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November 29, 2006

Barack Obama

Via Greg Mankiw this interesting little piece.

“You gotta pay your workers enough that they can actually not only shop at Wal-Mart, but ultimately send their kids to college and save for retirement” says Senator Barack Obama.

Really? Wages of part time shop assistants should be enough to send children to college and also to save for retirement?

You mean all of these Federal programs to help poor people go to college aren't enough? You mean that Social Security doesn't provide retirement savings for the poor? Why have these programs then if they don't do what is advertised on the box?

Rather more importantly, what level of income is actually needed to pay for those two things? Not wholly sure what annuity rates are in the US but, say, $100,000 capital buys $6,000 a year in income when one is bought at 65 or so? Roughly? Retirement income should be around the Federal poverty level for a family don't you think? $18,000 a year?

So the poor need to save $300,000 over a working lifetime of what, 40 years? $7,500 a year?  (Ignoring any investment gains.)

How much does college cost without student loans and support? $25,000 a year, at a State school, including living expenses? 2.4 kids doing that, 20-25 years after marriage, we want them to go to 4 year colleges, of course. Another $240,000 that has to be saved over (ignoring investment gains again) 25 years? Call that $10,000 a year. Now, that should either be divided in two as we might have a two earner family or, perhaps we don't as the pension above is for two people, but based upon a single earner. After all, the mantra is, is it not, that a single worker should be able to support a family upon the minimum wage?

Good, excellent, we now can see what the implications of Obama's definition of a decent wage is. Assume a 2,000 hour working year. We have the Federal poverty level for a family of four, which we should assume is being earned by one worker. That's around $18,000 a year or $9 per hour. Over and above that our single earner also needs to save $17,500 a year or pretty much the same number, $9 an hour.

So the implication is that Obama thinks that the minimum wage should be $18 an hour After taxes that is as well. Now this might be a little out of date but I seem to recall that the average hourly wage across the entire US economy is $14 an hour. Before taxes.

Anyone see a problem with this? The idea that the minimum wage should be higher than the current average?

November 29, 2006 in Economics | Permalink

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Comments

I see two problems. Ignoring investment gains is dumb. If you can get a 3% real return then the amount per year saved drops from £7,500 to less than £4,000. If you get 5% then it falls below £3,000.

Secondly, surely he's asking for Wal-Mart to pay that wage, not that the minimum wage should be that high.

Tim adds: I ignored investment gains simply because I didn't want to have to work them out. He also says ' you have to pay' which sounds fairly ominous doesn't it?

Posted by: Matthew | Nov 29, 2006 11:26:16 AM

Ooh, I can see the to-be Missus's reaction to that right now:

"They can damn well get jobs and loans like I did to get through college"

Posted by: Tristan | Nov 29, 2006 11:42:30 AM

Why should some rich kid have an easier time going to a good college than a kids whose mother works for Wal Mart?

Are we in an aristocracy? or a free society?

Do we revert to tha animal (read whose thighs issued forth the person) will as the decider as to who gets the opportunity?

Posted by: ilsm | Nov 29, 2006 12:27:33 PM

back in 1951 the minimum wage was 75 cents an hour...4 hours of work could buy you a barrel of oil
at the soon-to-be rate of 7.50 bucks it would take 8 hours wages(no taxes)
think that is a reason we are poorer??
15 bucks an hour would be us back to 1951 standard...too bad about the future price of oil

Posted by: embutler | Nov 29, 2006 12:59:36 PM

"Why should some rich kid have an easier time going to a good college than a kids [sic] whose mother works for Wal Mart?"

Why should some rich kid get to go skiing in Aspen? Why should some rich kid get himself a Mercedes paid for by his father? Why should some rich kid get to wear expensive designer clothes? Because that's the fucking way the world works, sonny. There's no innate right to tertiary education (or any education at all, for that matter) any more than there's an innate right to go somewhere swanky on holiday. Soaking the rich (who almost without exception in the US have achieved their wealth on merit) is a mean, grasping, socialist policy. You have a strange definition of a free society if you think it involves demanding money with menaces from Peter to send Paul's son to university.

Posted by: David Gillies | Nov 29, 2006 2:48:54 PM

"Soaking the rich (who almost without exception in the US have achieved their wealth on merit)"

Define MERIT - ability to bounce a basketball better than the next guy, able to make better movies or videos then the other girl?

Certainly there are hard working folks who have "earned" their wealth - but then their the Enron and World Com folks too.

Posted by: Ruth Ferguson | Nov 29, 2006 3:43:31 PM

"Define MERIT - ability to bounce a basketball better than the next guy, able to make better movies or videos then the other girl?"

That's an excellent capsule definition of merit. Tim Duncan makes vastly more money than most basketball players because he's vastly better, and he attracts spectators to NBA games (and what he does is spectacularly, astoundingly hard, something that a mere handful of people on the planet can emulate). Charlize Theron makes a boatload of money as an actress because she's very good at making movies that people want to see. Christina Aguilera is richer than Croesus on the strength of creating songs and videos that people buy in the millions. These people largely earn their huge wealth by their non-substitutability. To make a lot of money in a highly competitive arena by doing something well (and in particular better than someone else) is as close to a summation of the idea of merit as I can think of. And in the US, albeit to a lesser degree than these examples, almost all of the 'wealthy' have done exactly that. Inherited wealth plays a small role.

"Certainly there are hard working folks who have "earned" their wealth - but then their the Enron and World Com folks too."

Who, you may have noticed, are penniless and in the jug.

Posted by: David Gillies | Nov 29, 2006 5:22:50 PM

"who almost without exception in the US have achieved their wealth on merit"

This is almost meaningless, as it tends to end up in circular arguments - why are they rich - because they are talented - how do you define that - they are rich.

The US has a terrible (though perhaps not as bad as Britain) record on things like income mobility, suggesting that the wealthy are wealthy because their parents are wealthy.

Posted by: Matthew | Nov 29, 2006 10:29:02 PM

Tim, be careful, you've insulted Saint Obama here, that seems to be what has your commenters all upset. No fair calling him on his inane ramblings!

Posted by: John S. | Dec 2, 2006 6:23:43 AM