President is Pushing Another Failed Policy

A couple of weeks ago, I received an email update from President Obama which discussed his signing of the Executive Order raising the minimum wage to $10.10 an hour for federal contract workers.  Within his remarks the President stated his belief that, “It’s the right thing to do”, raising the minimum wage for federal contract workers.

Naturally the President used the news of the Executive Order as a segue to lobby Congress to raise the federal minimum wage from $7.25 to $10.10 an hour for all American workers.  He claims raising the minimum wage “would move millions of Americans out of poverty”.  In fact, Obama indicated that, “Raising the minimum wage would grow the economy for everyone”.  The latter remark is based on his undying Keynesian dogma that more spending is the key to growing the economy.

There’s only one big problem with the President’s position on raising the minimum wage.  It’s called the Law of Demand.  According to this law of economics, with all other factors being equal, when the price of a good or service increases, demand for that good or service decreases and vice versa.

In the case of minimum wage laws, the service in question is the labor offered by workers.  Since minimum wage laws make the price of labor artificially higher the demand for labor decreases per the law of demand.  Consequently, some workers will receive pink slips and others will not be hired.  Higher unemployment will result.

In fact, a Congressional Budget Office report last week confirmed just that.  It indicated that Obama’s proposal to raise the minimum wage from $7.25/hour to $10.25/hour would result in the loss of possibly 1 million jobs.

And there are other reports issued by economists who know the laws of their science, which have found that minimum wage measures cause higher unemployment.  It’s also important to understand that that higher unemployment will result in greater income inequality between rich and poor.

At the end of the day, the President’s belief that raising the minimum wage will grow the economy is ridiculous.  In the first place, the law of demand tells us that less people will be working.  In the second place, the president is assuming that the money businesses earn which does not go to higher wages for their employees, somehow gets sucked down a black hole.  Does he not understand that that money could be channeled into productive enterprises like plant expansions, training for employees, and research and development?  All are enterprises which ultimately lead to job creation and higher pay for workers.  Even my 8^th grade economics students understand this.  They also understanding that raising the minimum wage is not the right thing to do.

It’s Time to Try Something New for a Change

Last week, on the 50^th anniversary of Lyndon Johnson’s so-called War on Poverty, President Barack Obama unveiled his latest initiative to combat economic deprivation in America.  The President’s latest scheme involves public and private funding to create jobs, enhance public safety, improve schools, and provide better housing in 20 communities across the country.  You know, it is the same old story.  If only the federal government would spend enough money we could eradicate poverty in our lifetime.  Unfortunately, for Obama, his latest initiative to fight poverty will have the same end result as LBJ’s War on Poverty – utter failure.

You see, in the 50 years since LBJ signed into law the most sweeping social welfare programs in the history of the U.S., Uncle Sam has spent about $16 trillion on public assistance schemes.  Yet, Americans living in poverty has only gone from 19 percent of the population in 1964 to about 15 percent today.  Put another way, it cost our economy $4 trillion for every percentage point decrease in the rate of poverty.  Given our already enormous national debt and the future calamity it will bring, isn’t there a more cost effective way to help the poor escape poverty?  We cannot afford to spend more money and that is clearly not the answer anyway.

At the end of the day, the best way to fight poverty is with a job.  Thus, to help the poor all minimum wage laws should be repealed immediately.  The late, great, Murray Rothbard had it right when he labeled minimum wage laws “compulsory unemployment”.  Whenever government fixes prices either shortages or surpluses result.  Fixing wage rates above the market rate will only lessen demand for workers’ labor.  Thus, a surplus of workers’ labor (unemployment) will result.  This is Economics 101.

Low wages may not provide a decent standard of living, but for the 49 percent of African-American youth who are currently unemployed, the jobs they would have by virtue of repealing minimum wage laws would give them the opportunity to work hard, get work place experience, and build a resume.  All three could lead to higher paying jobs in the future.

But repeal of minimum wage laws alone isn’t enough.  Uncle Sam needs to repeal costly regulations on business which prevents the creation of new jobs.  In 2013, the federal government adopted $112 billion worth of new regulatory costs on job producers.  This amounted to 80,224 pages being added to the Federal Register.  Since Barack Obama became president in 2009 close to $500 billion in new regulations have been imposed.  And then there is the job killing scheme known as Obamacare.  At a time when the labor force participation rate is at the lowest level since 1978, should the federal government really be concerned about expensive energy efficiency standards for microwave ovens?

To be sure, more could be done to alleviate the scourge of poverty.  A gold backed dollar like existed in the late 1800s and which kept price inflation flat for more than 60 years should be reintroduced in America.  Abolition of the Federal Reserve System which is primarily responsible for the continuous boom and bust cycle in our economy and the destruction of the middle class should be enacted.

In the final analysis, for 50 years, Washington has thrown good money at the so-called War on Poverty.  The result has been failure to achieve the objective.  And this is why it’s time to try something new for a change.

Young Voters Betrayed by Obama Policies

Barack Obama, in large part, owes his presidency to young voters.  In two presidential elections he has garnered 66 percent and 67 percent of their vote respectively.  Many of those votes proved pivotal for him in winning key states like Florida, Virginia, Pennsylvania, and Ohio.  And yet the President apparently feels no loyalty toward this group of voters that has given him so much.  In fact, it has become second nature for him to run roughshod over their interests.

To begin with, the economy Obama has produced for young people in close to five years of his leadership is horrendous.  His policies of regulate and spend have not permitted the economy to recover from the Great Recession that began in 2008.  Unemployment for 15 to 24 year olds is more than double the national average.  Many college graduates, unable to find a job, have returned to their parents’ nests to wait for better days and brighter employment prospects.  African-American teenagers face a jobless rate of more than 40 percent!

And while the President was attempting to “stimulate” the economy back to good health with profligate spending, what he did instead was run up a tab that young folks will have to pay back for many years into the future.  What’s more, when interest rates rise to their historic average and interest payments on the national debt more than double, paying back that debt will have to include much higher taxes or enormous cuts in government services.

Lastly, there is Obamacare.  The President is relying on young folks to make his health care scheme work.  He is counting on millions of them to purchase high cost plans to offset costs for the sick and elderly.  Of course, many will not accommodate the President’s wishes, thereby causing health care premiums to skyrocket for all consumers.  By the time the current crop of 18-30 year olds is interested in purchasing health care coverage the costs will be astronomical.  Thus he has put them in an unenviable position.  They are damned if they do, damned if they don’t.

Young people made a serious mistake giving Barack Obama their overwhelming support in the last two presidential elections.  But, what choice did they have?  John McCain and Mitt Romney weren’t much better alternatives.  What young people need are free market policies – sound money, a balanced federal budget, and deregulation.  It doesn’t appear this is going to happen anytime soon.