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The Minimum Wage is Subterfuge, Repeal It!

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The Greenspan/Bernanke recession has made things bad all over. Last Tuesday, I drove to my local Convenience Center for Collecting Residential Trash and Recycling only to find it closed. In an effort to further cut costs during these economic hard times, my county has cut back on the number of days these centers are open from five to four. I am sure that many Americans have similar stories whether it has to do with government services, the number of tellers in your local bank, or the number of folks flipping burgers at your local fast food shop. Spending is down and revenue is scarce so government and business are cutting back on expenses.

The cause of this current circumstance is well known. For too long Americans and their government spent money like crazy – money neither group had. To their credit, many Americans seem to have learned their lesson. The national savings rate is at an all time high somewhere around seven percent. These Americans have sobered up and are paying down loans and building nest eggs for the future. In spite of Washington’s irresponsible spending to coax the American people to spend our way to recovery, they haven’t and as a consequence prices for everyday items have generally fallen. This is what happens when a Federal Reserve induced bubble pops. The prices of overvalued items and assets fall. Logically, what should happen as well is that wages should fall by a comparable amount. As companies were “doing well” during the boom, wages rose as a consequence. Thus, as prices decline so should wages as a consequence.

Thanks to our ever benevolent leaders in Washington, wages are about to go up this week. On Friday, the federal minimum wage will increase from $6.55 per hour to $7.25 per hour. Of course, this increase is meant to help the economically underprivileged among us cope with the ever increasing price of things. But, three questions immediately arise: 1. Hasn’t the rate of inflation as reported by the Bureau of Labor Statistics actually gone down in the last year? Seems like an odd time for a raise in the base wage? 2. Given the current unemployment rate, should Uncle Sam be raising the cost by more than ten percent on business to hire and retain employees? 3. Why do we need a minimum wage in the first place?

As to the first question, prices have generally fallen in the last year according to government statistics, but official Washington doesn’t care because it believes that if people have more money they will spend it and lift us out of recession. What they don’t take into account is that the minimum wage hurts employment and thus income. In our current market high wages have caused a surplus of workers. Consequently, many are getting laid off. An increase in the minimum wage at this time will only aggravate unemployment because the base wage is artificially high and not determined by the market.

Think about this, isn’t it better to have 20 people working at $3.63 per hour than 10 people at $7.25? Those 10 unemployed folks would be on the public dole in some form – unemployment benefits, food stamps, direct payments, Medicaid – these government expenditures forces the Fed to print more money which causes price inflation thereby hurting not only those on minimum wage but those receiving the welfare. This puts political pressure on Congress to raise the minimum wage again. A vicious circle ensues and that is the problem with government central planning of the economy – it needs to enact new programs to offset the unintended damages of its old programs.

Agreed, there is no way of knowing exactly how many more people would have jobs without the minimum wage. But, one thing is clear there would be more. Simple mathematics validates this point. Another thing is that hard workers would be rewarded and sloths would be punished without a government mandated base wage. As a former business owner I was frustrated that I couldn’t pay my most valuable employees more because scarce resources were needed to pay others a minimum wage.

As to the second question, it seems particularly stupid to raise the minimum wage at a time when businesses are struggling, unemployment is up, and we need wages to adjust down with prices so as to bring recovery. Small business must eventually lead the way when the circumstances are right for economic recovery. Raising costs on small business is going to delay those circumstances further.

Lastly, and most importantly, generations of politicians have socialized us to believe that the minimum wage is just, compassionate, and necessary to help millions of Americans provide at least a minimal existence for themselves and their families. According to minimum wage apologists, millions of Americans would be naked, on the streets, and on the brink of starvation without the benevolent mandate from the government. What they fail to understand is that government policy causes the price increases that make in their words the minimum wage necessary to live a minimal existence. Murray Rothbard has pointed out that from the mid-eighteenth century until 1940 prices actually fell on average from year to year with the exception being during war years. A couple of conditions were at play then that don’t exist today. The regulatory state had not been born yet thus industries produced an ever increasing supply of goods to keep price inflation at bay and the gold standard restrained the government’s propensity to devalue the dollar through deficit spending.

Since 1940, the Federal Reserve which is responsible for maintaining price stability and the value of the dollar has actually been responsible for the dollar losing more than 93 percent of its value. The bottom line is that minimum wage laws are a reaction to the government’s historical bungling of our economy. If policymakers really wanted to help the poor in America they would eliminate most regulations on business and institute a sound money system. In particular, a commodity backed currency would alleviate the ability of politicians and central bankers to devalue the dollar and cause price inflation by printing money and running deficits. In short, we would return to the days when prices remained at the very least truly stable.

On Friday, when the minimum wage increases by more than 10 percent it will be applauded by politicians and pundits alike. But, keep in mind, if the policymakers were really doing their jobs, there would be no need for the minimum wage in the first place. Time will only tell how high the Congress and president will raise the minimum wage in the future to offset all the inflating that has taken place over the last two years. It will be a lot and it will hurt as many people as it purports to help.

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About Kenn Jacobine

  • http://www.republicofdave.com Dave Nalle

    All true, but it’s also true that even the target minimum wage of $7.15 is below the base market-set wage in almost every state, so the minimum wage is utterly meaningless.

    Dave

  • Bliffle

    Kenns articles have really gone down through the floor in quality, from the rather good start he made here on BC some time ago.

    Now he publishes the Political Cant of his favorite ideologues without the least little bit of inspection. For example:

    “Think about this, isn’t it better to have 20 people working at $3.63 per hour than 10 people at $7.25? ”

    Not really, even if it could be true. What you’ll end up with is simply those same 10 people working for $3.63.

    Producer economics do not control the USA economy, consumer economics do. Producers just follow the lead of proven consumption patterns.

  • Clavos

    As Dave pointed out, the labor market generally results in wages greater than the minimum anyway.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Except for sweat shops and … fill in your own blanks.

  • http://www.republicofdave.com Dave Nalle

    Sweat shops are illegal and only exist because of a market in illegal labor which makes them possible. They certainly aren’t part of the regular labor market. Stop the slave trade and you stop the sweatshops.

    Dave

  • http://www.republicofdave.com Dave Nalle

    Bliffle, the time will come when Oabma, like FDR, will try to tell us that we need to raise wages even further and employ people half-time at the higher wage to make more jobs available. He’ll argue that it’s better to have 2 people working 20 hours a week for $300 than to have 1 person working 40 hours a week for $500.

    Dave

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Give the state of the economy and rising unemployment, Dave, it’s not such a bad idea. I don’t see why you should object.

  • http://www.republicofdave.com Dave Nalle

    Because it will come with forcing businesses to hire more people and pay more salaries for work they don’t need done, driving those companies into bankruptcy or state control as the whole system is driven down into destruction so that it can pave the way for more socialism.

    Dave

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    The idea is to spread the wealth when times are tough. You don’t want to create a permanent rift between the haves and the have-nots. So yes, part-time employment is a better solution for the country and its people, especially now. It would only benefit the companies for not having to pay full benefits they may be required to do with full-time workers.

  • http://handyfilm.blogspot.com handyguy

    Actually, this propaganda purporting to attack the idea of a minimum wage is itself subterfuge — for yet another Paultard/Know-Nothing call for the abolition of the Federal Reserve. Looniness is everywhere at BC these days, sometimes in the guise of pseudo-intellectual articles by [eye-roll, please] “international educators.”

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    I’d have to agree, Handy. I’ve been here no longer than eight months, and the quality of thought surely deteriorated. Perhaps it’s because people have become frantic, like rats on a sinking ship.

  • http://www.republicofdave.com Dave Nalle

    At least Kenn doesn’t just write the same article over and over like some I won’t mention.

    Sure this isn’t all that timely or inspiring, but he has a good basic point on the idiocy of the minimum wage as a concept.

    Dave

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    The minimum wage concept, arguably, may have to be put on hold in hard economic times. As to its “idiocy,” it remains for you to argue. Unless you come from a supposition that nation’s wealth can only come about at the expense of its workers. And if you do, than you subscribe, however unwittingly, to Marx’s theory of labor as surplus value.

  • Clavos

    It’s idiocy because, with few exceptions, the labor market dynamics in most of the country dictate a higher wage than the “minimum wage.”

    Thus, most menial jobs are already paying at least $8 an hour, when the minimum is only just going up to $7.25 this coming Friday, July 24th.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    So what’s the big deal, then? Just in case it might keep some folks honest?

  • Jordan Richardson

    At least Kenn doesn’t just write the same article over and over like some I won’t mention.

    Oh that’s rich.

  • http://www.republicofdave.com Dave Nalle

    Roger, it’s just that it’s pointless and entirely symbolic. It allows the politicians to say they have done something for the people when in fact they have done nothing at all. Not terribly important, but very irritating.

    Dave

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    That may be so, Dave, but the way I figure, there are so many more vital issues to be concerned about. That’s all.

  • Bliffle

    Dave says:

    “Because it will come with forcing businesses to hire more people….”

    How does the government ‘force’ businesses to do that?

    “… and pay more salaries for work they don’t need done,…”

    …and how does the government do that?

    “… driving those companies into bankruptcy or state control…”

    How?

    “… as the whole system is driven down into destruction so that it can pave the way for more socialism.”

    Sounds like the recent financial system collapse. Which lead to CORPORATE socialism, i.e., massive handouts to corporations. But I didn’t see any socialism for mere people. All I saw was some crocodile tears for dispossessed homeowners, without any real concrete action. Well, there was the re-nstatement of the million dollar bonuses to the Pampered Princes of Wall Street, which seems to be bipartisan among the Rulers, although bipartisan opposed by the citizens.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Meanwhile, the foreclosure rates keep on rising and despite the stimulus plan, it’s all happening before our very eyes.

    Some socialism.

  • Baronius

    Kenn’s articles haven’t changed in quality at all, but his subject matter has. He opposes military intervention abroad and excessive government regulation at home. That’s a valid ideology, although I don’t necessarily agree with it. There are a bunch of ideologies reflected on these boards (when people are writing articles), and they don’t have to correspond with either party’s platform.

  • Clavos

    There are a bunch of ideologies reflected on these boards (when people are writing articles), and they don’t have to correspond with either party’s platform.

    One would hope that most wouldn’t correspond with either party, or these threads would become nothing but PR outlets for the Reps and Dems.

  • http://www.republicofdave.com Dave Nalle

    Based on #19 Bliffle has never heard of the depression and FDR’s programs in response to it.

    And Roger, you remind me of how regionalized these problems are. Look at the foreclosure rates for Texas.

    Dave

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Great chart, Dave.

  • Bliffle

    How was FDR “…forcing businesses to hire more people and pay more salaries for work they don’t need done, …”?

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    He wasn’t. National Recovery Act was a government program.

  • http://www.republicofdave.com Dave Nalle

    Bliffle, look up the National Industrial Recovery Act which was passed in June of 1933. It identified 200 industries where hours were to be reduced so that more workers could have jobs, essentially turning each full time worker into two part time workers. It also established our first minimum wage and guaranteed workers the right to form unions.

    Dave

  • Bliffle

    It was your assertion, you look it up and provide a citation.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Really, Dave, I really don’t see what you should be objecting to that part of our history. Once the Great Depression was over – due to FDR and the World War II involvement, we’ve gone through an unprecedented period of economic growth and reach new levels of the standard of living. Again, think of spreading the wealth: that used to be an integral aspect of American business and corporate culture – in addition to profitability. I understand that globalization and global competition put a new face on capitalism. But really, I don’t see why you should so easily dismiss the ethical component of running a business. To tell the truth, I see no other way for capitalism to survive other than by reinstituting the ethical element in the business culture. In the absence of that, controls and oversights aren’t going to be enough because they’ll lead to corporate statism. That’s the large picture which, thus far, is totally overlooked in your analysis.

  • Bliffle

    Clavos says:

    “It’s idiocy because, with few exceptions, the labor market dynamics in most of the country dictate a higher wage than the “minimum wage.””

    If so, then it is unnecessary, not idiocy, and why would you care?

    If Clavos is right, then the minimum wage is not an important economic factor, so why should we care? Maybe it will provide some little dribbles of money to a few poor people, so the only thing you have to gain by denying it is from the exquisite pleasure (that I’m sure you enjoy fully) of degrading under-achievers and depriving them of some crumbs of existence.

    Now I can’t deny that lashing the poor of America with a monetary whip is a lot of fun (even sexy!) but why bother everyone else about it?

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    Another totally off point was when Dave said that “sweat shops are illegal anyway.” Well, the minimum wage law is one aspect of the definition, a criterion for deciding whether some business practices are legal or not. So Dave, quite conventiently, would like to hold to a concept of legality while he’s perfectly at ease dismissing the necessary criteria. I’d say it’s the height of sophistry. We expect better from you, Dave.

  • Jordan Richardson

    We expect better from you, Dave.

    We do?

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    What other option is there, Jordan? To say Dave has reached his intellectual heights would be tantamount to dismissing him from now on and no longer deserving of response.

  • Jordan Richardson

    Sounds pretty sweet to me.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    I’m not quite ready yet to put him in the company of Archie and Al and H&C. But he’s surely pressing his luck.

  • Bliffle

    Dave is sometimes pretty good when he isn’t gripped by one of his ideological ecstasies.

  • Mark

    $7.25/hr…whoopee-fucking-do.

    Celebrate, celebrate…dance to the music.