Income gap resurrects minimum wage folly

Kelly Sloan

Kelly Sloan

It’s unfailingly ironic, yet entirely expected, liberal Democrats characterize themselves as “progressive” and yet feel an insatiable need to promote policies that’ve been tried before, often repeatedly, and reliably fail at every attempt.

Partly to redirect attention away from his signature debacle — there are many competing for the honor, but Obamacare wins insomuch as the president deliberately waded into that one, as opposed to the various foreign policy disasters he stumbled into like a blind hedgehog — and partly to shore up an increasingly depressed left-wing base, President Barack Obama dusted off the well-dented “income inequality” drum and its equally battered corollary, the minimum wage.

There’s an entire mystique that’s grown around the concept of “income inequality.”

It’s predicated on the observation some people make what could be described as a revolting amount of money each year. What’s missed is this datum is irrelevant. What the people in top income brackets make is really no one’s business. It’s economic sophistry at its most elemental. What the gap is between the richest and poorest is of no relevance to economics.

The question ought to be: In what direction is society as a whole going? If the general trend is upward, then concentration on the gap is pointless. And in capitalist societies we find the poorest people today have improved their lot to the extent their standard of living rivals that of what would be called  the “1 Percent” several decades ago. Yet, this class-driven fascination with the gap continues, and, lamentably, continues to influence economic policy.

One of the principal policy errors to emanate from this obsession is the minimum wage and the endemic superstition it helps alleviate poverty.

Nobel Prize winning economist — back before the things were handed out like Christmas bonuses — George Stigler one observed there were some things, some concepts that are simply indelibly known in economics. One of these was that minimum wage was an abject failure as a public policy.

Wages are, essentially, prices for labor. Anytime you fix a price, you conflict with the demand of that product.

Let’s follow the logic. You have a typical minimum wage earner, let’s say a young single mom working at a diner.

The instinctive liberal “solution” to her problem is to simply give her a raise. Presto! Problem solved! Until we start to look at where exactly this money is to come from to finance the raise.

Well, the argument goes, it comes from her rich, greedy boss. Forget that most restaurant owners aren’t sitting on hordes of disposable cash, as evidenced by the frequent closures and relatively short life-spans of such enterprises. Regardless, let’s keep going.

So the boss coughs up the additional money to make our waitress less poor. Where does that money come from? Well, again assuming he’s not keeping hordes of cash hidden under the floor boards, the difference has to come either from reducing expenses or raising prices.

If he raises prices in response to an artificial influence, he’ll likely price himself out of the market and receive fewer customers, thereby actually decreasing his revenue and forcing him to look at cutting expenses. And what, pray tell, is almost universally the most expensive expense? The wages of none other than our poor, single mom waitress.

This is why study after study has ably demonstrated the folly of minimum wage laws. But the class warfare, income-gap obsessed society modern liberalism cultivates is nevertheless susceptible to the temptation to circumvent the market wage. Another economist, Thomas Sowell, refers to this as “stage one thinking,” echoing Henry Hazlitt’s lesson about the unintended but inevitable consequences of economic decisions.

Minimum wage laws do not, therefore, solve the main problem associated with poverty — namely unemployment. They serve, in fact, to exacerbate the problem. Much like Obamacare compounds the problem of artificially created demand driving up the costs of health care.

There’s a certain arrogance to most ideologically liberal policies in that there’s an abiding belief the only reason a given policy failed in the past was that it wasn’t presented properly or the right person wasn’t around to deliver it.

It’s redistributionist policy at its most insipid, essentially attacking the wealth creators and forgetting (or conveniently ignoring) the fact that if you do that enough, then soon there will be little left to redistribute.

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Kelly Sloan is a Grand Junction resident, freelance journalist, small business owner and Centennial Institute fellow on energy and economic policy. He specializes in public policy and political communications.
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Posted by on Dec 17 2013. Filed under Contributors, Opinion. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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