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Raise the Minimum Wage? A Socratic Dialogue by Lawrence W. Reed

The ancient sage Socrates, a giant in the foundation of Western philosophy, was known for a teaching style by which he aggressively questioned his students. He employed his Socratic method as a way to stimulate logical, analytical thought in place of emotive or superficial pronouncement. Rather than lecture or pontificate, he would essentially interrogate. The result was to force his Greek pupils to see the full implications of their conclusions or to realize that what they had accepted as solid was nothing more than the intellectual equivalent of crumbled feta.

In his January 28 State of the Union speech, President Obama called upon the U.S. Congress to enact a hike in the hourly minimum wage from $7.25 to $10.10. (The dime may have been added because a nice round number without a decimal would sound unscientific.) Economists have long argued that raising thecost of labor, especially for small and start-up businesses, reduces the demand for labor (as with anything else). But Congress may do it anyway—with the usual, oversized measure of self-righteous breast-beating about helping workers. Maybe what members of Congress need is not another lecture on the minimum wage from an economist, but rather an old-fashioned Socratic inquisition. If the old man himself were with us, here’s how I imagine one such dialogue might go:

Socrates: So you want to raise the minimum wage. Why?

Congressman: Because as President Obama says, minimum wage workers haven’t had a raise in five years.

Socrates: Can you name one single worker who was making $7.25 five years ago who is still making $7.25 today? And if you can’t, then please tell me what caused their wage to rise if Congress didn’t do it. Come on, can you name just one?

Congressman: I don’t happen to have a name on me, but they must be out there somewhere.

Socrates: Well, we’ve just been through a deep recession because successive administrations from both parties, plus you lawmakers and your friends at the Fed, created a massive bubble and jawboned banks to extend easy credit. The bust forced many businesses to cut back or close. Now we have the weakest recovery in decades as ever-higher taxes, regulations, and Obamacare stifle growth. No wonder people are hurting! Do you take any responsibility for that, or do you just issue decrees that salve your guilty conscience?

Congressman: That’s water over the dam. I’m looking to the future.

Socrates: But how can you see even six months into a murky future when you refuse to look into the much clearer and more recent past? You guys think the world starts when a problem arises, as if you’re incapable of analyzing the problem’s origin. Maybe that’s why you rarely solve a problem; you just set everybody up to repeat it. If you really look to the future, then why didn’t you see this situation coming?

Congressman: Look, in any event, $7.25 just isn’t enough for anybody to live on. Workers must have more to meet their basic needs.

Socrates: An employer doesn’t have anything to pay an employee except what he first gets from paying customers. I wonder, whose “needs” do you consider when you decide to buy or not to buy: the workers’ or your own? Have you ever offered to pay more than the asking price just to help out the guy who made the product? And if customers like you won’t do that, where do you expect the employer to get the money?

Congressman: That’s not a fair question. My intent here is purely to help.

Socrates: Sounds to me like the answer is “no,” but let’s move on. Why do you assume your intentions mean more to a worker than those of his employer? It’s the employer who’s taking the risk to offer him a job, not you. You’re only making speeches about it. Don’t you see a little hypocrisy here—you, who are personally offering no one a job, self-righteously criticizing others who are actually creating jobs and paying wages even if they’re not all at a wage you like?

Congressman: Employers are interested only in profits.

Socrates: Are you saying employees are not? Are they more interested in working for companies that lose money, and if so, then why don’t they all line up for government jobs?

Congressman: Well, we lose money here in government every year and there are plenty of people who are happy to work for us.

Socrates: You have a printing press. You also have a legal monopoly on force. When you borrow in the capital markets, you shove yourself to the head of the line at everybody else’s expense. Are you saying these are good things and that we’d be better off if the private sector could do these things too? Try to keep up with me here.

Congressman: I repeat, employers are interested only in profits. People before profits, I say! I even have a bumper sticker on my car that says that.

Socrates: So are you saying that employers would be better people if, instead of seeking profits, they tried to break even or run at a loss? How does that add value to the economy or encourage risk-takers to start a business in the first place?

Congressman: You’re trying to belittle me but I went to a state university. All of my sociology, political science and gender studies professors told us that raising the minimum wage is good.

Socrates: Were any of those tenured, insulated, and government-funded pontificators actual job-creating, payroll tax-paying entrepreneurs themselves, ever?

Congressman: That’s beside the point.

Socrates(Sigh.) Figures.

Congressman: Look, $10.10 isn’t much. I think you must be mean-spirited and greedy if you don’t want people to be paid at least $10.10.

Socrates: Yeah, like you guys in government check your personal ambitions at the door when you take office. I’d like to know how you arrived at that number. Was it some sophisticated equation, divine revelation or toss of the dice? Why didn’t you choose $20.00, which is not only a nice round number but also a lot more generous?

Congressman: Well, $20.00 would be too high, for sure. Too much of a jump at once.

Socrates: It sounds like you think the cost of labor might indeed affect the demand for it. Good! That’s progress. You’re not as oblivious about market forces as I thought. What I want to know is why you apparently don’t think higher labor costs matter when you raise the minimum wage from $7.25 to $10.10. Do you think everyone, regardless of skill level or experience, is automatically worth what Congress decrees? Do you believe in magic, too? How about tooth fairies?

Congressman: Now hold on a minute. I’m for the worker here.

Socrates: Then why on earth would you favor a law that says if a worker can’t find a job that pays at least $10.10 per hour, he’s not allowed to work?

Congressman: I’m not saying he can’t work! I’m saying he can’t be paid less than $10.10!

Socrates: I thought we were making progress, but perhaps not. Can you tell me, if your scheme becomes law, what happens to a worker whose labor is worth only, say, $8.10 because of his low skills, lack of education, scant experience, or a low demand for the work itself? Will employers happily employ him anyway and take a $2.00 loss for every hour he’s on the job?

Congressman: Businesses need workers and $2.00 isn’t much, so common sense and decency would suggest that of course they would.

Socrates: So employers who employ people are too greedy to pay $10.10 unless they’re ordered to, but then when Congress acts, they suddenly become generous enough to hire people at a loss. Who was your logic instructor?

Congressman: Can we hurry this up? I’ve got other plans for other people I have to think about.

Socrates: I give up. You congressmen are incorrigible. You’re the only people on whom my teaching method has no discernible impact.

Congressman: You ask too many questions.

At this point, in utter frustration, Socrates drinks the hemlock. The congressman votes to price many of the nation’s most vulnerable employees out of work and gets reelected.

Whoever warned us to beware of Greeks bearing gifts apparently never met a congressman.

larry reed new thumbABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

The Minimum Wage Poison Pill

As we approach the 2014 General Election, with president Barack Obama set to occupy the White House for two more years, the stakes are higher than ever. As usual, Democrats across the country focus on phony issues, such as a Republican “War on Women,” the widening income gap between the rich and the non-rich, and bogus claims of being champions of the middle class.

In terms of domestic policy, they express support for the “middle class,” while doing everything in their power to turn America into a two-class society: the very rich… whose wealth they only wish to plunder… and the very poor, who, in return for an endless array of government handouts, will be expected to do nothing more than to pull the Democrat lever on Election Day.

In foreign affairs, they express outrage over the gruesome crimes of radical Islam… such as the recent beheading of an Oklahoma City woman by a radical Muslim co-worker… yet they oppose any and all effort at what they see as “racial profiling.” They find moral equivalency between the anti-Christian genocide of radical Islam throughout the Middle East, and the bombing of a Birmingham, Alabama abortion clinic in years past.

They express support for high quality public education, but the teachers unions… who own a controlling interest in the Democrat Party… dictate that Democrats oppose any and all voucher proposals, causing the greatest damage to the hopes of minority parents who want to see their children receive a quality education. They ignore the fact that throwing more money at public schools does nothing to increase the quality of a public school education. Instead, at the behest of the teachers unions, they demand that class sizes be reduced, that new school buildings be constructed, and that teacher salaries be increased… all the while regaling their low-information voter base with the cynical lie that Republicans want to “cut benefits to kids.”

They express a desire for the budget discipline of the 1990s… a direct result of Ronald Reagan’s “trickle down” economic policies and the election of a Republican Congress… and they support the notion of cutting the deficit in half, while supporting every new spending scheme hatched by liberal social planners. (In their 2000 platform, they announced that Democrats would entirely eliminate the public debt by the year 2012. Clearly, they had not heard of Barack Obama.)

While expressing a desire to curb the influence of lobbyists, they attempt to convince low-information voters that Republican administrations are dominated by lobbyists for business interests. Yet, no previous administration has been as heavily staffed and influenced by special interests as is the Obama administration. And while they express strong support for an electoral system that is “accessible, auditable, and accurate,” they insist that every attempt to curb vote fraud is nothing more than a Republican scheme to oppress the black vote.

On the healthcare front, they express a desire to provide healthcare insurance for 30-40 million uninsured, to improve the access to and quality of healthcare for all Americans, to substantially reduce the cost of healthcare for everyone, and to do it all without increasing the number of doctors, nurses, and hospitals. Like president Barack Obama, they see no contradictions in any of this. These are obviously people who would promise, with a straight face, that they could stuff 10 lb. of (excrement) into a 5 lb. Bag. All we need to do to make these magical things happen is to elect more Democrats to public office.

Democrats want to use the tax code to discourage the outflow of jobs overseas. Yet they have no problem with the fact that the United States has the highest corporate tax rate of any developed nation. They express a desire to cut taxes for every working family, including those who pay no federal or state income tax, but they exclude tax relief for the “millionaires” who are expected to provide good-paying jobs for the poor and the middle class.

And finally, while fast food workers go on strike demanding a $15.00 per hour minimum wage, a 107 percent increase, Democrats prescribe a poison pill for the U.S. economy with a proposed increase in the federal minimum wage standard from $7.25 cents per hour to $10.10 per hour a 39.3 percent increase. In doing so, they scoff at studies which show that, for each 10 percent increase in the minimum wage, 1-2 percent of jobs in the nation simply go away. For unskilled entry-lever workers, each 10 percent increase in the minimum wage results in a decrease of 4-5 percent in the number of entry-level jobs available… the jobs most often held by teens, the poor, and the unskilled.

According to a recent report by the Bureau of Labor Statistics, a majority of those who worked at minimum wage jobs in 2013 were 24 years old, or younger, while only 0.8 percent, less than one in a hundred, of those 24 years old, or older, work for a minimum wage.

Minimum wage increases are major job-killers. According to a 2014 report by the non-partisan Congressional Budget Office, an increase in the minimum wage from the current $7.25 per hour to $10.10 per hour would reduce the total number of jobs available by approximately 500,000. For the most part, these are the jobs currently held by all those fast food workers who fill the streets, demanding a $15 per hour minimum wage. And if those who clamor for a $15 per hour minimum wage are anxious to learn what happens to a job market with a minimum wage of that magnitude, they won’t have to wait long. In early June 2014, the Seattle city council voted to increase the minimum wage in that city to $15 per hour, the highest in the nation.

A report by the National Restaurant Association (NRA) tells us that, of every dollar of revenue coming into restaurant cash registers, approximately 33 percent goes to salaries and wages. The remainder of that dollar of revenue goes to cover the cost of food and beverages, other costs of doing business, and a small net profit for the owner. According to NRA statistics, the profit margin of restaurants varies, depending on the size of the average check per patron. Those with average checks under $15 per person… e.g., McDonalds, Burger King, Taco Bell, etc… produce average profit margins of 3 percent, while those with checks of $15 to $24.99… e.g., The Olive Garden, Red Lobster, The Cheesecake Factory, etc… produce profit margins of roughly 3.5 percent, the highest in the industry.

According to a recent report by Gingrich Productions, a good measure of the impact of minimum wage laws can be found in the European experience. Among those countries with no minimum wage… Austria, Germany, Sweden, and Switzerland… the median unemployment rate is just 5.2 percent, while the median jobless rate stands at 11.1 percent in countries with minimum wage laws… more than twice that of those without minimum wage laws.

But there is a much larger issue than the question of whether we should have a statutory minimum wage of $10.10 or $15 per hour… an issue that Barack Obama and congressional Democrats are not anxious to talk about. I refer to the question that more and more minimum wage workers are asking themselves, which is, “Why should I work 40 hours a week at $10.10 per hour, when I can earn more by staying at home and living off the public dole?”

A 2013 Cato Institute study tells us that, in 33 states and the District of Columbia, welfare benefits pay more than the current $7.25 per hour, while in 13 states, welfare benefits pay more than $15 per hour. In Hawaii, for example, the pre-tax “salary” of stay-at-home welfare recipients is $60,590 per year, or $29.13 per hour when compared to a 40-hour work week, while in Washington, DC, the hourly rate for just staying at home is $24.43 per hour. At the lower end of the spectrum among states where sloth is more lucrative than honest toil, the hourly rate for stay-at-home welfare recipients in South Carolina is $10.53 per hour… 43 cents more than the $10.10 minimum wage proposed by Democrtats.

So what do we do to fix the problem?

Instead of catering cynically to the poorest of the poor as a political constituency, as Democrats do, we should be asking exactly how an individual in this, the land of opportunity and economic freedom, can still be working at a minimum wage job when he/she is 24 years old, or older. That circumstance can only be explained by pointing out that a great many people simply make very bad choices in their lives.

But Democrats are clearly more interested in purchasing a “nanny state” constituency than they are in doing what is necessary to really help people lift themselves out of poverty. As one writer, Charles M. Blow, has said, “Much of what happens in Washington occurs at the intersection of political advantage and earnest intentions.”

What is clear is that we cannot perpetuate a system in which it is more lucrative to take a welfare check than it is to earn an honest living. In order to throw off the bonds of that insanity our options are only two. First, one might ask, why not raise the minimum wage to $25 or $30 per hour so that those who work can earn more than those who don’t, or won’t? The answer is, a $25 or $30 minimum wage would literally wreck whatever is left of our fragile economy and price us completely out of world markets.

The one remaining option is to do what we did in the mid-90s when a Republican-controlled Congress forced a Democrat president, Bill Clinton, to sign what was called “welfare-to-work” legislation, requiring those on public assistance to also find honest employment. The country experienced real economic growth, balanced budgets, and a pay-down in the national debt.

The choice is ours. What was done in the 1990s can be done again. But in order to do that we must first have a president who understands at least a “smidgen” about the intricacies of the U.S. economy. That means that our first priority must be to rid ourselves of Barack Obama, sending him back to his Kenyan roots where he can actually learn a thing or two about micro-economics.

RELATED ARTICLES:

Wages and the Free Market, Part 1 — Dispelling labor market myths with theory and data

Wages and the Free Market, Part 2 — Innovation Is the Lifeblood of a Healthy Economy

Raise the Minimum Wage? A Socratic Dialogue

Sen. McConnell: DISCLOSE Act is “Crude Intimidation Tactic”

Some in the Senate seem to think that there’s too much free speech in our politics and want to silence their opponents. For the third time in four years, Senate Democrats have trotted out a version of their Democracy Is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act. The bill may be couched in soothing, good government terms, but it would be a hard punch to free speech.

Sen. Mitch McConnell (R-KY) has relentlessly opposed efforts to limit political speech and in the Washington Examiner defends the First Amendment from this latest assault [emphasis mine]:

As a longtime First Amendment hawk, I have sought to raise the alarm in real time on these multiplying assaults on the First Amendment, from a proposed executive order that would have required applicants for government contracts to disclose their political leanings before they could get a contract, to the significant, targeted harassment of conservative groups that we now know to have taken place at the IRS.

In my view, it is absolutely essential for the integrity of our politics and the health of our democracy that we not grow complacent in the face of these increasingly brazen attacks on free speech — that we recognize them when we see them and call them out for what they are in plain English.

That was my goal this week in publicly testifying against the Democrats’ latest effort to stifle speech. Despite the many other urgent crises we face at the moment, I thought it important to make my way to a hearing of the Senate Rules Committee and speak out against Washington Democrats’ latest iteration of the so-called Disclose Act, because silence on this issue is not an option.

The Disclose Act has become something of a preoccupation for Washington Democrats. Its stated purpose is the forced disclosure of donors to political causes, but the truth is, it’s little more than a crude intimidation tactic masquerading as good government.

Attempts at forced disclosure were used in the past to squelch free speech, as McConnell explains:

Back in the 1950s, the state of Alabama tried to get its hands on the donor list of the NAACP. The Supreme Court correctly ruled against forced disclosure then because it knew that if people had reason to fear that their names and reputations would be attacked because of the causes they support, then they would be far less likely to support them. They knew disclosure would have a chilling effect on free association and free speech.

Bruce Josten, U.S. Chamber Executive Vice President for Government Affairs made similar points in a letter to Senators Chuck Schumer (D-NY) and Pat Roberts (R-KS) on the Senate Rules Committee. The clear purpose of the bill, Josten wrote, “is to upend irretrievably core First Amendment political speech protections” by “chilling the political speech of the business community and others engaged in the political process.” At the same time it is “blatantly political and ultimately unconstitutional legislation that detracts from much more significant efforts to solve challenges confronting America.”

U.S. Chamber President and CEO Tom Donohue put it succinctly last year, “If you don’t like what someone is saying, argue with them (but do it politely). Don’t try to silence them.” First Amendment defenders like Senator McConnell understand how important that principle is for our country.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

EDITORS NOTE: The featured photo of Senate Minority Leader Mitch McConnell is by photographer: Pete Marovich/Bloomberg.

The Immigration Crisis, National Socialism and Mark Zuckerberg’s Property Rights

The crisis on the Mexican border is worsening by the hour. In his latest FIREWALL titled “Where do you live, Mark Zuckerberg?”, Bill Whittle hammers home three devastating points regarding the dangerous legal precedents, the morally gray areas, and the hypocritical pose of unearned moral superiority on the part of those proposing amnesty and open borders.

[youtube]http://youtu.be/zkN4XiqRnrE[/youtube]

 

EDITORS NOTE: The featured photo is courtesy of The Guardian.

Ronald Reagan was the TEA Party!

Newly re-elected Governor Chris Christie (R-NJ) on CNN’s Jake Tapper show stated, “I’m a conservative. I’ve governed as a conservative in this state, and I think that’s led to some people disagreeing with me in our state, because it’s generally a left-of-center, blue state.”

But is Christie truly a conservative?

Republicans, like Christie, often quote Ronald Reagan when speaking about conservatism. In September 2011 Christie spoke at the Reagan Library, his topic was “Real American Exceptionalism“. Christie focused on Ronald Reagan’s stand against striking air traffic controllers in 1981. Christie said, “The air traffic controllers, in violation of their contracts, went on strike.  President Reagan ordered them back to work, making clear that those who refused would be fired. In the end, thousands refused, and thousands were fired. I cite this incident not as a parable of labor relations but as a parable of principle. Ronald Reagan was a man who said what he meant and meant what he said. Those who thought he was bluffing were sadly mistaken.  Reagan’s demand was not an empty political play; it was leadership, pure and simple.”

“We tend to still understand foreign policy as something designed by officials in the State Department and carried out by ambassadors and others overseas. And to some extent it is. But one of the most powerful forms of foreign policy is the example we set. This is where it is instructive to harken back to Ronald Reagan and the PATCO affair. President Reagan’s willingness to articulate a determined stand and then carry it out at home sent the signal that the occupant of the Oval Office was someone who could be predicted to stand by his friends and stand up to his adversaries. If President Reagan would do that at home, leaders around the world realized that he would do it abroad as well.  Principle would not stop at the water’s edge,” noted Christie.

Reagan’s policies were based upon in what has become known as his “three legged stool”. Some call them the “Three Pillars of Conservatism”.

Kevin Price from Renew America writes, “If you know of Ronald Reagan, you are likely to be aware of his ‘three legged stool.’ Reagan developed a success formula to build winning coalitions that was as simple as it was brilliant. A sample of that simplicity and one of the hallmarks of Reagan’s policies was his ‘three legged stool.’ Reagan’s policies were built on three ideas; free enterprise, strong defense, and pro-family social policies. He chose these three because they, of course, reflected his own values, but he also realized that each of these ideas have enormous appeal on their own.”

Reagan was a man of principle, true conservatives are as well. Compromise on matters of principle is foreign to conservatives. Conservatives intuitively know that compromise on principles is the art of losing slowly.

J. Matt Barber from Christian News Today in his column “The Complete Conservative” writes, “I recently attended the Ronald Reagan Centennial Celebration hosted by the Republican Party of Virginia. It was co-sponsored by, among others, the Ronald Reagan Institute for Conservative Leadership. Michael Reagan, the oldest child of the man widely considered our greatest modern president, was the keynote speaker. Mr. Reagan said something that I think concisely sums up the core values shared by the ragtag millions who comprise the Tea Party movement. ‘People often ask me if Ronald Reagan would have supported the Tea Party,” he said. ‘Ronald Reagan was the Tea Party’.”

Speculation about who is the frontrunner for in the 2016 presidential Republican primaries has begun. The media always frames the Republican selection process as a need to run as a conservative in order to win the primary but run as a moderate in order to win the White House. That strategy was unsuccessful for both John McCain and Mitt Romney.

Price wrote, “Today, the common cry from economic conservatives is that they are the only ones with a message that matters to the voting public. After 40 years of Roe vs. Wade, we have two generations who only know a country with abortion on demand, they argue. Secondly, many conservatives have grown suspicious of ‘the military’ leg. They believe that just as the government has gotten suspicious in its domestic spending, it has also lost its bearings when it comes to defense and has found itself being internationalists with muscle. Essentially, ‘the three legged stool’ is being replaced by a pogo stick. A single area of interest and concern — the economy, being the springboard for political success.”

Price concludes, “The reality is the ‘three legged stool’ tripled the reasons why one would vote Republican. If the GOP provides the only means to protect traditional families, Christian conservatives will support it, regardless of the other legs of the stool. I think the same can be [said] of the other parts of a coalition that made the Republican Party very successful. If the stool is dead, the fortunes of the party may be also.”

Has the GOP adopted a “pogo stick” as the only path for political success? If so, losses as far as the eye can see may occur, as they did in Virginia, a state that could have elected the conservative Ken Cuccinelli.

Barry Goldwater wrote, “I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue!”

It not the economy stupid, its the three legged stool!

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