Sequester, minimum wage and jobs — it is all about the money. When looking at the headlines and the roles Democrats and Republicans have taken, one wonders if they even have a basic understanding of economics or the platforms their parties claim. Even John M. Keynes knew government involvement had its limits. The Democrats have become hawkish on military spending and the Republicans are running as fast as they can from spending cuts.
First, let’s look at sequester and what it means in terms of our government spending. In the debt ceiling round of dysfunction in Washington, the White House and Democrats proposed, and the Republicans agreed to, an automatic cut in spending that would occur if they did not reach another accord. This cut in spending is actually a decrease in the increase of spending to all the affected areas. Nowhere will any agency have less this year than last year. Of the examples touted in the news and from the government’s own reports as being on the chopping block, some are no longer agencies (The National Drug Intelligence Center) or are state-owned (Boca Raton Airport). Why are we paying for these?
The amount of spending sequestration represents with regard to the total allotment is miniscule (I avoid the term “budget,” as we haven’t had one in years). It is estimated at 1 to 3 percent of more than $1 trillion in spending. Those are huge numbers. Cuts as large as $85 billion have been discussed. Surely that would wreak havoc upon our floundering economy, hurt job growth and promote a zombie apocalypse. Not so much, when put in perspective. The idea that even a 3 percent cut in overall spending must come at the expense of vital programs is untrue.
The sequestration as written was intended to force Republicans to concede. It targeted programs generally popular in Republican circles (military) as well as popular with the general public (education, transportation). We see this tactic locally all the time, especially with school levies. They exclaim, “We must cut athletics, special education, extracurricular activities and we will bring harm to our teachers unless we get more funding.” There is never a real discussion of how and where the current funding is being spent (this is why a full audit of Toledo Public Schools is important).
Even more recently, scare tactics like the release of illegal immigrants by a department are meant to spur us (them) and it should. We need to demand full audits of all agencies, the Senate and House offices, The White House and certainly the Federal Reserve. We cannot afford these bloated entities. This will take years to accomplish so it is important to start now.
Discussion needs to be had on the idea of a $9 minimum wage. Having recently completed a college level introductory course in both macroeconomics and microeconomics, I can assure you they teach this concept early on. A price floor, which is a point that, by regulation, you cannot go below, has a definite effect on both supply and demand. In the case of the minimum wage, the supplier is the laborer and the demand or consumer is the business that would employ them. Recently, in these pages, a study by economists Card and Krueger was cited that states that a minimum-wage increase can strengthen job creation.
Economist Benjamin Powell recently debunked this oft-repeated study. (http://www.huffingtonpost.com/ben-powell/minimum-wage-merry-go-rou_b_2713136.html).
But the study doesn’t ask the right questions. The study shows that a minimum wage at or near the real equilibrium point will have little effect on unemployment. When the first national minimum wage went into effect in 1938 at 25 cents an hour, the prevailing wage for the majority was 60 cents an hour; it had little effect. That is except in Puerto Rico, where the average wage was 3 to 4 cents an hour. Forced to comply, the result was massive unemployment and businesses that went bankrupt. The example of San Francisco was brought up: it already pays more than the new proposed minimum and has an unemployment rate lower than the rest of California.
That is the free market at work. To say all of California, or all the states are homogenous is a mistake. To impose San Francisco rates on Fresno or Findlay would be devastating. If there is to be a minimum wage, it needs to be decided as locally as possible.
We must learn to ask the right questions. Right now the question we need to ask all our elected officials is, where is my audit?
