Why Ease Credit, But Not Increase Wages?

BY Business Desk  December 22, 2008 at 10:18 AM EST

Unemployed workers at a job fair; AP photo

Question/Comment: A basic truth in economics is that wages drive demand. Yet for the last 30 years wages have been stagnant or decreasing. Why do I hear only talk of easing credit, not increasing wages? Easy credit is what caused this bubble in the first place. I am middle class and guarantee you if my wages are not going up I will not buy.

Paul Solman: The reason you don’t hear the talk of increasing wages – as a policy matter – is that it’s so hard and controversial to do. You increase them by decree: minimum or “living” wage hikes and union contracts.

But there are legitimate arguments against: high minimum wages may discourage employers from hiring unskilled labor. Same for “living” wage laws. Union contracts help hamstring an industry, like autos, once it faces cheaper global competition.

People have long bemoaned wage stagnation. I’ve been doing stories about it and economic inequality since I joined the NewsHour in the 1980s. But apart from a progressive tax policy, which Obama endorsed in his campaign, there’s no obvious answer, just policies with pluses and minuses which are not easy to effect.