameters of this meme, even the current dollars (not inflation-adjusted) amount of minimum wage would be higher than the current federal minimum wage, if it had kept pace with income growth of the top 1% at the lowest estimated growth rate... if you start counting any time before 2004.

US Default on Debt: Why Congress Must Raise the Debt Ceiling

The US government shutdown that went into effect on October 1, 2013 (day one of Fiscal Year 2014) is bad enough, with regular services and operations suspended and all non-essential personnel furloughed. What is worse, however, would be if the US Congress fails to raise the "Debt Ceiling" on (or before) October 17, 2013.

What is the Debt Ceiling? 

The New York Times and BBC both have great bullet-point articles on the Debt Ceiling. The main gist is this: 

• The Debt Ceiling is the limit on how much money the government can borrow by issuing bonds and securities.
• The President proposes a budget, Congress amends it as they see fit and they pass it back to the President to sign into law. The government routinely passes spending bills without consideration of how they are funded, and as a result the US federal government has had to borrow money to cover the budget deficit every year since FY 1940 with the exception of the 12 fiscal years (that's 12 out of 73 years, or 16% of the time) when the government actually had no deficit/ran a surplus. 
• The other 61 fiscal years between 1940 and 2013, the government ran a deficit. To finance operations the Treasury continually sells Treasury Bonds and Securities (debt) to investors. The US government is responsible for interest payments on those bonds, and repayment of the principal value of the bond when it matures. Technically, the government can keep selling bonds to cover the amount it already owes in order to cover the expense of paying interest and mature bonds. This amount aggregates over time and has become the US National Debt, which as of Oct 4, 2013 stands at $16.7 trillion.
• Raising the Debt Ceiling authorizes the government to issue more bonds to pay the money it already owes-- namely interest payments and principal on bonds and securities it has issued. The Debt Ceiling has been raised almost every year (on average) since 1940 with no problem-- until certain members of Congress were elected in 2010. 
• The US Constitution requires the government to pay its debts, so a default would be unconstitutional, on top of having horrifying consequences in the US and abroad.
• According to the Congressional Budget Office, debt management options will run out sometime between October 22 - October 31 if the debt limit is not raised on or before October 17, 2013.

Since 1940, Congress has raised the Debt Ceiling 82 times.*

*The Debt Ceiling was reduced only a handful of times out of approximately 92 adjustments since 1917.

Raising the Debt Ceiling is necessary to make the payments that the US government has already promised. It has no effect on actual budgetary concerns unless Congress fails to raise it. If that happens, the US will default on its debt within 14 days, credit agencies will downgrade the US government's rating (remember what happened in August 2011 when Congress threatened to not raise the Debt Ceiling?) and investors who buy Treasury Bonds and Securities will demand higher interest payments.

Right now interest on US Bonds is so low that an investor is practically paying the US government to hold his money for him because the yield rate on a 10-year bond can easily be outpaced by inflation (and even longer term bonds like 20 or 30-year bonds are paying pretty slim amounts). So issuing bonds right now to pay off the US government's previous debt obligations could actually be a very smart move.

Being forced to issue bonds at higher interest rates would mean that, while US Bonds may become a more attractive investment to people who actually want to make money instead of having a safe place to hold it, a larger portion of the federal budget would go toward paying off interest on the National Debt. That could lead to larger deficits and possibly additional defaults... and certainly would have as much, if not greater, impact than the Financial Crisis in 2008.

Remember how scared everyone was of the global impact of a debt default in Greece? ...Well, Greece is not the United States.

For more information on why the National Debt isn't really a problem (unless Congress fails to raise the Debt Ceiling), see my previous blog post "The Public Debt: A Menace to Society?"

The US created the Debt Ceiling in 1917, mostly to fund WWI, but also to cover any other borrowing the government may need to do in the future. Many other countries don't even have a "debt ceiling"-- they either just borrow whatever is necessary to cover their deficits, or they  must work within budget restrictions by appropriating funds for each initiative.

Political division has been particularly contentious during the Obama administration, with many members of Congress (mostly in the House of Representatives) effectively "holding the nation hostage" in order to delay or prevent several Obama initiatives like the Affordable Care Act, and also to push their own specific agendas that would otherwise not pass.

What Can Be Done?

It's in the hands of Congress. If you are a US citizen, you can call or write to your representatives and encourage them to raise the Debt Ceiling. Congress can raise, eliminate, or enact automatic increases to the Debt Ceiling. Any of those actions would avert a debt default. Congress could also draft new legislation that provides a framework for fiscal responsibility-- although there really isn't time for that now.

President Obama could choose to ignore the debt limit and authorize the Treasury Department to issue bonds without Congressional approval, but that would be a violation of the Second Liberty Bond Act of 1917 that created the limit. Certain members of Congress may consider that an impeachable offense. On the other hand, not raising the Debt Ceiling is effectively the same as defaulting on current debt, is unconstitutional (US Constitution, 14th Amendment, Sec. 4), and could reasonably be argued to be a matter of national security and global stability.

To avoid US debt default and avert a global financial meltdown, Congress must raise the Debt Ceiling on or before October 17, 2013.  

Supplementary:

Fiscal Years Since 1940 without US Federal Budget Deficit and the Sitting US President

Clinton

FY1998-2001 

Total Surplus (2011 dollars): $726.3 billion

Johnson

FY 1969

Total Surplus (2011 dollars): $19.5 billion

Eisenhower

FY 1960,  FY 1956-1957

Total Surplus (2011 dollars): $66.8 billion

Truman

FY 1951, FY 1947-1949

Total Surplus (2011 dollars): $244.6 billion