Good Politics, Bad Government

Column for week of May 5, 2014

     The battle over increasing the minimum wage isn't going
away.  It is unlikely to even cool down before the November
election.

     When politicians consider which issues to support, their
first thought usually is, What will snare the most votes?  Poles
show overwhelming voter support for increasing the minimum
wage.  It would take principles and moral courage to oppose
increasing the minimum wage.  Both are in short supply in the
realm of politics.

     There is a down side to supporting the minimum wage
increase.   What if voters figure out that a higher minimum wage
hurts the poorest and least skilled workers?  What if voters
discover that increasing the minimum wage increases
unemployment and reduces average income?

     Studies of voters' attitudes suggest that voters who are
aware of the downside of minimum wage increases don't support
the increases.  Those politicians who bet their careers on
campaigning to increase the minimum wage are counting on
voters not seeing the down side to the increase.

     This isn't a high risk gamble.  Since the beginning of
elections, politicians have been betting on fooling the voters --
and winning most of those bets.  They can fool some of the
voters all of the time and all of the voters some of the time. 
Usually that is enough to win an election.

     Even the Congressional Budget Office (CBO) doesn't buy
the idea that a minimum wage increase is free manna from D.C. 
The CBO estimates that increasing the minimum wage from
$7.50 per hour to $10.10 an hour will cost 500,000 to 1,000,000
jobs.  This shouldn't surprise anyone.  Raise the price of nails or
bread and sales will decrease.  The same principle applies when
increasing the price of labor.

     Even 500,000 workers with zero earnings, instead of
$7.50 an hour, adds up to $3,750,000 per hour.  If those jobs
were all full time at 2,000 hours per year the total lost wages
would be $7.5 billion.  That almost qualifies for being real
money.

     Let's toss in something that even the dumbest and
shadiest of politicians might understand.  It means $7.5 billion
that won't be subject to income tax, sales tax, Social Security
tax, or any other tax.  I won't even try to guess how much it will
increase unemployment claims and welfare payments.

     Besides, the unemployed won't be gaining work
experience that would increase their productivity and pave their
way to higher paying jobs in the future.  Who knows how much
mischief those idle hands will find to occupy their time?

     Government can't legislate higher incomes.  Only
increased productivity can increase the average income.  The
most government can do is take from one pocket and put into
another.  While doing the "take and put" government gets its cut. 
And, usually a few dollars float away in the breeze.

     Government may increase the average wage while
decreasing the average income.  Consider a simple example.  
An employer has two employees earning $8.00 per hour.  He
planned to hire another at $8.00 an hour.  With the increase in
the minimum wage the employer provides only the two jobs for
his original employees at $10.10 per hour.

     Instead of having three employees with total pay of
$24.00 per hour, he has two with total pay of $20.20 per hour. 
Average pay for the two employees has increased from $8.00 per
hour to $10.10 per hour.  Include the unemployed worker and
average income drops to $6.73 per hour.

     Increasing the minimum wage may be good politics that
wins elections.  It is bad economics and bad government.  For
politicians the best of both worlds is to loudly support a
minimum wage increase and lose.  The voters will love the
politician for trying.  The politician won't have to face the
detrimental impact of actually increasing the minimum wage.

     So long as good politics makes bad government, we can
expect an over abundance of bad government.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum