Romney wrong on minimum wage

Christian Whiton Fmr. State Dept Sr. Advisor
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Wednesday was not a good day for Mitt Romney or economics. First Governor Romney said, “I’m not concerned about the very poor. We have a safety net there — if it needs repair, I’ll fix it.” Later, trying to dig out, he reaffirmed his previous support for automatic raises in the minimum wage.

This is not only bad policy and a surefire way to increase scandalously high teenage unemployment. It also speaks volumes about the blind spots of someone who, despite having a Harvard MBA and years of high finance experience (or perhaps because of them?), does not fully grasp how managers of small businesses like Joe the Plumber hire people and meet payroll.

The Bureau of Labor Statistics reports that as of December, unemployment among teens aged 16 to 19 was a stunning 23%. It has now consistently exceeded 20% for years and has at times been above 25%. This is well over twice the overall unemployment rate. And when you look at black teens in the same age group in December, the unemployment rate is a jaw-dropping 42%.

Those statistics probably match everyday evidence you observe around America. When was the last time you saw a kid pumping gas part-time after school or during the summer? When was the last time you saw one mopping up around a store? These jobs increasingly have been wiped out.

This is partially the toll of the increased minimum wage. Hikes at the federal, state and local levels have been enacted by well-meaning politicians who unfortunately do not accept basic economics. One of the most settled beliefs in that field is that price controls create shortages.

When government set the price of gasoline below the market rate in the 1970s, more people were willing to consume gas than supply it at that price. The result was shortages: long lines for rationed gas and empty pumps. It also works when government sets a price above the market rate, as with a minimum wage. More people are willing to supply labor than are willing to pay for it. The result is more unemployment.

There are jobs that small businesses can afford a few bucks an hour for a kid to do, but which disappear or get assigned to other workers when government barges in and sets an artificial price.

Politicians bemoan that people cannot live decently at the minimum wage — and they are absolutely right. But the effect of the price control is to eliminate entry-level jobs that teach kids a work ethic. They are being robbed of a chance to understand what it is like to earn something and not rely on government handouts.

Mitt Romney should know this. He has a MBA from one of America’s most elite business schools, where they presumably include economics in the curriculum. He spent years in high finance and has pitched his business acumen as his primary qualification for replacing President Obama amid prolonged high unemployment. He has said he sympathizes with small businesses that have to struggle each month to meet payroll.

But his recent statements cast that in doubt — and fit a pattern with Romney. His enthusiasm for the price control of a minimum wage echoes his support for price controls in Romneycare — the Massachusetts government healthcare program he has pointedly refused to disavow.

Also problematic is his inclusion of his promise on the “safety net” for the poor: “If it needs repair, I’ll fix it.” Would it not be better to let Joe the Plumber pay a poor kid a few bucks to help around the shop and learn about work? Is that not preferable to having the kid be ensnared by a “safety net” and possibly a belief that he must rely on government? And do we not want a Republican nominee focused more on creating private-sector jobs than on perfecting a safety net?

Christian Whiton was a senior adviser at the State Department during the George W. Bush administration. He is a principal at DC International Advisory. You can follow him in Twitter @WhitonDCIA.