"But examples of foolish economic notions supported by public
rhetoric, if not legislation, are depressingly common."
hard to write a weekly column and not repeat yourself. Just as it is
hard to put forth ideas that don’t build off – if not actually steal –
what others have already written or said. But when public policy debates
on matters affecting the economy and our economic well-being echo the
same arguments and points made in years past, it’s hard to not
reciprocate in kind.
Originality aside, addressing these individual issues is important. For
if we truly believe, as some people state, that gasoline prices are
manipulated by the Republican party, or that raising the minimum wage
that businesses must pay to legally employ workers will help eradicate
poverty, or that southwestern Indiana can achieve economic parity with
the rest of the state without the transportation access afforded by a
new Interstate 69, then we’re steering public policy in an economically
Of course, in a political season, it is difficult to know what people –
and our elected leaders -- truly believe. The self-serving needs of some
politicians to run to the front of every parade, no matter how
misdirected, lend credence to some simplistic notions that are, at best,
irrelevant, and at worst, wildly at odds with the workings of the
economy that provides our wealth.
The minimum wage issue, very much alive in campaigns across the country,
is a case in point. It’s been debated – and implemented, in one form or
another – for more than half a century, and over that interval arguments
voiced pro and con have changed little. Yet as judged by their actions –
not their rhetoric -- even the minimum wage’s advocates acknowledge its
destructive impact on job opportunities for the lowest paid workers. For
if mandated minimum wages are the path out of poverty for the neediest
Americans, why not raise the floor to $20 or even $30 per hour?
One could argue that the minimum wage’s undesirable effects have been,
if you will, minimized, since upward adjustments in the dollar minimum
have tended to lag overall wage inflation. Thus each year typically
relaxes the constraints posed by the minimum wage on employers as market
wages rise and the statutory minimum remains fixed. This is not true for
certain states and cities, where the minimum wage can be much higher
than the federal level of $5.25, and where the law may index that
threshold to rise with inflation.
But even if in most parts of the country the minimum wage’s impact on
labor markets is currently small, its impact on how we frame and
understand the issues of poverty and low earnings is enormous. Because
in continuously debating, and sometimes even passing, legislation on
wage rates paid by businesses, we give credence to the notion that our
elected politicians can legislate economic outcomes. And the experience
of other countries, not to mention our own experience at different times
in our history, has amply demonstrated the foolishness – if not outright
danger -- of pursuing that idea.
If only the buck stopped there. But examples of foolish economic notions
supported by public rhetoric, if not legislation, are depressingly
common. It is no wonder that so many of us apparently feel that gasoline
prices are set in smoke filled rooms, since every time prices spike
upwards, dozens of price gouging investigations are opened with great
fanfare. How those investigations turn out is usually less well
publicized. And we have all signed on, apparently, to the idea that cost
savings in Medicare and Medicaid can be found by simply cutting payments
to doctors, even as the number of primary care physicians accepting
those patients plummets.
But perhaps most depressing of all is the thought that we economists who
work for universities have only ourselves to blame. In a nation where
more than one in every four adults has a college degree, and a good
fraction of those have taken at least one course in economics, our
ignorance of the forces setting prices and wages in the economy all
around us is appalling.