Minimum wages, maximum damage

It’s difficult to pinpoint the worst part of the president’s stimulus package that is moving through the new Congress. It gives its gigantic size – $ 1.9 trillion – far more than President Obama’s $ 900 billion stimulus to the financial crisis. And then there is the mismatch between its size and the extent of the crisis. Obama’s stimulus reflected roughly half of the projected drop in production due to the post-financial crisis recession, while this provided three times the projected drop in production from the Covid recession. It’s like the government is playing with Monopoly money – without considering the additional taxes or inflation required to wipe out the additional debt. Excessive stimulus today means less freedom tomorrow.

And then there are the dubious objects of government concern. While a small chunk of the money goes towards necessary supplies of Covid treatments and vaccines, much of the remainder goes to handouts to people, regardless of whether their income is affected by the crisis, and to bailouts to states, regardless whether or not they have managed their finances wisely. Most of the incentive is coverage for redistribution – for citizens making less than $ 75,000 a year, and for the largely blue states that have poorly managed their finances. Like any redistribution, this part of the incentive encourages consumption over investment, but it also encourages government waste. The President does not let a crisis end. He uses it to create more crises.

The worst proposal in the package right now, however, is the call for a national minimum wage of USD 15 an hour. This doubling of the current federal minimum strikes against freedom and federalism. It harms the least able people in society by robbing them of the dignity of work. It contradicts both economic theory and empirical evidence. It is a violation of principle, justice and knowledge.

freedom

Government should limit action when individuals and companies harm the freedom of others by imposing costs on them. (Regulation of pollutants, for example, is therefore justified.) But what are the costs for society if a company offers someone a job for an agreed wage? Chances are, the employee can’t find a job that pays more than $ 15 an hour that they like better, or they would already be working on it.

Some have argued that companies may have monopsony power or collusion to keep wages artificially low. If so (and rarely, given the multitude of companies competing for unskilled labor), competition law can target any collusion or monopsony that depresses wages.

The $ 15 minimum Biden approach captures the evils of centralized government perfectly – a unified approach that doesn’t take into account the diversity of foundations and circumstances.

And if society believes that some people earn more income than the value of their work, they can add government support to their wages. The Earned Income Tax Credit does just that without skewing the labor price. However, a minimum wage law hampers the discovery of the efficient wage that results from voluntary negotiations between employers and employees.

federalism

Even if a minimum wage were justified, it should be introduced at the state or local level rather than the federal government. The cost of living varies greatly in different parts of the country. The median wage also differs between countries. It’s less than $ 15 an hour in Montana and Mississippi, and the median in several other states is around $ 15. In contrast, Connecticut has an average wage of over $ 30 an hour.

A recent study shows that the increase will have far more destabilizing effects in areas with lower costs and lower wages in the country. A high national minimum wage sabotages businesses in rural red states. This can be a function, not a bug. The party that imposes it on a party line vote will never be elected there, and it is a contradiction to the good of these states.

Some minimum wage advocates, such as The Economist’s Free Exchange columnist, acknowledge that a minimum wage will destroy jobs in these areas. However, their argument for this is that it will force many people to move from poorly paid areas to places where they would become more productive. However, some people may prefer to stay in a community with longstanding relationships or other joys rather than being forced to earn higher wages elsewhere. The columnist’s enthusiasm for central planning at the expense of individual choice shows how far The Economist has traveled from the classic liberal magazine by Walter Bagehot to a magazine that is often indistinguishable from the rest of the left-wing liberal media.

The least advantage

The minimum wage has the worst permanent impact on those with the lowest foundations. Some people have limited cognitive abilities. Others are disabled. The higher minimum wage results in many of these groups becoming permanently unemployed as their value to a company is less than $ 15 an hour. The minimum wage is a message of contempt for their dignity, and indeed for their happiness, as long-term unemployment is known to be deeply depressing. For many who want to contribute to their own support, welfare is no substitute for work.

Young people will also lose the opportunity to acquire skills and discipline as few companies want to put untested, unskilled workers on their payroll at that wage. The result is likely to be more crime and fewer opportunities to get business leaders to the top, especially in communities where families do not have the stable environment or the authority figures that early workforce participation could provide.

One of the noticeable features of the Biden Plan is that it does away with a lower minimum wage for the disabled and youth – a difference that would mitigate the harmful effects of a blanket minimum wage for these groups. Therefore, the proposed regulation takes into account not only differences in locality, but also obvious differences between people. The $ 15 minimum Biden approach captures the evils of centralized government perfectly – a unified approach that doesn’t take into account the diversity of foundations and circumstances.

science

On her testimony to become Treasury Secretary, Janet Yellen stated that raising the minimum wage would have a minimal impact on jobs. But that is not what the business literature says, even for wage increases that are far less radical than these. Yellen herself said otherwise before becoming a saleswoman for Biden. And the main seller of the Biden government – Biden himself – claimed that “all economics” shows that the economy will grow because of the minimum wage. In fact, almost no economist believes that this will increase production.

Science cannot dictate politics. But it is scientifically or morally unacceptable to deny this brutal fact, and it is not beneficial to those who are made unemployed by this increase in the minimum wage. It is sad that a medium that has joyfully exposed false claims by the former president is almost completely silent when our current president announces a version of the economy that is a politically motivated fantasy.

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