The American Dilemma and How We Can Fix It

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
– Alexis de Tocqueville

Key to Bernie Sanders’ program of giveaways is his profound (and I suspect sincere) belief that raising the Federal minimum wage to $15 per hour would be a boon to those on the economic low end of the work force.  Clearly, basic common sense suggests that a person who continues in the same position in which she was formerly making $8.25 per hour and has gotten a raise to $15 an hour would be far better off.  Of course, the counter argument is that there will be far fewer workers earning the new wage as businesses find ways to automate jobs which formerly were done by people and reduce the number of personnel in their work force.  If you don’t believe that, check out Wendy’s latest innovations in order-taking via kiosk rather than human attached to an ear piece.

Bernie and the left in their typically magnanimous way, scoff at the argument that raising the cost of labor is going to increase the price of the product which that labor has helped produce.  At the most they are willing to concede that any such price increases “will be minimal”.  Of course, they would far prefer that the owner of the business simply absorb the increased cost, taking the additional cost out of his or her profits – perhaps forgetting that most small business owners have spouses and kids to support.  Someone who owns a flower shop or a nail salon can hardly be described as “raving capitalists.”  And, further to the point of the inconsistency which the left generally spews, Bernie either doesn’t know or doesn’t care that women are the owners of small businesses at twice the rate of men.  So is he conducting his own private war on women?

Thirty or so years ago when America had a segment of industry known as manufacturing, many people held positions which were known as cost accountants.  It was their job to determine how much it cost the company to produce a specific product so the manufacturer could price the product appropriately.  Among the components the cost accountant analyzed were the cost of the raw materials needed to produce the product, the amount of space that this production required within the plant to determine how much of the facility’s overhead should be attributed to the cost of the product and, of course, the cost of the labor provided by the company’s employee or employees who oversaw the actual product production.  Raising or lowering the cost of any of these items resulted in a product which would be produced more or less expensively.

Looking at a cost analysis of any product or service, if you are businesslike and realistic, naturally will lead to the understanding that as wages are a component of the cost of production, changing wages will have a direct impact on the overall cost of that product or service.  In the deep recesses of their minds, Bernie and his fellow socialists must realize that or they would be proposing a minimum wage of $30 or $60 or $100 per hour.  Should those higher numbers ever pass a brain-dead Congress, I assure you there will be an explosion in the robotics industry.  That might be a good thing.

But what is a guaranteed minimum wage, really?  Allow me to offer you my definition:

“The minimum wage is an arbitrary number set by government in an effort to make the enacting lawmakers look good to their constituents with the expectation that in return, they will get them to re-elect the lawmakers who are earning far more than the minimum wage.  It essentially is a subsidy, paid for by the consumer to reward people who have only marginal skills and, in a free market economy would be earning far less than the mandated minimum.”

In other words, it is yet another government subsidy and, since government produces nothing itself, this subsidy is paid for by consumers and taxpayers.

We may all agree that a person who is trying to raise a family by supporting them with a minimum wage job has a difficult task if that is his or her sole source of income.  But is that, in fact, the case?  Probably not, thanks to other subsidies which the government (the taxpayer) provides.  There are food assistance, housing, child care, medical and telephone programs which assist people who either do not have jobs or earn a minimal amount through their own work efforts.  And there is the Earned Income Tax Credit available to an individual either single or married who does receive some but not too much in the way of wages.  Let’s look at the EITC as it is a good example of “government-think.”

Perhaps you’ve heard the old joke, “We all want our friends to do well.  We just don’t want them to do too well.”  That canard stems from a time when there was an American dream of moving to the suburbs and having two cars parked in the garage.  That appears to be the philosophy behind the thinking of the law which brought the EITC to life.

For calendar year 2015, anyone earning at least $1 but less than $53,267 qualifies for the EITC.  The maximum payment available to an individual is $6,242 and for a person with three children is payable when the worker earns $13,850 for the year and continues at that level until the worker makes $23,650 for the year after which it begins to reduce by ten dollars for each additional fifty dollars of earned income.

There is a certain logic and societal benefit for the government to offer an incentive to people to work, a function formerly reserved to parents who offered the ultimate incentive by threatening to throw the kids out of the house so they could stand on their own two feet.  And the logic of gradually reducing the EITC so that there is an incentive to the worker to keep advancing and earning more in wages conforms exactly with the arguments that Milton Friedman made in the past.

Assuming a worker is currently earning $8.25 per hour, to reach the first threshold she would have to work 42 weeks, assuming a 40 hour work week.  If that employee realizes that she is now fully qualified to receive the maximum EITC and decides to take the rest of the year off, her hourly earnings for the 1680 hours she worked would be at a rate of $11.95 per hour when factoring in the money she will receive in a subsidy from the taxpayers.  Strangely, or perhaps not so much so, this is never mentioned when conversations about the minimum wage arise.

Do we need a Federal minimum wage – at whatever the arbitrary rate established by Congress?  Not if we follow the government’s own logic and practice.  You see, the government adjusts the amount an employee makes, depending on where they carry out their activities.  The government recognizes that an employee doing the same job in San Francisco will need to earn more than another employee who is stationed in Biloxi – and customarily integrates these pay adjustments in the salaries of their employees based on where they have been assigned.  What possible logic can there be to impose a static minimum wage on private employers irrespective of their location?

There is one further point that needs to be mentioned.  A person interviewing for a job might well reject an offer for the position either because of the nature of the work or because of the compensation being offered.  No employer holds a gun to the head of the prospective employee, threatening her with physical harm if she doesn’t accept the position.  The basis of contract law is that two willing parties enter into an agreement which specifies the duties and responsibilities each has toward the other.

Did the people who are out picketing for a higher minimum wage not agree to the terms of their employment, including remuneration, before they started working there?  If so, and to use the words of the late Clara Peller of Wendy’s commercial fame, “Where’s the beef?”


  1. Another well reasoned presentation. I don’t think Bernie misunderstands the logic, he just wants to sit in the top position and feels the American public should be encouraged to get him to his destination.

    • I’m actually happy for Bernie. He’s giving Hillary a run for her money – and Goldman Sachs’ money and Saudi Arabia’s money … to name only a few.

  2. Right on !!!

  3. Always pays to remember, that whatever the government, any government, says, the minimum wage has always been, is, and always will be, exactly $0 per any period you like.

    As they used to say, “Life is hard, so is math, then you die”.

  4. Anonymous said:

    Excellent article…informative

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