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Obama's State of the Union: A Sign of Failure

Posted
2/19/2013 6:38:00 PM
By: Eagle Financial Publications
Referenced Stocks:

By Mark Skousen

"The triumph of persuasion over force is the sign of a civilized society."

In my pamphlet, "Persuasion vs. Force," I made the point that when the U.S. president signs a bill forcing people to do things they don't do voluntarily, it's a sign of failure, not success, and Washington should be in mourning, not celebrating... whether the issue involves gun control, higher taxes or new programs like the president proposed this week in his State of the Union address.

Society can take two roads -- the road to genuine prosperity, or the road to artificial stimulus. The first results in a permanent higher standard of living for all; the latter creates an inflationary boom that cannot last.

Want lower interest rates? The correct answer to that wish is a higher voluntary savings rate by individuals. To imitate the private market, the government (through its central bank) artificially lowers interest rates, causing unintended consequences -- inflation and a boom-bust cycle.

Obama's Own $9 Minimum Wage Plan

Want higher wages? The correct solution is to increase worker productivity through advances in training, technology, capital formation and efficient use of saving. The artificial answer is to mandate that employers pay workers a higher minimum wage or living wage, which currently is at $7.25 an hour.

The president proposed raising that rate to $9 an hour, a 24% increase, by 2015, and then index it to inflation (the Consumer Price Index). For most employers, that situation means they will have to pay more than $9 an hour, if you include benefits and their share of FICA taxes.

The unintended consequences are higher unemployment among the less-skilled workers -- the same workers the government is trying to help. Not surprisingly, as the minimum wage has risen in past years, teenage and minority (largely unskilled) unemployment has risen sharply. In fact, unemployment among black male teenagers is currently 40% in this country -- a social disgrace largely caused by a black president and his supporters (the president and Democrats pushed through the minimum wage increase to $7.25 in 2009). As Milton Friedman once said, "The minimum wage law is the most anti-black law on the books."

In fact, according to a recent survey, more than 60% of professional economists want the minimum wage law abolished, lowered or kept the same. Only 37% think it should increase (and even then only slightly). They know that when the government imposes wage-price controls, the costs outweigh the benefits.

Years ago, the New York Times ran an op-ed: "The Right Minimum Wage Law: $0.00." (Yes, the New York Times!) The newspaper opined that a welfare/workfare program is a better way to deal with poverty than interfering with the labor markets.

Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books.