One of the good things about our system of government is that our officials must stand for re-election on a regular basis. If you are a member of the House of Representatives, your term of office is only two years - which means you never stop running for re-election. Most state and local officials serve four year terms, the President serves for four years and members of the Senate serve six year terms - with staggered terms so one third of the Senate on offer each two years.
The bad thing about our government is that we have elections on regular cycles. There is always a bunch of elections coming up and we are in what I call the silly season approaching elections for much of our time.
Politicians who want to be elected or re-elected are constantly seeking to win your approval with promises they won't keep and criticizing their opponents with allegations that may or may not be true - but they hope will resonate with the voters. The liberals (probably 30%) and the conservatives (probably 30%) will vote for their parties nominees with no proof of performance or qualification, in the middle are the independents or moderates who will decide the elections and, unfortunately, most incumbents will be returned to office. Our national debt obligations will rise because of promises of entitlements made to buy votes (usually state and local officials must be more responsible as there are usually legal requirements that they maintain balanced budgets) and we will continue to spiral toward a financial ruin of some sort. It is not a pretty picture. And if you think the blood sport of politics is played without rules or ethics now, you should read about the elections in the early years of our country to the present. It has never been a pretty picture.
All this to introduce my topic...but, in my defense, politicians seldom get to the point either.
One of the most popular promises to be made in an election is to raise the minimum wage. Why is this topic so popular - because it sounds so good to the public. Of course, the public will think - everybody should receive a living wage. And the politician usually does not have to pay for the promise with budget or tax dollars. The nasty corporations will have to pay for it - not the treasury. What a great idea. Something for nothing for the low wage earner, something for nothing for the politicians. Has to be the best idea since perpetual motion. And everyone feels better about themselves.
However - it won't work - the supporters are disingenuous and the idea is intellectually dishonest. And that is the good news.
First, the President's team overstate the number of folks at the minimum wage level. They state 5% of the workers. Most economists state around 3.5%. Second, not all minimum wage earners are poverty level subjects. Many are retired with other incomes or pensions, second wage earners in a family unit not at the poverty level, or kids coming into the wage market for their first job or to gain job skills. For most, their time at minimum wage is temporary and entry level as they acquire skills and move up to higher paying jobs. Minimum wage positions are temporary, entry level training positions. So, on balance, I suggest that the minimum wage proposals do not target the family living in poverty that politicians are claiming to want to help.
Also, the concept of a federal minimum wage, it the intent is to provide a "living wage" is irrational because in a large country the cost of living is not constant. It costs more to live in Manhattan than El Paso. So how does a federal action solve the perceived problem?
There are legal arguments that there may be a Constitutional issue here as there may be an infringement of freedom to contract lurking in the Fifth Amendment language about due process. My readers will frequently hear me rant about the problems caused when when the government enters the marketplace and tampers with market forces by picking winners and losers for political reasons. The Supreme Court ruled against the minimum wage in 1923 but reversed the decision in 1937 under different economic circumstances. Should we revisit the question in the high Court to reconsider whether they had it right the first time? In the alternative, President Kennedy stated that freedom of contract should arise from natural law, not dependent upon the generosity of the government, and should not be infringed.
It should be remembered that a business hires an employee to solve a business problem - not to solve the employee's problem. The cost of hiring an employee should be influenced by market demand for that employee - not the interference of government. If the government interferes, the company will not hire a new employee because his wage is determined and imposed by government not the value of his skills to the business. I suggest the lack of hiring a new employee from the ranks of the unemployed will impose a greater cost on the society than the benefit of the higher minimum wage. Now we can easily identify the unemployed person and we should see that their living in poverty is more problematic than the minimum wage earner issues.
An artificial wage level will result in less hiring and may encourage business to use automation or robots to solve their problem. The Congressional Budget Office estimates that Mr Obama's recent proposal to increase the minimum wage to $10.10 for Federal Contractors (as an executive order rather than an act of Congress) will eliminate 500,000 jobs.
Also, the increased minimum wage may act as a disincentive for minimum wage workers to seek addition education and training to qualify for higher paying jobs. Artificially inflating the minimum wage may increase the time that a worker spends in the minimum wage category instead of trying to improve his or her skills to advance because of the workers enhanced value to the job market. This seems to me to be counter-productive.
I can understand how a politician would view the increase in taxes to increase welfare spending as perilous - but they seek to be seen putting money into the pockets of workers by assigning the costs to the business - a hidden, under the table and fraudulent way of imposing a tax on the employer without observing the legislative rules. They ignore the decline in hiring and the increase to higher prices by the company to cover the artificial costs of hiring a new employee or maintaining their previously established employee level. The government imposed costs must be passed on to the consumer or must be covered by laying off employees to maintain their costs and price margins. There is no free lunch.
So who benefits by the increase in minimum wage? I am glad you asked. It is my understanding that some union contracts set wage levels as a multiple of the minimum wage. So the one group that benefits from the increase of minimum wage is union workers whose contract ties wages to a multiple of the minimum wage. Oh, but I think the President knew that. But the rest of us probably did not read that in the brochure.
On balance, our capitalist, free market system has produced the highest standard of living and the strongest middle class in the history of the world. The system is not perfect, but it seems to be preferable to every other system that has been tried. We have found that some minimal government regulation is needed. Pope John Paul II, writing in the 1950's before his rise to greatness, said that Capitalism does not function properly without morality. That may certainly be a problem in more recent days.
But our system emphasizing freedom, individual responsibiltiy and economic opportunity is still the answer, in my view. What we have achieved here is without precedent in my lifetime or in history. I agree that our system did not provide adequately for all those who did not feel the benefits of our system and those are issues that should be addressed. But, in my view, our Community Organizer in Chief has thrown the baby out with the bath water. Despite his grand promises, again in my view, he has served the interests of those who could help him stay in office and has not helped those who relied on him to change their situation.
My indictment of the President will be addressed on another day. But please consider my arguments on the minimum wage question. I believe that it is amoral, possibly illegal and counter productive. It is the worst kind of feel good political pablum that does not solve the problem it purports to solve nor help the people it purports to want to help. It is political horsepuckey that has never worked and will not create the promised benefits today.
My readers will know that I do not like a recitation of the problem without an offer of a solution. Clearly in this case I believe that economic stimulus from market conditions (not government) is the solution here. But for those who just can't keep their government's hands off the problem, I recommend increased use of the earned income tax credit or other work related welfare benefits that encourage work, education, training and seeking opportunity.
A brief review of those truths I keep asking you to hold to be self evident:
- In order for government to give me a dollar - they must first take it by force from you.
- There is nothing that government can do that cannot be done with less cost and more efficiency by the private sector. There is no profit incentive or accountability in any government program - just another layer of costly, incompetent bureaucracy.
- The founding principles and documents upon which we base our social order were intended to limit the power of government. The system has been abused and the promise has been broken and must be fixed if we are to survive.
- There is no authority in our government institutions to permit government officials to pick winners and losers in our economy. The Rule of Law is intended to provide a level playing field with predictable and reliable results in the Courts to protect us from tyranny of whatever form - from our temporary political leaders or from large corporate interests that feel they are above the law.
Elections in November - choose wisely.
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