According to today’s New York Times, a recent letter signed by more than 500 economists, including a number of Nobel Prize winners, opposing the increase in the minimum wage has been tainted by the fact that it was conceived and promoted by the National Restaurant Association. The conceit of the story is that the letter, which was distributed under the name of Chapman University’s Vernon L. Smith, a Nobel laureate in economics, was really hatched by an industry group with an ulterior motive and that this somehow changes the conversation about the arguments put forth in the piece.
But while it would have been appropriate for the restaurant lobby group to make its role in the organization of the letter known, it doesn’t change the fact that their view of the issue coincides with those of most competent non-socialist economists. Indeed, it’s not as if the Times itself paid much attention to the letter when it was first released on PR Newswire. The attempt to turn this into some kind of a scandal obscures the real issue here: the push by President Obama and the Democrats to “give America a raise” by an arbitrary decision to raise the minimum wage by $2.85 to $10.10 per hour is economic snake oil.
Yet the truly unfortunate thing about this minor kerfuffle is that this sort of story is what passes for debate in the mainstream media about a measure that could do serious damage to the economy as well as hurt the poor it is supposedly intended to help. Rather than discuss the merits of the arguments, almost of all the coverage of the issue in the Times and most other liberal outlets has been limited to the administration narrative about government needing to step in to prevent big business from exploiting the little guy. The effort to depict the letter from mainstream economists as an industry plot fits in with administration talking points but it does nothing to counter the arguments put forward in the document.
The Times contrasts the anti-minimum wage letter with another letter issued by economists endorsing the president’s proposal. According to the paper, that letter was the work of a liberal think tank backed largely by contributions from labor unions. The think tank involved didn’t conceal its role. But they did misrepresent many of its signers since they failed to note that many of those involved were either socialist now or admitted to supporting the failed god of the left at some point in their careers.
As even the Times had to admit, they couldn’t find a single signer of the anti-minimum-wage letter that thought they’d been hoodwinked into backing the statement. Nor were they paid to do so. All those quoted said its origin was a non-issue and that what they were interested in were the ideas that it presented. But that is exactly what the Times and the rest of the media on the Obama bandwagon don’t want to do.
The National Restaurant Association was wrong to be so shy about its participation in the effort. Its members, who represent a wide gamut of business owners, including many small and individual proprietors know all too well what happens when governments try to intervene in the market in this manner. Higher salaries at the lowest levels of employment sound like a nice thing and minimum-wage hikes are always popular. But most of those who benefit from it are not poor and the net effect of the measure is almost always to reduce the number of jobs. As the economists wrote:
As economists, we understand the fragile nature of this recovery and the dire financial realities of the nearly 50 million Americans living in poverty. To alleviate these burdens for families and improve our local, regional, and national economies, we need a mix of solutions that encourage employment, business creation, and boost earnings rather than across-the-board mandates that raise the cost of labor. One of the serious consequences of raising the minimum wage is that business owners saddled with a higher cost of labor will need to cut costs, or pass the increase to their consumers in order to make ends meet. Many of the businesses that pay their workers minimum wage operate on extremely tight profit margins, with any increase in the cost of labor threatening this delicate balance.
The Congressional Budget Office’s (CBO) most recent report underscores the damage that a federal minimum wage increase would have. According to CBO, raising the federal minimum wage to $10.10 per hour would cost the economy 500,000 jobs by 2016. Many of these jobs are held by entry-level workers with limited experience or vocational skills, the very employees meant to be helped.
The minimum wage is also a poorly targeted anti-poverty measure. Extra earnings generated by such an increase in the minimum wage would not substantially help the poor. As CBO noted, “many low-wage workers are not members of low-income families.” In fact, CBO estimates that less than 20 percent of the workers who would see a wage increase to $10.10 actually live in households that earn less than the federal poverty line.
These important points have been buried under the avalanche of populist propaganda engendered by the president’s campaign for the change. The minimum wage, as well as the overtime measure endorsed by the president this week, is the centerpiece of the administration’s effort to focus attention on income inequality. But the problem with the anemic economy that the president has presided over in his five years in office is not income inequality but the way government interventions in the market have impeded the growth that is the only answer for increasing the wealth of all Americans, including the poor. Instead of a debate about economics we get outdated talking points about business and labor that were best left behind in a past when Americans hadn’t learned how much damage liberal big-government schemes had done.
The president is counting on the non-debate about the merits of the minimum wage being trumped by a populist campaign intended to breathe life into his lame-duck administration. But let’s hope House Republicans listen to the common sense about the minimum wage in the economists’ letter rather than be buffaloed into doing something that will hurt the economy and the poor.