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Chapter 1: Problem 7

Warren Buffett is the chief executive officer of the investment firm Berkshire Hathaway and one of the wealthiest people in the world. In an editorial in the Wall Street Journal, Buffett argued that economic policies in the United States should be designed so that people who are willing to work receive enough income to live a "decent lifestyle." He argued that an expansion of the Earned Income Tax Credit (EITC) would be superior to an increase in the minimum wage as a means to reach this goal. The EITC is a program under which the federal government makes payments to low-income workers. Is Buffett correct that it is the role of the federal government to make sure people who work will have enough income to live a "decent lifestyle"?

Short Answer

Expert verified
Whether Warren Buffett is correct or not is subjective and could depend on individual interpretations of the role of the federal government. However, from an economic viewpoint, both expanding EITC and increasing the minimum wage have their pros and cons. EITC could potentially benefit more low-income workers without causing unemployment, while an increase in minimum wage could potentially provide a direct boost to workers' income but may lead to job losses. Therefore, the role of the federal government can be perceived as to balance these considerations and create policies that would provide a 'decent lifestyle' for as many workers as possible.

Step by step solution

01

Understanding the Subject Matter

Begin by understanding the statement and concepts involved. Warren Buffett argues for the expansion of EITC as opposed to increasing the minimum wage for achieving decent living standards for workers. The EITC is a federal assistance program that supplements the income of low-wage workers. An increase in the minimum wage would directly raise the earnings of these workers.
02

Exploring EITC vs Minimum Wage Increase

Explore how EITC expansion and minimum wage increase would work. An expansion of EITC would mean that more low-income workers would receive benefits, potentially raising their overall income. On the other hand, an increase in minimum wage would directly increase workers' salaries, potentially improving their living standards. However, it could also lead to increased unemployment, as businesses may not be able to afford higher wages.
03

Discussing the Role of the Federal Government

Lastly, the role of the federal government in ensuring that people who work have enough income for a 'decent lifestyle' can be assessed. This likely involves discussing what is meant by a 'decent lifestyle', as well as the government's role in setting economic policy and providing social aid.

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