Bernie Sanders, one of 100 Americans with a great deal of power to shape and shift the US economy, still, after all these years, needs a lesson in economics. Sanders recently posted an op-ed in the Burlington Free Press, titled “American People Need A Raise“. Amazingly, Bernie has decided that he’s just the man to give them one – because he’s not the one who has to pay for it. Let’s let Captain Marxism make his case, shall we?
“There are at least four major economic issues facing our country: high unemployment; low wages; growing poverty; and an obscene and worsening level of income and wealth inequality. One important way to address them all is for Congress to raise the minimum wage.”
What’s obscene here is that Bernie thinks the fix for any of the maladies listed above is by increasing labor costs. Bernie seems to enjoy casually ignoring market forces when it’s convenient, and the minimum wage is a perfect example of it. So, for Bernie’s sake (and our own sanity), let me summarize the reality for him. Generally speaking:
If price goes up, demand goes down.
If price goes down, demand goes up.
It’s that simple, and oversimplified, as not all markets are the same, and elasticity is a factor, but broadly speaking this is as real as breathing. So what are the components of price? Essentially, they are costs plus fee, or profit. Since no business lasts long without showing a profit, let’s just focus on costs. What are the components of cost?
Overheads (rent or mortgages, administrative costs, compliance costs (which run 1.75 trillion per year, thanks to the USG and Bernie’s efforts), benefits like health care and retirement, etc.
So, if a product costs $10, and the component cost of labor for this product is $4, and you increase that labor cost by 25%, now the product is (roughly) $11. The sale price went up. What does that mean, in the market?
It means fewer people are now buying that product. So that person whose labor rate was increased due to Bernie’s view of “fairness” might now be out of a job, or have their hours reduced, because there is less product demanded, so there’s less of a need for this person to have a job to do.
That’s it. That’s all it’s ever been. In fact, by maintaining a minimum wage, there are millions of potential jobs that are never created or filled, at a lower wage rate, because by law an employer can’t pay less than minimum. That means if you own a small business and want to pay a 16 year-old stockboy $6 an hour for 10 hours per week, and the stockboy wants the job at that rate (because he’s willing to spend 10 hours of his time for $60/week), you cannot hire him. You cannot create the job. And maybe, for the small business, that rate is all they can afford, and they need the help, but can’t get it. Neither the employer nor the potential employee benefits, and the costs for the goods in that store will have gone up, incrementally, because labor couldn’t be purchased at a lower rate, so the consumer can afford to buy less, and will buy less.
So, back to Bernie – and his 4 central “arguments”:
1. High unemployment: Raising the minimum wage, as shown above, will actually increase unemployment, especially amongst the demographic that’s getting hit the worst in the recession, the low-skilled and part-time workers, the bulk of which are paid at the minimum rate.
2. Low wages: Wages will not increase until the demand for labor goes up. Which means that real wages will not increase until the recovery starts happening, and it’s not happening, in large part due to these same laughable economic policies Sanders is espousing.
3. Growing poverty: Poverty’s not growing. The number of people who are on federal and state assistance is growing, however, to 100 million people, or 1/3 of our entire population. Why? Because the gov’t provides so much in the form of benefits and dollars that it makes financial sense not to work. Bernie is actually helping to create the conditions, again, that incentivize people not to work.
4. Income and Wealth Inequality: The fearsome inequality monster strikes again. The minimum wage increase is not going to fix inequality, even if inequality were something that needed to be fixed. The minimum wage increase is going to exacerbate existing inequality, by insuring that fewer people are employed. See above, and hundreds of studies done on the subject. Here’s one. Here’s another, linked from the same article, done across multiple countries.) A marginal increase in pay by a dollar or even $5 per hour won’t bridge an inequality gap between someone flipping burgers and someone working on Wall Street.
But Bernie continues – there’s just no holding this class-warrior back:
“Increasing the minimum wage also will create jobs. According to the Economic Policy Institute, a $10.10-an-hour minimum wage would generate 140,000 jobs, expand the economy by more than $32 billion and increase the take-home pay of Americans by $52 billion. When low-wage workers get a raise they spend their extra money at local grocery stores and small businesses. That increases demand for products and boosts the entire economy.”
Keynes at its finest. As demonstrated above, increasing costs has a cost in the real world, in that the demand for labor at the higher wage will go down. So the expected bonus in spending that a wage increase might bring (and I emphasize *might* bring, because it’s always assumed by politicians that people with extra money will just spend it, thereby expanding the rate of consumption (GDP), when they might instead save it or just pay down debt with it, which half of the 2008 economic stimulus payment recipients did) is built on a bed of assumptions that have been demonstrably wrong for decades, and, more importantly, assumes that employers will simply absorb the wage increase with no change to employment numbers, and that more people will be hired because magically demand will go up with all those low-wage workers just going out and buying more tacos. Or in Sanders’ case, more hair-styling products. In short, these assumptions are laughably, painfully, tooth-grindingly wrong – yet we’re going to do more and more of the same.
Sanders is an economic illiterate, grasping at half the story in order to support increasing federal spending and federal regulations. This, in turn, nets him a soft and comfortable living in the Senate, a living which seems to consist entirely of an endless lecturing to the citizens about how they should live their lives, given by a self-righteous man who has made his living off the labor of others. In true Marxian fashion, he either ignores this hypocrisy or wallows in it – but either way, Sanders is wrong, just as wrong as he’s ever been, and as wrong as he will continue to be until he mericfully retires from the Senate.