The Demons in the Democrats' Mirror

The minimum wage was raised from $5.15 to $5.85 in 2007, to $6.55 in 2008 and to $7.25 in 2009. From $5.15 to $7.25 is a 40% increase in three years.  While the increase came after several years of stagnation, one has to have his head in the sand to believe that such an increase in such a short period of time would not have consequences. 

If a $30,000 auto increased 40% it would add $12,000 to the cost. Can anyone expect that such an increase would not negatively impact the willingness or ability of the consumer to buy that car?  Such economic reality is hard to escape.

Yet many deny that higher minimum wages impact business's ability and willingness to buy labor.  In the past, increases in minimum wages have been more moderate and were not put in effect during a tumultuous economic downturn. Some would argue that these increases were just trying to keep pace with inflation.  But the dramatic increase in minimum wages is only part of the problem.

The extension of unemployment benefits to 99 weeks reduces workers' incentive to go back to work while the minimum wage reduces the incentive for the business to hire.  This is the first recession where I have had workers in my business asking to be laid off.

The dirty little secret that most who hire in the business world will reluctantly share is that they are hesitant to hire those who have not worked in over a year.  Work is a habit that is easier to break than to re-acquire.    

The minimum wage is also made worse by other friction costs, especially the health care bill.  The potential cost increases make employees a real liability.  The class war has even profitable businesses sitting on their cash.  What good is increasing liquidity if the laws and regulations make it so difficult to deploy it profitably?   Just as a war causes casualties on both sides, the class war engaged by this administration may attack the wealthy,  but it is injuring all of the workers.

The Black Caucus is unhappy with the president because of the disastrous impact of unemployment in the black community. Unemployment among young blacks is over 40%.  Yet they either fail or refuse to see that the cause of this catastrophe in their community is the very policies that they and their party have pushed the hardest.  This result is not in spite of the stimulus plan and the health care act;  it is more accurate to say it is because of it.

In the past the Fed would loosen monetary policy and cushion or hide the impact of fiscal policy on unemployment.  Now they are tapped out and we are unable to pretend such fiscal policies have no impact.

There is not a separate set of economic principles for one group that is different than the principles that work for another group.  Like justice, economics is blind.

There is none as blind as those that refuse to see. That would describe those who wish to blame everyone for the unemployment in their midst except for those faces in the mirror that caused it.

Henry Oliner blogs at