Minimum Wage is Not the Way to Improve Lives

“We know it will improve lives. We know it will bring folks into the middle class. We know it will bring more money into the local economy.”
— LA Councilman Mike Bonin

I’m teaching “Modern Political Economy” this month at Chapman University, where I am a Presidential Fellow. Chapman is a leader in experimental economics. Vernon Smith, the Nobel Prize economist, has an entire building here devoted to the subject.

We’re getting a natural experiment in the minimum wage legislation here in Los Angeles, where the City Council soon is prepared to push through the highest minimum wage law in America — $15.37 an hour for the city’s hotel workers, almost double the California minimum of $8 an hour.

It seems that every local government is straining to see which one can outdo the other in raising the minimum wage, which is an artificial way to intervene in labor markets.

We will find out just what the effect will be. Supporters focus only on “what is seen,” as Frederic Bastiat wrote in 1850 in his essay, “What is seen and not seen.” Supporters see increased income for hotel workers. They don’t see layoffs, higher prices for hotel guests and reduced profits for hotel developers.

Study after study shows that minimum wage laws have unintended consequences — mainly unemployment of the least skilled workers. But as Ben Franklin said, “Experience keeps a dear school, but fools will learn in no other.”

It’s sad that city council members can be so short-sighted. There are so many legitimate alternatives to increase wages of hotel workers. In my class, we talk about the fact that businesses that are more profitable tend to pay their workers higher wages. For example, in the grocery business, Whole Foods has high profit margins — and pays its workers more than $18 an hour on average.

Maybe if the Los Angeles City Council cut taxes for hotels in the area instead of seemingly constantly raising them, hotels might be able to afford to pay their workers more money.

Unfortunately, this flawed proposal is typical of politicians. They think they can simply pass a law and, presto, the problem of poverty is solved. But in fact, it’s a sign of failure when our legislators resort to force. All of the members of the Los Angeles City Council should read my pamphlet “Persuasion vs. Force” before they pass another law. “The triumph of persuasion over force is a sign of a civilized society.”

You Blew it! Paul Krugman Defends the War on Poverty

“The War on Poverty has, in fact, achieved quite a lot.”
— Paul Krugman, New York Times, January 10, 2014

I could do a column every week on the dumb things Paul Krugman says. His latest is that the 50-year War on Poverty has been a success. “For example, children who had access to food stamps were healthier and better nourished than they were in the 1960s.”

Yes, but they are still on food stamps, Medicaid and Section 8 Housing. They have it easier than 50 years ago. And their numbers are growing, now at 47 million.

The fact is that the percentage of poor people was in a steady secular decline from World War II until LBJ began his ill-conceived War on Poverty in 1965.

Yes, poor people are better fed, better housed and better clothed than before. Many of them also have refrigerators, air conditioning, big HD television sets and smart phones. But they are still on welfare! They are still dependent on the system. And they still live in crime-ridden and drug-infested neighborhoods. I know because our local church includes Yonkers, New York, and my wife and I deal with welfare cases all the time. We’re talking fourth-generation welfare recipients.

Yes, they’d like to get a job, but they know that if they lose that job, they will have to wait three-to-four years to get Section 8 housing again — it’s not worth it. My wife tells Yonkers residents, “The key to success is to get out of Yonkers and start over.” Good advice. (Some have taken it, but not many. They’re stuck.)

Look back at Lyndon Baines Johnson’s statements when he started the War on Poverty in 1965. He explained that his objective was to reduce dependency, “break the cycle of poverty” and make “taxpayers out of tax eaters.” Johnson further claimed that his programs would end the “conditions that breed despair and violence,” including “ignorance, discrimination, slums, poverty, disease, not enough jobs.”

None of that happened. In fact, it’s getting worse.

In case you missed it, I encourage you to read my e-letter column from last week about what the “Wolf of Wall Street” can teach you. I also invite you to comment in the space provided below.