Economy & Budget

Democrats Don’t Get Basic Economics

One of the most poignant moments in the presidential debates prior to the 2004 election occurred when Sen. John Kerry was pontificating about how he would halt the outsourcing of American jobs overseas.

After outlining his approach—which predominantly consisted of giving incentives to American businesses to refrain from such nefarious behavior—Kerry was stopped cold by moderator Charles Gibson. To his everlasting credit, Gibson asked how Kerry could reasonably expect this to be effective when any incentives that could be offered would still pale by comparison to the amount companies would save by paying so much less per worker abroad than American workers would have to receive.

To this, Kerry could only sheepishly reply that he never said he’d be able to stop all outsourcing.

This exchange largely served to puncture Kerry’s balloon on an issue the Democrats had pinned high hopes on in seeking to derail President Bush’s re-election.

This anecdote is highly relevant to numerous issues today in which even an elementary knowledge of economics is all that would be required to discern the folly of very dubious (albeit politically popular) proposals.

Foremost among these is the continual harping by the Democrats that an increase in the minimum wage is needed as a life-raft to any poor souls out there struggling to provide for a family on $5.15 an hour.

Though a recent attempt failed to ram a hike in the federal minimum wage past Congress on the back of a morally right (and economically defensible) reduction in the death tax, efforts to jack up the minimum wage at the state level continue unabated.

The major current battleground is Ohio, where a campaign is underway to initiate a referendum, and where the likes of Hillary Clinton and John Edwards have landed in attempts to burnish their credentials as crusaders for the disadvantaged.

One liberal columnist in the Buckeye State even went so far as to lament that with the high cost of gas these days, not to mention pesky things like rent, food, heating, car insurance, etc., the head of a household trying to make ends meet on minimum wage just doesn’t have a chance.

This embarrassing attempt at economic analysis then stated that ‘reasonable people’ could agree on this.

Sure they could—if these ‘reasonable people’ happened to be as economically clueless as a kindergartner trying to fathom Dostoyevsky.

Though it’s hard even knowing where to begin refuting such insipidity, the public interest requires making the attempt.

Of course, our compassion-filled ignoramus is quite right—a primary family breadwinner indeed doesn’t have a chance earning minimum wage.  This would be terrible except for one very salient point—they don’t have to.

First of all, it’s common knowledge—to anyone wishing to know—that the majority of minimum wage earners are not family providers struggling to bring home the bacon.  They’re young, predominantly single people just getting started in their working careers.  Thus, they have no need for all of the items listed above for anyone but themselves.

They’re the ones who stand to be hurt most when an increase in the government-mandated wage rate does what it always has—make people with lesser job skills more expensive to employ than the value they give in return, and therefore expendable.

Of course, it should go without saying—especially to people of moderate intelligence—that this will also hold true for anyone who actually does live from paycheck to paycheck on minimum wage and trying to support a family.  And as hard as that is to do on $5.15 an hour, ‘reasonable people’ can certainly agree that it’s infinitely harder to do without any job at all.

However, those who should find themselves in such a deplorable state should take heart—they won’t be thrown to the wolves.  In Ohio, for example (as well as any other state), there exists government aid including a plethora of job and family services, exemptions from income tax—and even tax credits for people who pay no taxes.

Not only that, but such people often have family members or relatives they can stay with to help get through the rough patches.  (How else do those ‘discouraged workers’ who have left the job market manage to keep body and soul together?  They can’t just opt out of living, after all).

Despite the self-evidence of all this—and the confirmation of nearly every economic experience in the memory of mankind—liberals persist in their frantic attempts to attach some semblance of rationality to their crusade.

To that end, they point to various recent ‘studies’ that have come out, vacuously proclaiming that somehow all history has been wrong and that—lo and behold!—artificially increasing wage rates doesn’t tend to increase unemployment after all.  But unfortunately for the proponents of this nonsense,  the veracity of many such conclusions is undermined by the utilization of a myriad of clever but misleading techniques.

Thomas Sowell’s chapter on minimum wages in the very aptly-named book “Basic Economics” is an excellent source for more on this.

One of the neatest shell-games he cites is that of the alleged ‘scientific’ data counting only the effects on firms still in existence after the forced wage-hike.  This conveniently forgoes the unpleasant necessity of counting the jobs lost when other firms did suffer the misfortune of going under.

Oh well, we know the adage that there are lies, damn lies, and statistics.  This is why long-standing common sense must prevail in such cases.

The upshot of this—as Sowell and countless others point out irrefutably time and again—is that the law of supply and demand is immutable, and that no matter how much we’d like to improve the lot of people with no experience and no marketable job skills merely by issuing a decree from on high, it simply can’t be done.

Stubborn behavioral reactions, in the form of greater unemployment or higher prices (when increased costs are inevitably passed on to customers) see to that.

The result is that any increased buying power envisioned by the magic wage increase will be substantially watered down for those lucky enough to keep their jobs—or eliminated entirely for those who aren’t.

All of this goes a long way toward explaining the futility of any number of flawed proposals—though it never seems to register on certain people.  

For example, trying to address illegal immigration by granting amnesty—or even cracking down on illegals—without dealing with the incentive employers would still have to hire them: namely, relief from the exorbitant cost of hiring legal workers.

Or, on the other side of the economic spectrum, attempting (by short-sighted means such as woefully insufficient incentives or counter-productive punitive measures) to keep white-collar jobs from being shipped to other countries where the cost of doing business is a fraction of that prevailing in the U.S.

In short, the folly of minimum wage increases can be summed up by a simple math problem that any public school student (we hope) could figure out: Will poor workers be better off with a job at a lower minimum wage, or without a job at a higher one?

Liberals, go to the head of the class—please!

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