As Bill Clinton prepares to run for a third term (oops), As Hillary Clinton “explores” a presidential run, expect to hear more commentary from them about solutions for our stagnant economy. (Is Hillary really just exploring? Who is she kidding?) President Clinton recently chimed in about fixing wage growth. I’ve heard President Clinton speak in person and he has an amazing gift to connect with his audience which is what makes him who he is. He also has an gift to summarize an issue in a simple to understand but powerful sound byte, like the title I borrowed from him.
I pulled out part of President Clinton’s comments from his recent interview. You can read more here. ( http://www.cnbc.com/id/102036225)
“Median income hasn’t gone up for three reasons,” Clinton said. “One is the labor markets aren’t tight enough, and we haven’t raised the minimum wage as we should. And the second reason is we haven’t changed the job mix enough, to raise the median income and have more poor people working into it. The combination of jobs has to pay, on average, higher wages.”
Clinton said he believes the current business climate is also to blame for income stagnation.
“Gross domestic product growth doesn’t lead to growth in median incomes because company after company takes more of its profits and spends it on dividends, stock buybacks, management increases … and less on sharing it with the employees broadly,” said Clinton, who is hopeful that corporate America is poised to change that view.
While Clinton said he hopes that corporations refine their moral compass, he also hopes Washington will act when it comes to the debate over whether tax inversions—the practice of American companies reincorporating in foreign countries to take advantage of lower corporate tax rates—are right or wrong
“America has to face the fact that we have not reformed our corporate tax laws when 100 percent of the people, from Democrats, Republicans, Independents, agree we need to,” Clinton said. “We have the highest overall corporate tax rates in the world. We need tax reform.”
No matter what side you’re on, it’s hard to disagree with what he says simply because he basically says nothing. I will translate:
1. We need higher paying jobs to have median income go up. Wow. Insightful. Master of the obvious. He does say we need to raise the minimum wage, appealing to the masses. Mr. President, I hate to be a stickler, but technically you are wrong. The reality is raising the minimum wage will have no impact on median income. Median income is the wage in the middle, meaning 50% of jobs pay less and 50% pay more. If you raise the bottom or the top wage, it has no impact on the median. Median is different than average (or mean). Note to Republicans: you’re not going to win an argument about the minimum wage so punt. Raising the minimum wage won’t make anyone’s lives better. It will lead to some inflation, which helps solve our debt problem.
2. “GDP growth doesn’t lead to growth in median incomes.” Here’s where he gets political. Corporate “evil doers” use the money as they see fit, investing in the business or returning funds to shareholders. In the current environment, he’s right – they’ll buy back shares or reward shareholders. That is done because the current economic (and political) climate does not justify reinvestment in the business. It’s pretty simple: businesses are profit maximizers. If a business can make more money by hiring more people, it will. If it needs to raise wages to keep employees who help the business make money, it will. If it gets a higher return by reducing its share count, it will. I do love the author’s ending statement, “who is helpful that corporate America is poised to change that view.” Corporate America does not have a “view” on sharing with employees. Corporations respond to the environment they’re in. It’s called CAPITALISM. Capitalists allocate scarce resources in order to earn a profit. If that changes, we’ve got a problem.
3. We need corporate tax reform. That’s an easy statement to make. How about a plan? Release a statement about cutting rates. I’d be curious to see if the media would jump on how much it would “cost” the government if corporate taxes were lowered if the plan came from the Clinton camp.
It’s easy to romanticize how great things were in the Clinton and Reagan years. As the election season heats up, prepare to be inundated with reports proving just how great things used to be. We’ll also hear lots of people chime in on how to “fix” things. One thing the Reagan and Clinton years had in common was the lowering of overall tax rates on business and investment. That has changed over the last 14 years. Capital is needed to create jobs. If you want more jobs, make capital less expensive. Taxes aren’t the only cost on capital. Regulations, as I’ve written in the past, are worse. Encourage an environment that rewards risk and you will see jobs created and wages go up.