Calls To Hike The Minimum Wage Ignore The Causes Of Economic Stagnation

Hughey Newsome Advisory Council, Project 21
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Last week, fast food workers across the United States and the globe protested low wages. In the United States, striking workers demanded wages of at least $15 per hour, which is almost double the federal minimum wage.

The irony with this effort, as well as so many other demands for top-down government-mandated increases in increased wages, is that the root cause for stagnant wage growth has been mostly ignored – anemic economic growth. Less than two weeks ago, the Bureau of Economic Analysis report on economic growth went mostly ignored by the press.  According to this federal agency’s report, the U.S. economy grew at a paltry 0.1 percent (annualized) for the first quarter of 2014.

As a recent Wall Street Journal editorial entitled “The Growth Deficit” put it, economic growth should be the nation’s number-one political priority because it “would solve so many other problems.” Additionally, growth “means more jobs and thus fewer government welfare payments.”

The debate over the minimum wage and alleged fair pay could be less of an issue with a stronger GDP, since more growth means more jobs. People could negotiate better wages on their own under the law of supply and demand, without a need for politicians to feel they need to pass top-down mandates.

There are plenty of pleas for minimum wage hikes, but far less is heard about how inconsistent economic growth robs people of the ability to negotiate their own wages. With economic growth, more opportunities exist for those who would otherwise be relegated to minimum wage jobs. Unfortunately, our conversation is too focused on the symptoms of the ills in our economy and not the causes.

How can one, for example, have a serious conversation about the fact that wages are stagnant and not talk about why they are stagnant?

For self-serving reasons, liberal politicians exacerbate the problem. Outside of spinning the anemic growth as a function of a colder than usual winter, they’ve simply downplayed the bad news. They avoid explaining why the disappointing 0.1 percent growth is critical. But they can be expected to continue to rally for minimum wage hikes, as if the two have nothing in common. For them, it seems easier to treat the symptoms of the problem (demanding minimum wage hikes) than curing the ill (anemic economic growth).

In other words, the need for higher wages was apparent when the $840 billion American Recovery and Reinvestment Act stimulus was rammed through Congress in 2009, but was not the focus. Then, the focus then was kick-starting the economy through Keynesian pump-priming – which didn’t work as intended and didn’t lead to more jobs and higher wages.

Yet, instead of admitting failure, these same politicians now hype their top-down solution of just forcing wages higher by fiat.

In other words, if the medicine does not cure the rash, just put makeup all over it and send the patient home. The patient may look better, but the underlying problem remains unsolved.

While the media glosses over important economic data and politicians fail to be accountable for failed economic policy, problems continue to be addressed via the principles found in the children’s story of Robin Hood – that our problems can be solved by stealing from the evil rich and giving it to the humbled and downtrodden poor.  This might seem logical to children, but it is not sound economic practice.

The logic of the left appears to be that if they cannot grow the pie, they spark a debate on how to split the pie.  As long as the right set of people is satisfied, lawmakers and their policies – good for the nation or not – can survive.

Unfortunately, the pie does not grow in such a situation (save, maybe by maybe 0.1 percent).