Economic Ignorance Rules The Land

The more I talk with people, read articles and blog posts, it has become quite evident that too many of the people making decisions about how government is going to tax and spend our money haven't got a clue about how economics actually works.

One of the latest examples of economic ignorance is Economics Ph.D. candidate Catherine Ruetschlin who advocates a $12/hour wage for retail workers. Her reasoning?

In Ruetschlin’s alternative universe, if retailers raised all employees’ wages to at least $12 per hour, “the new floor would mean a 27 percent pay raise” on average for those earning below that threshold. Then, as if by magic, because of that increase and others granted to higher earners who would also demand to be paid more: “More than 700,000 Americans would be lifted out of poverty, and more than 1.5 million retail workers and their families would move up from in or near poverty.” Employing her trusty Keynesian stimulus calculator, she further projects: “As a result of the economic growth from a wage increase, employers would create 100,000 to 132,000 additional jobs.”

One of the biggest flaws in her theory is that she seems to think the extra money the retailers will have to pay will just come out of thin air. Oh, she makes noise that it will merely come from the profits made by the retailers, but considering how razor thin the margins are for some shops, the pay raise will wipe out those margins and turn barely profitable businesses into money-losing businesses.

And just like every time Congress raises the minimum wage, it's the entry level job seekers that will pay the price. (Some, like Ruetschlin, seem to think entry level jobs are supposed to be able to support a family of four. If you're still making minimum wage after being in a job for years, the problem is not the employer. Maybe it's because you aren't willing to make the extra effort to earn anything above it.)

It seems a lot of the Democrats in Congress are just as ignorant, not understanding that as they suck more capital out of the economy in an effort to “help” those they feel need it, the less capital will be available for businesses to expand the economy and create more jobs. The economically illiterate seem to think the government can create jobs, but the only jobs the government can create are government jobs and government jobs do little to help expand the economy. After all government jobs rely on taxes to exist and taxes are a drain on the economy. It is only the private sector that creates jobs that actually help the economy, something too many in government are unable to see.