Patrick NeveMay 28, 2021

The former Republican in me hates what I am about to say: It is time to raise the federal minimum wage. More people, even on the political right, are coming to terms with the fact that a raise is overdue, even if there is no consensus on how much it should be. One thing that has long obscured the great need for a higher minimum wage is easily available consumer credit.

Credit cards make it easy to ignore the reality of how much things cost and how little money most people actually have. This is no accident. It is one of the reasons credit cards were introduced in the first place.

Consumer credit is a patchwork solution for something John Medaille of the University of Dallas calls the investor’s dilemma. This is a problem that large companies and their investors regularly face: One way to increase profits is to lower wages, but if wages are too low, employees can’t buy the company’s products...which can lead to lower profits.

Credit cards make it easy to ignore the reality of how much things cost and how little money most people actually have.

There are various ways to approach their dilemma. One is to create worker cooperatives, like the Mondragon Corp. in Spain, that make the investor and the worker the same person, eliminating the incentive to chase ever-higher profits by cutting wages. But on a society-wide basis, the United States has instead tried to solve the investor’s dilemma by putting “money” in the pockets of consumers without actually increasing their wages, through consumer credit. This solution creates more problems than it solves.

First, credit cards slowly take money out of local markets. If a credit card user has to pay even a small amount of interest, that money is now unable to be used by the consumer in their local market and is instead diverted by the much larger creditor to national or global markets. Credit cards also discourage shopping at smaller stores that may not be able to afford the fees involved.

Most Americans don’t have enough cash saved to cover a $500 emergency. In 2019, even before the pandemic, a quarter of Americans used debt to cover basic needs like food and rent.

Not only do credit cards slowly take money out of local economies, but they also slowly take money out of your pocket. Of course, some individuals use credit cards only for emergencies or things like airline miles, and they pay off their balances every month, but that’s not the norm. According to the credit reporting company Experian, 75 percent of credit card users carry a balance on their account, and the average credit card debt owed by consumers in 2020 was $5,315. Consider this: If most people had the means to quickly pay off their cards, banks would not own so many skyscrapers.

Most Americans don’t have enough cash saved to cover a $500 emergency, relying instead on credit. In 2019, a quarter of Americans used debt to cover basic needs like food and rent. NPR reported last fall that this number increased dramatically as the economy shut down because of the pandemic.

Consumer credit gives only the illusion of compensating for a low minimum wage. Going into debt is a way of meeting the immediate need for food, or a new water heater, but you will have to pay eventually, and with interest. Credit card companies are different only in degree from their more obviously exploitative cousins, payday lenders.

With credit cards, we may have fewer people going hungry. We may see more people with smartphones and TVs. What we don’t see are the people stuck in a never-ending cycle of debt. We have to recognize the injustice inherent in this system.

We should also reduce our personal dependence on credit cards, for whenever we use them, we help feed the credit industry beast. But to protect those who cannot do without them, we also need to regulate predatory and subprime credit companies.

Credit cards feel like a cornerstone of our economy, but it wasn’t always like this. Credit cards have served as an excuse to ignore the minimum wage problem for too long. That cornerstone is really made of sand, and it’s time to replace it with a rock: a steady, livable minimum wage.

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