Wednesday, February 13, 2013

Obama, the Minimum Wage, and Fairness

If you are an employer then this is the message that President Obama had for you in his State of the Union speech last night, "Some rich guys have gotten a lot richer therefore you need to give your least skilled employees a 25% raise." If your business is like many then you will wonder where the money for this will come from. The President's answer to that seems to be a shrug and some platitudes about fairness.

If this raise actually happens then a lot of employers are going to look at ways of reducing their workforce or at least not allowing it to expand. That will hurt employment, especially for younger workers and minorities - the groups that have the highest unemployment rates now.

This is partly offset by the economic boost that will come from low-end workers having more money. Will it all balance out? Probably not.

During the Great Depression we had deflation - the dollar could buy more than previously. Logically with buying power going up and unemployment sky-high, wages should have gone down, at least for new hires. They did not because of government pressure. This was a major factor in the high unemployment rate of the Depression (I got this from the book The Forgotten Man).

Surprisingly, Progressives are not bothered by this. They would rather see fewer people make more money than see more people employed. You can see this by their insistence on unions. States with right to work laws have lower unemployment but lower average wages that states with strong labor laws. It is an acceptable tradeoff for one person to be unemployed so that others can make more.

The issue of fairness is also driving the debate on taxes. During the election campaign, Obama pushed a balance of tax increases on the rich and spending cuts. During the Fiscal Cliff negotiations, Republicans offered to increase revenue by closing loopholes as long as they could also flatten the tax rates. Obama refused and the Republicans eventually gave him most of what he asked for - a return to Clinton-era tax rates on the top wager-earners.

That was supposed to have been followed with spending cuts. Instead the President now wants further tax increases in the form of closing loopholes while keeping the higher tax rates. Any spending cuts are still unspecified and to be named in the future. All of this continues to be in the name of fairness. The rich have too much money so we have to redistribute it.

This is one reason that the economy continues to lag. Nothing can be done to stimulate the economy unless it passes the fairness test. At the same time, policies that promote fairness do not need to promote the economy.

I even saw some Progressives admit this during the run up to the Fiscal Cliff.

So the economy continues to lag with projections that a real recovery is at least two years away for the 5th year in a row.

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