Gridlock is and has been a constant and destructive force for years here in the nation’s capital, but just because the federal government is stuck doesn’t mean everyone else is. Both certain businesses and states are taking policy making into their own hands.
Ikea just announced plans to raise its minimum wage to an average of $10.76 an hour, an increase of 17 percent (by “average,” Ikea means that it is accounting for price differences across cities where it has stores). The Gap and Costco have articulated similar policies. Starbucks recently announced that it would reimburse college tuition for certain college attendees in its workforce.
States and cities have also been picking up the slack. Again, the minimum wage is an area of lots of subnational activity. According to the National Conference of State Legislators, “38 states have considered minimum wage bills during the 2014 session.” The city of Seattle recently agreed to raise its minimum up to $15 on hour, with a long phase-in period.
Other areas where states are making policy include investment in clean energy, infrastructure (check out the port of Cleveland’s European cargo service – who knew you could get there from there?!), immigration (both welcoming and punishing) and education.
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So, is D.C. dysfunctionality irrelevant?
Not at all. Obviously we can’t count on corporate America to shape and administer public policy (because I already said “pick up slack” above), and while states have always been and will always be vital laboratories, we have a federal system for a reason. When it comes to economic policy, that rationale is particularly strong.
This assertion is most evident in recessions and weak recoveries, like this one. States have to balance their annual budgets, so think of the nation in recession as Uncle Sam along with 50 states in a boat taking on water. Only Sam, who can run budget deficits, has a bucket. By the way, that’s why austerity (cutting budget deficits in recessions) doesn’t work. It takes away the only bucket in the boat.
Immigration is another good example of an area where national policy is sorely needed. Mobility is essential in an efficient economy, and when state or city X facilitates immigration while nearby city Y blocks it, we create costly inefficiencies by restricting movement. One conclusion of the economics of discrimination: apartheid isn’t only abhorrent; it’s expensive. To be clear, I’m not defending illegal immigration. I’m saying we can’t depend on states to efficiently solve this challenge.
The corporate largesse piece of all this strikes me as especially double-edged. Hats all the way off to those who make an effort to be model employers. There’s even good theory and evidence in support of the idea that higher pay boosts worker productivity and thus helps to offset its cost (“you get what you pay for” holds for workers and wages too).
But there’s no way we want to leave decisions about minimum wages and higher educational opportunity to businesses. It is widely understood that left to their own devices, even highly efficient markets will fail to ensure ample access to education, which is why every advanced economy has a public system. Similarly, markets have the potential to drive wages down to privation levels for workers with the least bargaining power, creating the rationale for a national wage floor, a standard below which we won’t allow the market to push wages (no less than FDR himself spoke in favor of a national “floor on wages and a ceiling on hours”).
Simply put, for every Costco, there’s a Wal-Mart, which should be all you need to know to convince you that we cannot afford to privatize public policy.
So yes, let a thousand policy flowers bloom in the states, cities and businesses across the land. But let’s not forget that they occupy just one corner of the garden.
Jared Bernstein, a former chief economist to Vice President Biden, is a senior fellow at the Center on Budget and Policy Priorities.
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