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Archive for April, 2013

The Jeffersonian

Revolution on the Ground argues that the states should take the lead in resisting the federal government. Which states are in the best position to do that? Right now, states with Republican governors are well positioned to resist federal overreach, in health care and elsewhere. Of the states with Republican governors, which ones can act most effectively to resist the feds? Tea Party Republicans, or governors elected in 2010 as part of the Tea Party wave offer promise as effective leaders.

First, let’s have a look at a red-blue map of the United States, to see which states currently have Republican governors:

Now let’s consider a list of Republican governors where the Tea Party vibe resonates.

Tea Party governors, or governors Democrats love to hate:

  • Nicki Haley – South Carolina
  • Rick Perry – Texas
  • Rick Snyder – Michigan
  • Paul LePage – Maine
  • Tom Corbett – Pennsylvania
  • Rick Scott – Florida

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Anti-Free Market Economics based on Emotion not Reality

The biggest problem for free market advocates has always been that the policies we espouse do not play well with the peoples’ emotions.  After all, what sounds better to you?  “Recessions are economic downtowns made necessary by the mal-investment of the preceding phony Fed induced boom” or “We are going to put people back to work by spending money on public works projects building badly needed infrastructure”.

Now, if you or someone you love is unemployed, the last thing you want to hear is that the government is not going to do anything to get the economy rolling again.  But, as all proponents of the free market know, that is precisely what is required to liquidate the bad investments caused by government policy in the preceding boom and get our economy moving again.

So it is with President Obama’s proposal to raise the minimum wage from its current $7.25 level to $9.00 an hour.  It is all emotion over reality.  For his part, the President touts his plan as helping the working class achieve a livable wage.  And who isn’t for that?

But the reality is that the minimum wage will actually cause more unemployment among the very people Obama claims he wants to help.  Studies have proven that, but really all one needs to know is how supply and demand works – as the price of a good or service rises the demand for that good or service diminishes.  Thus, by raising the price of the introductory wage an employer can offer, demand for wage earners at that new higher level will be less than at the old lower level.  Employers will hire fewer employees and require existing employees to do more.

But, I suppose when raising the minimum wage causes more unemployment, the anti-free market types will be there to provide unemployment benefits to the jobless.  They will use emotion to tell us that needed medications will not be had, children will starve, and families will be in the streets without it.  Anyone who stands in the way of extending benefits hates the poor, the workers, minorities, women, and children.  Forget that it was the policies of the anti-free market types which destroyed the economy in the first place and produced high unemployment.

At the end of the day, economic policy should have nothing to do with emotional pleas for government to do something.  When government does something it ends in harming those it was meant to help.  Has government involvement in the health care industry provided a system that is accessible to all?  Has the Community Reinvestment Act, Freddie Mac, and Fannie Mae served homeowners well?  Do we have first rate schools because of the Department of Education, energy independence because of the Department of Energy, or an abundance of jobs in America despite heavy regulation to protect workers from Washington?

Washington’s record in managing the economy is abysmal.  Economics is a logic based science.  The sooner Americans realize that the sooner we can rid ourselves of anti-free market schemes and heal our economy.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

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Economic Fallacy:  Minimum Wage Doesn’t Cause Unemployment

Politicians and the media have done a great job of convincing ordinary Americans that they know what they are doing when it comes to managing the economy.  Even though they are the ones who got us into our current mess, the electorate continues to send the same pols back to Washington and they continue to watch financial news networks that act more like cheerleaders for government policy than objective analysts.

Take President Obama’s proposal to increase the current minimum wage from $7.25 an hour to $9.00 an hour for instance.  When polled, huge majorities of Americans support the proposal.

But, it is an economic fallacy to believe that even having a minimum wage will not cause unemployment.  Basic supply and demand tells us that as the price for a good or service increases, demand is diminished.  Conversely, as price falls, demand increases.  That is why when I go to see my hometown minor league baseball team, I and many other patrons wait until the ninth inning of the game to buy pizza because by then it has been marked down to increase demand preventing leftover unsalable pies.  Depending on the attendance remaining at the end of the game, I often have to rush down to the concession stand to get my pizza before the lower price produces the desired effect – no more pizzas.

Now, I understand that pizza is a good to be consumed at a baseball game and labor is a service provided by workers to employers.  But, in terms of the pricing mechanism, labor is no different than pizza.  A government mandated price floor (minimum wage) does not give the worker the opportunity to negotiate a wage with the employer below that price floor.  In many cases workers are willing to accept lower wages but are legally not able to.  Thus, because labor is priced above its market value there will be less demand for it.  In other words, less workers will be hired until the wage rate floor is allowed to adjust down.  Of course, unlike the pizza, that will never happen because that would be political suicide for politicians.

With regards to Obama’s proposal to increase the minimum wage from $7.25 an hour to $9.00 an hour, most jobs that currently pay between those wage rates will be eliminated in the future.  Why would an employer pay $9.00 an hour for an employee who is worth, either through skill or job requirements, only $7.50 an hour?  In most cases they wouldn’t.  Thus jobs will be eliminated and current employees will be expected to do more.  Any way you slice it, minimum wage laws limit employment and therefore cause unemployment.

In the final analysis, it is incumbent on citizens to understand basic economic principles and how government’s violation of those principles will affect the economy.  Simply believing that those who gave us the current economic mess are also the ones to get us out of it is asinine.  Believing minimum wage laws don’t increase unemployment because the President proposes increasing the current minimum wage is irresponsible.

Article first published as Economic Fallacy: Minimum Wage Doesn’t Cause Unemployment on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

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