Wages and Benefits, Public and Employer

The embolden part is emphasis by Thom and not by myself. This does make sense in that employers are sharp enough to know they can cut wages so as to profit from what is paid to Labor through government aid to it. It becomes a trade off with government assistance trade off to company labor payroll instead of a benefit increasing Labor income. In the end, Labor does not get the full benefit. That is, if I am reading the author correctly.

Keep in mind and as I have said before (having consulted to manufacturing companies) direct Labor input is the smallest portion of the cost of manufacturing. Whacking Labor does not gain much. Neither does manufacturing overseas gain enormous returns. The inventory built still has to get to the US, pass through customs, and be transported to a destination. That is not a freebie and companies pass on the cost to customers. There is more on this which I will get into at another time.

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As taken from a commentary by Thom Hartman @ The Hartman Report,

“The SNAP Scam: How Billionaires and Politicians Built a Welfare System for the Rich”

Today, the SNAP program still accomplishes the goals of helping out farmers, supporting local food stores, and reducing hunger among America’s poor, but about a third of the program has also become a way of insuring that America’s morbidly rich billionaires get even richer on the taxpayer’s dime.

And it’s not just SNAP: you could make the same argument for much of Medicaid and the Temporary Assistance for Needy Families (TANF) program (TANF times-out at 5 years).

As long as employers know that their employees can get SNAP, Medicaid, and TANF benefits even when they’re working full time, they’ll keep wages low and thus profits high. It’s really that simple.

With FDR‘s new deal, Democrats explicitly proclaimed that if you worked a full-time job you should be able to buy a house and raise a family.

Republicans, on the other hand, have argued since the 1930s that employers should have sole control over what paychecks they cut, even resisting the minimum wage. And now they’ve found a slick new way to exploit Democratic programs like SNAP and Medicaid to help employers further lower their payroll expenses.

Back in 1817, economist David Ricardo coined what he called the “Iron Law of Wages.” His point was that there’s a “marketplace” for labor and the price for labor — the wages paid — in that marketplace is determined by two main variables: actual take-home pay and the local cost of living.

Employers, in other words, carefully calibrate what they’ll pay people to meet (but not exceed) what their workers need to minimally meet the local cost of living. It’s why, for example, wages are higher in expensive cities and lower in cheaper rural areas.

Ricardo’s Iron Law is also why when taxes go down on working class people the effect is paradoxical: tax cuts will always, within a few years, cause corresponding wage cuts, while tax increases on working class people drive wages up.

“Taxes on wages will raise wages,” Ricardo wrote. “If the taxes, instead of being increased, were diminished, wages would fall.”

The reason is easy to understand: tax cuts mean more take-home pay, and when employers see that their workers are taking home more money than they need to live, they’ll lower wages to get back to where take-home pay was before the tax cut. On the other hand, if income taxes are increased employers will be forced to pay more so people’s take-home pay can once again cover the local cost of living.

We’ve even seen this work in real time. During the 1930s-1960s era, income taxes went up considerably on working class people to pay for WWII and digging America out of the Republican Great Depression; wages similarly went up. The years following Reagan’s, Bush Jr’s, and Trump’s tax cuts, however, each saw wages fall. (The same thing happened when income taxes fell after WWI and wages similarly dropped a year later.)

As taken from The Hartman Report, November 5, 2025