Many on the Republican right do not trust Mitt Romney. That’s a foregone conclusion. Recently he made a policy statement which will only increase that mistrust. Last week Romney announced that his position on the federal minimum wage has not changed. When he ran for governor of Massachusetts in 2002 he affirmed his support for the state’s minimum wage and proposed linking automatic increases in it to inflation; as a Republican candidate for president in 2008 he affirmed his support for the federal minimum wage and you guessed it, took the position that it ought to automatically increase based on inflation. With his latest pronouncement, it appears flip-flopping Mitt is immoveable when it comes to his stand on government wage rate fixing. This policy of his is consistent with his distaste for the poor since it will hurt them the most.
You see, government price fixing of any variety simply doesn’t work. Most of the time it hurts those it was intended to help the most – the working poor. In the 1970s, Richard Nixon placed ceiling prices on beef. The price of beef continued to rise anyway and many small plans went out of business because they found themselves selling on smaller and smaller margins. Many of the working poor lost their jobs.
Rent controls are another form of government price fixing that always ends in disaster. Because there is no incentive to provide decent housing at below market rates, laws mandating artificially low rent levels produce squalid units and shortages in housing for those that need it the most – again the working poor.
So it is with minimum wage laws. Their intention is good, but they always hurt those they are meant to help – the working poor. By fixing the minimum price for labor above market value, employers are less willing to hire workers. Looking at a simple supply and demand graph, where the vertical axis represents price, it is easy to see that when the minimum wage is north of equilibrium the quantity of workers supplied is greater than the quantity of workers demanded. This equals more unemployment and particularly more unemployment at the lower end of the socio-economic ladder.
Now imagine as Romney proposes, the minimum wage increasing with the rate of inflation. It would increase every year and given how much new money has been created out of thin air by Ben Bernanke at the Fed, an increase in the minimum wage based on price inflation could be significant very soon. As the minimum price of labor continues to rise above the market price hiring would become even more scarce at the lower socio-economic level.
At the end of the day, you have to question the commitment to the free market of any candidate that endorses the minimum wage let alone indexing it to the rate of price inflation. Price fixing of goods and services by government is what ultimately destroys socialist states. Besides that, it mostly hurts the working poor. Given Romney’s recent remarks about that group, it is consistent that he would support the minimum wage.