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Why Americans Could Handle Higher Prices for Consumer Goods

David Callahan

So it turns out that Walmart could afford to give its workers a nice raise without jacking prices if it simply redirected profits now used to buy back its own stock to better reward its huge labor force -- the people, by the way, who make the profits possible. This is the finding of a Demos report published yesterday, one that echoes our earlier report on retail wages. 

But here's a question worth pondering: Let's say that Americans did have to pay a tad more at Walmart and Target -- or at McDonald's and Taco Bell. Would that really be such a hit?

This question is not only worth pondering as American unions mobilize to take on low-wage employers -- and also to take on the argument that the poor, on balance, benefit from the Walmart model. It's also crucial given what's happening globally, with major strikes recently convulsing Indonesia and a higher minimum wage soon taking effect in Bangladesh, a favored home to sweatshop operations that make U.S.-bound products. 

As I have written here on several occasions, all signs point to rising wages globally as a new middle class emerges in developing countries and pushes to raise labor and environmental standards -- as we are seeing most notably in China. I've argued that the U.S. should do everything it can to promote such higher standards. But I'm also aware that this will mean higher prices for consumer goods at the mall. 

So back to the question: How much would higher prices hurt? 

Well, obviously any trend that raises living costs for struggling Americans is not so welcome. At the same time, though, the cost of consumer goods and food is very clearly not the driver of people's economic travails. Consumer spending data for the past sixty years show that, in 1950, Americans spent 12 percent of their income on clothing. By 2007, that share had fallen to 4 percent. Americans spent a third of their income on food in 1950. That figure was down to 15 percent by 2007. 

It must be added that these super low numbers exist in an America where shopping and eating are top past times, much more so than in 1950. We're buying too much junk and eating too much junk -- and yet pay less than ever. 

Instead, the real killer cost is housing, which rose from 22 percent of household budgets in 1950 to 43 percent in 2007. Ouch. 

What these numbers suggest is that there is probably some leeway for higher prices for consumer goods and food, especially if those price hikes were offset by lower consumption, which would be a good idea in any case. Higher prices would go down even easier if America could figure out ways to create more affordable housing -- a challenge that New York's recently elected mayor promises to put front and center. 

One other thing: Don't forget that the whole point of labor unions is to put more money in the pocket of ordinary people, not pull it out, and higher wages would do exactly that and further offset the negative effects of price hikes. Better paid workers at home would spur the economy. Better paid workers abroad would spur exports. 

What's not to like about this picture?