Monday, July 13, 2009

Mandating Unemployment - July 13 Wall St. Journal

Here's some economic logic to ponder. The unemployment rate in June for American teenagers was 24%, for black teens it was 38%, and even White House economists are predicting more job losses. So how about raising the cost of that teenage labor?
Sorry to say, but that's precisely what will happen on July 24, when the minimum wage will increase to $7.25 an hour from $6.55. The national wage floor will have increased 41% since the three-step hike was approved by the Democratic Congress in May 2007. Then the economy was humming, with an overall jobless rate of 4.5% and many entry-level jobs paying more than the minimum. That's a hard case to make now, with a 9.5% national jobless rate and thousands of employers facing razor-thin profit margins.
There's been a long and spirited debate among economists about who gets hurt and who benefits when the minimum wage rises. But in a 2006 National Bureau of Economic Research paper, economists David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve Bank reviewed the voluminous literature over the past 30 years and came to two almost universally acknowledged conclusions.
First, "a sizable majority of the studies give a relatively consistent (though not always statistically significant) indication of negative employment effects." Second, "studies that focus on the least-skilled groups [i.e., teens, and welfare moms] provide relatively overwhelming evidence of stronger disemployment effects."
Proponents argue that millions of workers will benefit from the bigger paychecks. But about two of every three full-time minimum-wage workers get a pay raise anyway within a year on the job. Meanwhile, those who lose their jobs or who never get a job in the first place get a minimum wage of $0.
Mr. Neumark calculates that the 70-cent per-hour minimum wage hike this month would kill "about 300,000 jobs for those between the ages of 16-24." Single working mothers would also be among those most hurt.
Keep in mind the Earned Income Tax Credit already exists to help low-wage workers and has been greatly expanded in recent years. The EITC also spreads the cost of the wage supplement to all Americans, not merely to employers, so it doesn't raise the cost of hiring low-wage workers.
For example, consider a single mom with two kids who earns the current $6.55 minimum at a full-time, year-round job. In 2009 she receives a $5,028 EITC cash payment from Uncle Sam -- or about an extra $2.50 per hour worked. Other federal income supplements, such as the refundable child tax credit, add another $1,900 or so. Thus at a wage of $6.55 an hour, her actual pay becomes $10.02 an hour -- more than a 50% increase from the current minimum. (See nearby table.)
But that single mom can't collect those checks if she doesn't have a job, and the tragedy of a higher minimum wage is that it will prevent thousands of working moms striving to pull their families out of poverty from being hired in the first place.
If Congress were wise and compassionate, it would at least suspend the wage hike for one or two years until the job market recovers. We know this Congress won't do that, but someone has to speak up for the poorest, least skilled Americans.

Sunday, July 5, 2009

July 4th is no day to celebrate

From the July 4, 2009 Orlando Sentinel

In 1794, Congress appropriated $15,000 for relief of French refugees who fled from insurrection in San Domingo to Baltimore and Philadelphia. James Madison, the principal author of the U.S. Constitution, stood on the floor of the House to object."I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents," he said.A few decades later, while serving in the same capacity as a member of the House of Representatives, David Crockett, upon listening to pleas from his fellow congressmen to give tax dollars to the widow of a deceased naval officer, said, "We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress, we have no right so as to appropriate a dollar of the public money."Madison and Crockett would not recognize the United States of America as we approach our nation's 233rd birthday. In fact, these gentlemen, along with the others who created our great nation, might suggest that the July Fourth festivities be canceled and replaced with a national day of mourning for what we have lost the past several years.When our republic was founded, the framers of our Constitution formed a rule book that established our government as the protector of our life, liberty and private property. Article 1, Section 8 of the Constitution states that along with national defense, Congress can allocate our earnings to provide for the general welfare of the citizenry.Thomas Jefferson, James Madison and others argued that "general welfare" was confined to only those functions that secure our rights. These three natural rights were to be the only rights we would enjoy. Everything else — a car, access to education, decent health care, concert tickets — would be part of our interests, things we would have to obtain by serving our fellow man effectively enough so as to earn the income necessary to enjoy them. Where our earning capabilities were stunted by disabilities, illness or bad luck, charity from secular and religious sources was to fill the gaps.During the Constitutional Convention in 1787, Alexander Hamilton argued that the general welfare clause should not be confined to the specific spending clauses in our Constitution. Hamilton argued that the government should be able to spend money on anything so long as the argument could be made that it was for the general welfare of the nation. Not one of the Founding Fathers agreed with Hamilton during the convention.The Supreme Court agreed with Hamilton in 1935. Fearing that the Roosevelt administration would pack the Supreme Court with justices sensitive to his big-government agenda, the court specifically mentioned Hamilton as the Founding Father who best understood what the role of government should be in our lives. Consequently, since the 1930s, the cost of government has risen from about $20 per person annually to more than $10,000.Today, our quasi-socialistic nation has moved so far from the intent of the Founding Fathers that it is laughable to hear politicians swear an oath that even mentions the Constitution.Consider the past few years alone. Trillions of tax dollars have been allocated to pre-emptive wars, domestic spying on innocent citizens and bank, automotive and insurance bailouts. We have seen huge increases in social-welfare spending for the elderly, people facing foreclosure and farmers who were supposed to know that sometimes it rains and sometimes it does not.We are witnessing the nationalization of General Motors, the banking sector and the health-care industry, all while higher taxes are imposed on America's most productive citizens to pay for the well-being of the less productive. Moreover, we now have the highest corporate income-tax burden in the developed world, while India, much of Eastern Europe and China moves in the opposite direction.If you believe in liberty and small government, July Fourth is no day to celebrate. We cannot, in good conscience, celebrate our independence when we have become so dependent on the government.It is a day to think about how much longer a nation can survive when the citizenry forms a longer and longer line at the trough of public tax dollars.