Obama & The The Consequences Of Minimum Wage Laws

Federal minimum wage laws are an affront to capitalism and, in the end, do tremendous harm to the young and to other low skilled workers. They are particularly repugnant in an economy that has yet to recover from a recession now four years past. Yet Obama, in his SOTU address, asked for a rise in the federal minimum wage to $9 per hour, claiming that it would only benefit the economy. This joker shouldn't be allowed to run a lemonade stand. The WSJ addresses Obama's claims. Below that, Milton Friedman and Thomas Sowell explain why the minimum wage laws hurt the young, the unskilled, and,in particular, blacks.

From the WSJ:

In his State of the Union address, Mr. Obama proposed an increase to $9 an hour by 2015 from $7.25, and then indexing the minimum to inflation. "Employers may get a more stable workforce due to reduced turnover and increased productivity," the White House says. No doubt employers are slamming their foreheads wondering why they didn't think of that.

And don't worry about lost jobs. "A range of economic studies," a White House memo assures, "show that modestly raising the minimum wage increases earnings and reduces poverty without measurably reducing employment." Note the shifty adverbs, "modestly" and "measurably," which can paper over a lot of economic damage.

In the real world, setting a floor under the price of labor creates winners and losers. Some workers will get a $1.75 raise. Great. But others—typically the least educated and skilled—will be priced out of the job market and their pay won't rise to $9. It will be zero.

University of California at Irvine economist David Neumark has looked at more than 100 major academic studies on the minimum wage, and he says the White House claim of de minimis job losses "grossly misstates the weight of the evidence." About 85% of the studies "find a negative employment effect on low-skilled workers."

The minimum wage is also an ineffective way to reduce poverty. Most families in poverty don't have someone who works, so making it more difficult to get a job exacerbates poverty. Mr. Obama says that a "family with two kids that earns the minimum wage still lives below the poverty level. That is wrong." . . .

Milton Friedman, in the video below, makes the point that "the [negative] effects [of minimum wage laws] have been concentrated on the groups that the do-gooders would most like to help. The people who have been hurt most by the minimum wage laws are the blacks. I have often said that the most anti-black law on the books of this land is the minimum wage law."



And here is Thomas Sowell on a video labled as "Minimum Wage, Maximum Folly."



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Michigan & Labor Unions, Myth Versus Reality

The most fundamental fact about labor unions is that they do not create any wealth. They are one of a growing number of institutions which specialize in siphoning off wealth created by others, whether they are businesses or the taxpayers.

There are limits to how long unions can siphon off money from businesses without facing serious economic repercussions.

Thomas Sowell, Union Myths, NRO, 8 March 2011

Congrats to Michigan for passing a right to work law. No person should ever be forced to pay union dues as a condition of working in their chosen field. It is nothing more than state sanctioned indentured servitude.

The most oft repeated myth about labor unions are that they created the middle class and that they protect the rights of workers. The reality is that our increasing productivity since the civil war created the middle class, and labor unions today are nothing more than parasites on the economy, in addition to being the piggy bank for the left. Labor union numbers have been dwindling for half a century because of market realities, and without government mandates, they will go extinct. There is a reason GM and Chrysler went bankrupt, while foreign car manufacturers with plants in the U.S. did not. And can you say "Twinkies?"

The great economist Milton Friedman gave a short lecture on unions and their lack of any role in the free market several years ago. It is worth taking a few minutes to watch.



And just as a reminder, the real threat to our nation today comes not from the dying private sector unions that ultimately are governed by markets, but public sector unions that are not so governed. To see the effects, one need look no further than California.

Updates & Related Posts:

Powerline notes that the NYT's coverage of the Michigan right to work law omits some of the relevant facts - such as all the ones that would make the unions look bad.

At NRO, a Hillsdale Prof. gives a short history of Right-To-Work, Unions & Trust-Busting.

From Michelle Malkin, a primer on union thuggery in the age of Obama.

From Nice Deb, the union thug violence in Lansing and the left's effort to cover-up, calling it a "false flag" operation. Many links.

Via Instapundit, Byron Preston at PJM notes that the MSM has been wholly silent on the violence, hanging their hat on the canard that the video taped violence by union thugs was a false flag.

From NRO, a discussion of Michigan's modest right-to-work reform and an analysis of why the unions and the Dems are ready to go to war over it:

Democrats are panicked by the spread of right-to-work reforms because the mandatory deduction of dues from the paychecks of public-sector employees provides the party’s financial lifeblood. There are not that many UAW members or Teamsters in the country, but there are legions of bureaucrats, school workers, and surly DMV clerks — and, through its relationship with the public-sector unions, the Democratic party has a direct pipeline into the pockets of practically each and every one of them. The shrieking in Michigan isn’t about workingmen’s wages, but campaign coffers. That is why there is blood.

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Social Darwinism?

Before President Obama called Rep. Paul Ryan's budget "thinly-veiled social Darwinism" last week, I must confess, I had never heard of "social" Darwinism. Jonah Goldberg has stepped into the breech to explain the history of the term. Apparently, it is part of the lexicon used by the left to tar the "robber barons":

. . . Merle Curti in The Growth of American Thought argued that Social Darwinism “admirably suited the needs of the great captains of industry, who were crushing the little fellows when these vainly tried to compete with them.” Henry Steel Commager wrote in The American Mind that “Darwin and Spencer exercised such sovereignty over America as George III had never enjoyed.” And of course Robert Reich has said that Social Darwinism “offered a perfect moral justification for America’s Gilded Age, when robber barons controlled much of American industry, the gap between the rich and poor turned into a chasm, urban slums festered, and politicians were bought off by the wealthy. .  .  . The modern Conservative Movement has embraced Social Darwinism with no less fervor than it has condemned Darwinism.”

The only problem: None of this is true either. Yes, Andrew Carnegie was a follower of Herbert Spencer and lots of people referenced “natural law” (though rarely as a reference to Darwinian evolution). But for the most part the captains of industry couldn’t care less about this stuff. As Robert Bannister and Irwin Wylie (and more recently Princeton intellectual historian Thomas Leonard) have painstakingly documented, the captains of industry in the 19th century were not particularly influenced by, or even aware of, Darwin and Spencer. This shouldn’t surprise anybody. “Gilded Age businessmen were not sufficiently bookish, or sufficiently well educated, to keep up with the changing world of ideas,” writes Wylie. “As late as 1900, 84 percent of the businessmen listed in Who’s Who in America had not been educated beyond high school.”

Overwhelmingly, businessmen of the period were influenced by Christianity first, classical economics second, self-help inspirational nostrums a distant third, and egghead notions about biology almost not at all. Cornelius Vanderbilt read one book in his entire life. It was Pilgrim’s Progress. And he didn’t get to it until he was past the age of 70. “If I had learned education,” Vanderbilt famously quipped, “I would not have had time to learn anything else.”

Also, it’s worth noting that the so-called red-in-tooth-and-claw Gilded Age was a time of massive, historic economic growth. It was when America overtook Britain as the economic powerhouse of the globe. That’s one reason the left has always hated it. When Europe was boldly embracing socialism, America was proving that capitalism was better at generating wealth and lifting people out of poverty. Moreover, as anybody who’s been in a library, hospital, university, or concert hall bearing the name of Carnegie, Mellon, Rockefeller, et al, can attest, the “Robber Barons” didn’t remotely believe in letting the little guy fend for himself or that wealth was a reflection of either moral superiority or evolutionary “fitness.” Even the one real Spencerist in the bunch, Andrew Carnegie, believed that “the amassing of wealth is one of the worst species of idolatry—no idol more debasing than the worship of money.” He believed that the man who “dies rich dies disgraced” and himself died one of the most famously generous philanthropists in the world.

One reason the term “Social Darwinism” caught on with progressives was that it served to divert attention from the sins of “reform Darwinism”—i.e., the progressive passion for eugenics. The progressives advocated aggressive statist intervention to improve the genetic stock of the country, while the alleged Social Darwinists championed laissez-faire and private charity and—gasp—reproductive freedom. Moreover, the term Social Darwinism, which in Europe was used to justify nationalist and racist theories of the Hitlerian variety, was the perfect label for playing guilt-by-association in America. Ever since Hofstadter’s book, liberals have used the term to accuse conservatives of desperately wanting to return to a past that never was.

On April 4, Mitt Romney had his turn in front of the newspapermen. “The president came here yesterday and railed against arguments no one is making—and criticized policies no one is proposing. It’s one of his favorite strategies—setting up straw men to distract from his record.”

One suspects that even Romney had no idea how right he was.

And for a bit more clarity, here is the great economist, Milton Friedman, discussing the place of the "robber barons" in our economic history:

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What In The World Are Our Children Being Taught?

Where is Milton Friedman when you need him:



Capitalism has been the world's greatest engine of wealth creation. The past three centuries of economic - and concomitant social - advancements throughout the world are a history of the impact of capitalism - and, in the mirror image, the failure of socialism. Yet today, many of our children are apparently coming out of school with a negative view of capitalism, a dearth of knowledge about economics, and no understanding of the negative impacts of socialism. Moreover, it would appear that the left's rebranding from "liberal" to "progressive" has been a successful one. Chalk that one up to the "you can fool most of the people some of the time." See this recently released - and highly depressing - poll from Pew:

“Socialism” is a negative for most Americans, but certainly not all Americans. “Capitalism” is regarded positively by a majority of the public, though it is a thin majority. There are certain segments of the public – notably, young people and Democrats – where both “isms” are rated about equally. . . .

These are among the findings of a national survey by the Pew Research Center for the People & the Press that tests reactions to words and phrases frequently used in current political discourse. Overall, 29% say they have a positive reaction to the word “socialism,” while 59% react negatively. The public’s impressions of “capitalism,” though far more positive, are somewhat mixed. Slightly more than half (52%) react positively to the word “capitalism,” compared with 37% who say they have a negative reaction.

A large majority of Republicans (77%) react negatively to “socialism,” while 62% have a positive reaction to “capitalism.” Democrats’ impressions are more divided: In fact, about as many Democrats react positively to “socialism” (44%) as to “capitalism” (47%).

Reaction to “capitalism” is lukewarm among many demographic groups. Fewer than half of young people, women, people with lower incomes and those with less education react positively to “capitalism.”

The survey, conducted April 21-26 among 1,546 adults, measured reactions to nine political words and phrases. The most positive reactions are to “family values” (89% positive) and “civil rights” (87%). About three-quarters see “states’ rights” (77%) and “civil liberties” (76%) positively, while 68% have a positive reaction to the word “progressive.” . . .

The most striking partisan differences come in reactions to the word “socialism.” Just 15% of Republicans react positively to “socialism” while 77% react negatively. By more than two-to-one (64% to 26%), independents also have a negative impression of “socialism.” However, Democrats are evenly divided – 44% have a positive reaction to “socialism” while 43% react negatively.

“Capitalism” elicits a less partisan reaction. About six-in-ten Republicans (62%) react positively to “capitalism,” compared with 29% who have a negative reaction. About half of independents (52%) have a positive impression while 39% react negatively. Among Democrats, 47% react positively to “capitalism” while nearly as many (43%) react negatively.

There is a substantial partisan divide in views of the word “progressive.” However, majorities of Democrats (81%), independents (64%) and Republicans (56%) have a positive reaction to “progressive.” . . .

Young people are more positive about “socialism” – and more negative about “capitalism” – than are older Americans. Among those younger than 30, identical percentages react positively to “socialism” and “capitalism” (43% each), while about half react negatively to each. Among older age groups, majorities view “socialism” negatively and “capitalism” positively. . . .

More than twice as many blacks as whites react positively to “socialism” (53% vs. 24%). Yet there are no racial differences in views of “capitalism” – 50% of African Americans and 53% of whites have a positive reaction.

Those with a high school education or less are evenly divided over “capitalism” (44% positive vs. 42% negative). Among those with some college experience, 49% react positively to “capitalism” as do 68% of college graduates. Those with a high school education or less are more likely to express a positive view of “socialism” than do those with more education. . . .

Perhaps surprisingly, opinions about the terms “socialism” and “capitalism” are not correlated with each other. Most of those who have a positive reaction to “socialism” also have a positive reaction to “capitalism”; in fact, views of “capitalism” are about the same among those who react positively to “socialism” as they are among those who react negatively (52% and 56%, respectively, view “capitalism” positively). Conversely, views of “socialism” are just as negative among those who have a positive reaction to “capitalism” (64% negative) as those who react negatively (61% negative). . . .

I have long thought that no child should graduate from high school without an understanding of free market economics, basic accounting and business law. It would seem we are a long way indeed from that reality.

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Depressing (& Depression) News

The Great Depression began in June, 1929 and lasted until the early 1941. FDR didn't solve it with his "New Deal", WWII did. By 1933, unemployment had risen to 24.9%, average incomes contracted by 40%, global trade fell by half in volume, and millions lost their homes and farms. How do we compare to the Great Depression?

We are now running a budget deficit closing in on two trillion dollars. Unemployment is at 9.4% and seems headed only upward. Our bond rating is on the cusp of being downgraded - an occurrence that promises a whole host of problems. The fed is printing money as never before:



Even with no new deficit spending, new and heavy taxes seem inevitable to service this debt. Plus, with such an increase in the money supply, massive inflation and devaluation of the dollar seems inevitable.

But much more is waiting in the wings to hit, some sooner rather than later. Obama is doing nothing to rein in spending or to avoid taxation. Indeed, to the contrary, Obama has not even begun to tax and spend. In an Orwellian move, he is calling for institution of "pay as you go" legislation that will make future tax cuts next to impossible but will not apply to any of the massive new deficit spending he has planned in his pet projects.

Social Security - a massive ponzi scheme that the left utterly refused to attempt to reform during the Bush years, is now running in the red. Medicare isn't being fixed, its being subsumed in a plan that will only expand care to 1/3 of the uninsured, yet cost us trillions in extra dollars. Cap and Trade is another massive regressive tax.

We are on the cusp of an energy crisis that Obama is ignoring. The price of oil is set to skyrocket from a host of contributing causes. The green energy Obama has promised us is not even cost effective, nor can it possibly be scaled up as quickly as it would need to be to provide a realistic alternative to oil and coal.

Global trade, already under extreme stress, is set to experience far more stress. Some 80% of all goods traded internationally are shipped. David Smick, writing at the Washington Post, notes "[t]he U.N. agreement last October on sulfur-burning levels for ships . . . is expected to send shipping costs skyrocketing." Thus the price of the vast majority of goods traded internationally will be effected, all in the name of global warming.

Then to top it off, we have Obama, instead of fixing the issues that led to this global economic meltdown, proposing a massive new regulatory regime for our financial sector. This is precisely what the respected Harvard economist Niall Ferguson warned against a few weeks ago.

Could this news get any more dire? Well, . . . yes. We now have sufficient data to make a reasonable comparison of where we are as compared to the same time frame after the start of the Great Depression. And the news is depressing indeed. Even without this next round of price increases, massive spending and high taxation, we are at or below the same economic indicators in the same time frame as existed during the Great Depression. This from the Financial Times:

Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.

Two economic historians, Barry Eichengreen of the University of California at Berkeley . . . [document] that this recession fully matches the early part of the Great Depression. . . .

First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s. But Japan’s industrial collapse has been far worse than in the 1930s, despite a very recent recovery.

Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.

Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.

The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.” . . .

You can read the rest of the article here. The authors go on to discuss the fact that Obama is attempting to rely on both Keynes and Friedman to guide his acts. Keynes theorized that massive public spending could be used to stimulate an economy while Friedman concentrated on monetary supply. The authors conclude hopefully that this will stop the full spiral into depression.

What gives me great pause is that these authors give no consideration to all of the additional taxes and the rising costs that we are about to have imposed upon us, plus what looks like new draconian regulation of our financial sector. Fed Chairman Ben Bernanke warned a few weeks ago that we needed to taking steps now to rein in spending and borrowing or we face severe problems in the foreseeable future. Obama is doing anything but that. I have never been so pessimistic about America's future. This could easilly go from bad to castrophically bad.

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