"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
--Friedrich von Hayek
What do you think of this as a way to help America's poorest and most underpaid workers--
First pass the equivalent of a regressive sales tax that increases as their income decreases. Only disguise it as a raise in the minimum wage.
Then distribute the proceeds of the tax without taking into account the recipients' income, so that the poorest families get about as much as those better off--and only half the proceeds go to families with children.
That's what happened when the minimum wage was raised back in 1996 (from $4.25 to $5.15 an hour), according to a study just published in the Journal of Political Economy by Thomas E. MaCurdy, a professor of economics at Stanford.
Enough time had elapsed since the last raise in the minimum wage for the professor to observe its full effect over the years, which was essentially that of a stealth tax on the poorest of these workers. Think of it as a European-style value-added tax that increases the price of the goods and services they buy. Those prices rise as employers try to compensate for the additional cost of labor their businesses must bear thanks to a higher minimum raise.
Raising the minimum wage from time to time turns out to be just about the best (or rather worst) example of regressive taxation known.
Why should that be?
To start with, those workers who earn the minimum are typically not poor but come from families of all incomes--rich, poor, in-between and all across the board. About as much of this raise in the minimum wage back in '96 went to families with the highest incomes as the lowest. Remember that lots of teenagers hold down jobs that pay minimum wage before heading for home in a nice part of town.
What's more, minimum-wage workers (in fast-food outlets, for example) are also customers of those places that must raise their prices to compensate for the increased cost of labor whenever the minimum wage is increased. Any raise in that minimum wage tends to be wiped out by the higher prices they must pay for whatever they buy.
Yet some of the country's leading politicians--like Hillary Clinton and Barack Obama--are pressing for still another hike in the minimum wage. Why let the mere facts get in the way of a popular slogan? ("America needs a raise!")
But this debate has never really been about economics, has it?
It's been about politics and power, about letting union bosses collect more dues from the poorest-paid workers, and letting politicians play champions of the poor.
Goethe said it: "There is nothing more frightening than ignorance in action." And here's a prime example of it.
To quote the always reliable Thomas Sowell on the illusory nature of raises in the minimum wage:
"Advocates of minimum wage laws often give themselves credit for being more 'compassionate' towards 'the poor.' But they seldom bother to check what are the actual consequences of such laws. One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum-wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired."
What's so all-fired compassion-ate about reducing poor folks' chance of getting a job?
Those pushing for a higher minimum raise tend to forget, to quote Mr. Sowell, that those who find themselves unemployed because of the ever-rising minimum wage "lose not only the pay they could have earned but, at least equally important, the work experience that would enable them to earn higher rates of pay later on. Minorities, like young people, can also be priced out of jobs. In the United States, the last year in which the black unemployment rate was lower than the white unemployment rate--1930--was also the last year when there was no federal minimum wage law. Some 'compassion' for 'the poor!' "
Thomas Sowell, who has both the sense and the guts to challenge the conventional wisdom, has long been a voice to be trusted when it comes to basic economics. Even if his is a voice in the wilderness. His criticism of this latest push for a higher minimum wage demonstrates that he remains a scholar of both courage and conviction. And understanding.
Paul Greenberg is the Pulitzer Prize-winning editorial writer and columnist for the Arkansas Democrat-Gazette. E-mail him at:
pgreenberg@arkansasonline.com
Editorial on 09/20/2015