In the weakest job report in seven months, United States President Barack Obama urged the Congress to increase the minimum wage. As Robert Wenzel over at Economic Policy Journal wrote, this is something coming out of The Onion than a real news story.
On Friday, the U.S. president said that not only does he want to “reward” hard working Americans, he also noted that raising paychecks will encourage consumers to spend more, which will then boost business.
“To reward some of the hardest-working people in America, Congress should raise the minimum wage,” Obama said at a press conference at the White House on Friday. “This is something that would not only help those individuals who are getting a bigger paycheck, but it also means they’re spending more, and that would be a boost to business.”
At the same presser, Obama asked Congress to “pass smart new trade agreements” that would clamp down on foreign competition. Moreover, he wants Congress to reform the tax code by ending certain loopholes.
Wow. Just wow. There are so many fallacies in that press conference.
First of all, with already disappointing jobs numbers, the president wants a higher minimum wage. Doesn’t he know that a higher minimum wage will result in fewer jobs? The minimum wage is a job killer and will hurt the very same people that voted for him: the poor, youth, the uneducated and the unskilled.
Here is George Reisman of the Mises Institute writing an open letter to U.S. Labor Secretary Thomas Perez in 2014:
“Your and the President’s policy is fundamentally anti-labor and anti-poor people. While it enriches those poor people who are given the status of government-protected monopolists, it impoverishes the rest of the economic system to a greater degree. It does this through the combination both of taking away an amount of wealth equal to the monopolists’ gains, and of causing overall production to be less by an amount corresponding to the additional unemployment it creates. The rise in prices and taxes that results from raising the minimum wage both diminishes the gains of the monopolists and serves to create new and additional poor people, while worsening the poverty of those who become unemployed.
Furthermore, the higher the minimum wage is raised, the worse are the effects on poor people. This is because, on the one hand, the resulting overall unemployment is greater, while, on the other hand, the protection a lower wage provides against competition from higher-paid workers is more and more eroded. At today’s minimum wage of $7.25 per hour, workers earning that wage are secure against the competition of workers able to earn $8, $9, or $10 per hour. If the minimum wage is increased, as you and the President wish, to $10.10 per hour, and the jobs that presently pay $7.25 had to pay $10.10, then workers who previously would not have considered those jobs because of their ability to earn $8, $9, or $10 per hour will now consider them; many of them will have to consider them, because they will be unemployed. The effect is to expose the workers whose skills do not exceed a level corresponding to $7.25 per hour to the competition of better educated, more-skilled workers presently able to earn wage rates ranging from just above $7.25 to just below $10.10 per hour. The further effect could be that there will simply no longer be room in the economic system for the employment of minimally educated, low-skilled people.
Of course, the minimum-wage has been increased repeatedly over the years since it was first introduced, and there has continued to be at least some significant room for the employment of such workers. What has made this possible is the long periods in which the minimum wage was not increased. Continuous inflation of the money supply and the rise in the volume of spending and thus in wage rates and prices throughout the economic system progressively reduce the extent to which the minimum wage exceeds the wage that would prevail in its absence. The minimum wages of the 1930s and 1940s — 25¢ an hour and 75¢ an hour — long ago became nullities. To reduce and ultimately eliminate the harm done by today’s minimum wage, it needs to be left unchanged.”
Second, the government should not be in the business of passing trade agreements. Trade agreements are crony deals that benefit only some and leads to even bigger government. Real free trade is John Smith heading into Mexico buying 1,000 pencils for a buck and then returning to the U.S. to sell those same 1,000 pencils for two bucks.
Third, capitalism breathes through legal loopholes. With capitalism and free markets being strangled to death through heavy taxation and exorbitant regulation, they can have some breathing room through what the president deems as “wasteful loopholes.”
If this is the current economic understanding in Washington today then the country is doomed.
I am so tired of this raising the minimum wage will cost jobs, crap. The Dept of Labor has done studies and it is not true.
29 states have higher minimum wage than the federal $7.25 and their economies are doing just fine.
In 1974, right out of high school, no skills, just a strong back, I made $9.10 per hour loading trucks for Gallo Wine in Commerce, CA. That had the buying power of $43.96, today. Now i know why they call them the good old days.
Record corporate profits and record low wages for the average worker. No wonder the economy is growing at less than 2%.
As long as CEO’S make $5,800 per hour and the average worker makes $17 per hour not much is going to change.
I notice all the people saying we cannot afford to raise the minimum wage are those that are making way more than minimum wage.