Blue states can only do so much for their residents

blueredIf you live in a blue state, you’re better off in certain ways than your counterparts in red state America. Your state probably set up an Obamacare exchange so if you purchase your own health insurance you will continue to receive federal subsidies regardless of the Supreme Court decision in King v. Burwell.

Your state probably accepted federal funds to expand medicaid so, if your family is struggling through tough economic times and you can’t even afford subsidized Obamacare insurance, you probably will still have access to good affordable health care.  If you’re gay, you’re more likely to be protected from outright discrimination and to be able to marry.  If you’re black, your right to vote is probably secure.  If you find yourself with an unwanted pregnancy, you should be able to get a safe legal abortion.

But you’re not more likely to be employed.  You’re just as likely to be impoverished and more likely to be living in a segregated community.  And there’s only so much your enlightened governor and state legislature can do.

Why is this?  We know progressive liberal economic policies are best.  The Great Depression struck in 1929 when taxes on the rich were the lowest they had been in over a decade.  The cloud only began to lift after Roosevelt took office in 1933 and enacted liberal reforms like 1) a big tax hike on top earners and 2) the alphabet soup of government job programs.

During the 1950s, the stock market soared. Unemployment was low while the top marginal tax rate was 91% and labor unions were ascendent.  From 1960 – 1974, the Democratic war on poverty, which included medicare, medicaid, and higher minimum wages, halved the percentage of Americans living in poverty.  Job creation soared in America in the 1990s in the wake of  higher top marginal tax rates signed into law by George H.W. Bush and Bill Clinton.  It tanked in the 2000s after George W. Bush and Dick Cheney slashed top tax rates twice.

Yet living in a state that 1) imposes a personal income tax on rich people, 2) is union-friendly, and 3) insists that employers pay workers more than the federal minimum wage is no guarantee of a more affluent lifestyle.

Employers almost invariably seek to minimize what they pay workers.  Manufacturing in east Asia is one way to do this as we have seen.  But transferring operations overseas may be too difficult, result in costs that outweigh the benefits, or be unappealing to top management for other reasons.

Employing workers in low-wage red states, like those comprising the solid south, that are also hostile to unions is a less drastic alternative than setting up an overseas operation.  Yet it can still generate significant cost savings and therefore increased profitability for companies that exploit such opportunities.

Additionally, CEOs and other top managers, whose salaries may be in the seven or even-eight digit range, realize a significant financial advantage if their legal residence is in red Texas or a reddish/purplish Florida which do not impose a personal income tax.  Since the CEO is best-positioned to decide where to locate a new venture or to relocate, s/he may very well choose to operate in such a state.  Likewise, the boss may tout low or no-state income tax as an inducement to a desired candidate for a top managerial slot.

Clearly, blue states may be at a competitive disadvantage with respect to some potential employers to the extent they guarantee 1) higher income and more protection to workers and 2) more generous social programs funded by taxes on the wealthy.  So, are such states powerless to stanch the flow of jobs to states that participate in the race to the bottom?  Not entirely.

One way that blue states can both have their cake and eat it is by enacting a system of universal state-provided health care.  Employee health care is a very significant expense for companies.  Even stinters pay a price in decreased productivity and disgruntled employees.  States with guaranteed single-payer health care for all residents lift from employers the burden of paying for an administered private insurance program.

Companies will always seek out cheap labor.  It is true that low wages in one state may be balanced by free employee health care in another.  In any event, many corporations view American labor as a mass of largely interchangeable workers and accordingly will always set up shop where employee costs are lowest.

In order to eliminate, or at least greatly reduce, the incentive to “race to the bottom”, both intra and internationally, the federal government must 1) impose a true living wage as the minimum, 2) protect the right of unions to organize and to impose fees to pay for collective bargaining, and 3) impose high enough tariffs on imported goods to eliminate the advantage that low-wage nations have when wooing companies to their shores.

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