Wednesday, February 12, 2014

Simple Economics: minimum wage hurts more than helps

"Good Intentions" with Dr. Walter E... by RocketmanRockyMatrix

In writing a new law (which by the way is unconstitutional and thus lawless), Obama has used his pen to write in his will of a 25% increase of the minimum wage. Bad idea, but in line with his statist thinking.

But here's where real economics shows it's bad. Dr. Walter Williams, a distinguished professor of Economics at George Mason University says so simply (which is why I really enjoy reading him):

"Are people responsive to changes in price? For example, if the price of cars rose by 25 percent, would people purchase as many cars? Supposing housing prices rose by 25 percent, what would happen to sales? Those are big-ticket items, but what about smaller-priced items? If a supermarket raised its prices by 25 percent, would people purchase as much? It's not rocket science to conclude that when prices rise, people adjust their behavior by purchasing less.
It's almost childish to do so, but I'm going to ask questions about 25 percent price changes in the other way. What responses would people have if the price of cars or housing fell by 25 percent? What would happen to supermarket sales if prices fell by 25 percent? Again, it doesn't require deep thinking to guess that people would purchase more."

End quote.

~Walter Williams on Obama's SOTU address in 2013 

And of course, it's worse. He raised it more than 25%:

"President Obama, in the first of potentially many executive actions tied to his State of the Union address, will unilaterally increase the minimum wage for workers under new federal contracts to $10.10 an hour, from $7.25, in an effort to build momentum for a minimum wage hike for all Americans." 

~Fox News

That will mean two things: less employees being hired (the employers can't afford as many workers at that higher rate), or less building/producing. 

And of course, by the time the next president (likely) comes into office, the damage is already done but Obama won't face any consequences.

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