THE BLOG
09/05/2014 02:21 pm ET Updated Nov 04, 2014

Minimum Wage, Pandering Politicians, and Crony Capitalism

Many policy makers seem to live in a dream world. "It is terrible that the working poor have to live on such a low minimum wage," they say. They address this problem by arbitrarily raising the minimum wage, although many jobs are worth less than the amount they set. This leads to employers laying off many of the people this policy was intended to help. Fundamentally, most policy makers have failed to realize that those who are impacted by laws, respond to the laws accordingly. After all, if business owners wanted to raise the income of employees, they would do so without government coercion. Not all of them want to change salaries and they are naturally resistant to policies that make them do so. Again, the victim of that are those who were suppose to benefit from such.

It seems odd that, since we have the lowest percentage of Americans working now than any period since the Great Depression, that policy makers would advocate placing more barriers between people and jobs, but that is exactly what is being done by politicians today.

So what would be a logical alternative to the federal government raising the minimum wage? The answer is simple, policy makers need to increase the demand for employment, which will naturally make the amount people can charge for their services go up. Increasing the demand on labor would lead to higher income for all. Furthermore, it would have the latent benefit of increased productivity, which increases the spending power of everyone regardless of their income. Increasing the value of labor would require several strategies:

  • Eliminate the federal minimum wage entirely and return this function to the states. It needs to be done in the states because that is where unemployment problems can be found and more properly addressed. It is ridiculous that cities like Cleveland, Detroit, and East St. Louis -- which have often had real unemployment of over 20 percent in recent years -- to be additionally saddled with a large minimum wage increase.
  • Eliminate taxes on businesses entirely. This would lead to a more responsible government as voters would be forced to pay taxes directly, instead of the government using businesses as "middle men" for its dirty work. Businesses do not pay taxes, they never have. Businesses are merely tax collectors, since such are a fixed cost of doing business. Do businesses pay for their electricity, salaries, or buildings? All of these are paid for by their customers; why use such a "sneaky" approach of taxing consumers and harming employment through business taxes? If we eliminated taxes on businesses, America would become one of the cheapest countries in the world to do business and demands on jobs would explode.
  • Reduce regulations on most sectors of the economy. The cheapest way of achieving this is to restore the state government's role in this area so that they would become competitive in providing the best number of regulations, while making sure they do not chase off industry to other states. There is nothing like competition among the states to create a balance between protecting people without destroying the economy.

These few steps alone would eliminate many of the barriers between people and the jobs they desire and need. In a very short period of time, the demand for jobs would go up as the number of available workers would shrink. In no time it would be an employees' market.

It would be very similar to what happened in Japan. Following World War II, Americans complained about how "cheap labor" in Japan took American jobs (today the complaint is typically China and India). Following the war, that nation eliminated many of the barriers between people and jobs, which resulted in huge demand on employment to where today, Japan has among the highest personal incomes per individual in the world. Unfortunately, in recent years Japan has been modeling itself increasingly after the US and its economy has become increasingly weak. It, too, should have a discussion about eliminating the walls between people and jobs.

The reason politicians don't quickly approve such a logical approach is because of rhetoric, not reality. The rhetoric argues that low wages make people poor. The reality is, artificially high wages make everybody poor. Market priced jobs, on the other hand, generates demand, increases productivity, and gives everyone more with fewer dollars. Demagogues argue that we should heavily tax those who can "afford" it, such as business. Reality tells us that corporations are clever, they will simply move to where they can do business at a lower cost. They are in the business of getting customers and price is a driver for such. All artificially high wages do is drive prices up, forcing businesses to move somewhere else. The list goes on, but what we need is more reality and less rhetoric in policy making. We need policy that looks at the consequences of actions and not merely the desires behind them. We need to understand the results of policies, no matter how good the intentions.

It is true that there are plenty in business who want to raise minimum wage. One of the most prominent examples is Costco CEO and President Craig Jelinek who, according to the Huffington Post and other media, "came out in support of the Fair Minimum Wage Act of 2013, which aims to raise the federal minimum wage to $10.10 per hour, then adjust it after that for inflation." Why would the CEO of a massive company that doesn't have an employee making less than $11 an hour ever oppose an increase in minimum wage to $10.10 an hour? It would have zero impact on his business, but could have a devastating effect on his small business competitors and the employees they are trying to hold on to. For CEOs, like Jelinek, such minimum wage increases are a very cheap form of "protectionism" for their mega corporations. These companies have the financial muscle to lobby elected officials to get these type of self interested policies into law. It is crony capitalism at its worst as such policies make them look altruistic, while devastating potential small business competitors.

Public policy needs to be in the realm of reality and not in political pandering and big business manipulation. It should be designed on what it will do and not on what hopeless "romantics" claim it will do.