The Elbert Files: Creating wealth
DAVE ELBERT Mar 10, 2021 | 5:53 pm
3 min read time622 wordsBusiness Record Insider, Opinion, The Elbert Files
Iowa needs more wealth.
Few would argue with that statement.
But when it comes to achieving it, many refuse to consider one obvious solution, raising the minimum wage.
That’s too bad because failing to act is, in effect, acting against their own interests.
I compare the current dilemma over the minimum wage to the disagreement our founding fathers had 230 years ago over Alexander Hamilton’s plan to monetize the nation’s Revolutionary War debt.
One major problem the founders faced after the war was that their money had little value. Continental dollars, the paper currency they’d created in 1775 to fund the war, were not backed by sufficient assets, like gold or silver, and far too much money was printed.
The lack of a stable currency was crippling the economy.
In 1789, Hamilton was asked by George Washington to lead the Treasury Department, which gave him the job of figuring out how to pay off war debts and put the country on sound financial footing.
Hamilton studied European systems and came up with a wonderfully effective plan.
He consolidated the wartime debts of all the states and the federal government into a single pool and created a central bank that would pay off the debt over time with revenues collected from sale of western lands, a whiskey tax and tariffs on foreign imports.
The plan was widely opposed by Thomas Jefferson, James Madison and others for reasons that no longer make sense. But in the end, Washington approved it and Hamilton implemented the plan.
And guess what. It worked.
Debt certificates were issued by the bank in amounts small enough that the paper bonds were treated as cash and circulated throughout the economy, significantly boosting the money supply.
Hamilton had monetized the debt by turning it into a form of cash, which created new wealth and revived a stagnant economy.
The minimum wage provides a similar opportunity today to create new wealth, particularly for Iowa, a state with historically low wages.
To do that, Iowa’s minimum wage of $7.25, an hour, which is among the lowest in the country, needs to increase at a pace higher than the rate of inflation, which is now around 2% to 3%.
Even Iowa’s conservative U.S. Sen. Chuck Grassley recognizes the problem and recently expressed support for raising the U.S. minimum from $7.25 an hour to $9 or $10 an hour, which is where it would be, adjusted for inflation, based on the last increase more than a decade ago.
Such an increase would not make Iowa a leader, but it makes more sense than doing nothing, which is what Republican leaders in the Iowa Legislature advocate.
To be a leader and create new wealth, Iowa needs to get in front of other states and stay there.
A good first step would be to boost that minimum wage to $15 an hour, which is what Democrats in Congress are attempting to do.
The argument against such an increase is that it would cause some small businesses to cut back on employment.
While that may be true in some cases, most studies show net benefits from raising minimum wages.
As higher wages lift people out of poverty, there are two immediate benefits. One is that there is less need for government subsidies to low-income families. The other is that as workers make more money, they pay more taxes.
“Moving to $15 an hour by 2025, through either a state or federal boost in the minimum wage, would boost the earnings of 463,000 Iowa workers,” according to Common Good Iowa, an Iowa City-based policy group.
That would create a lot of new wealth in Iowa, which is something we all should be able to live with.