Former Labor Secretary Wants Less Labor

The former Secretary of Labor under Bill Clinton – Robert Reich – is shilling for an increase in the minimum wage.  He wants to start out by raising it to $15 per hour.

I can go through the many arguments against minimum wage laws.  They basically prevent people from getting jobs at a certain price.  It doesn’t mean that employers have to pay employees more, because they can decide not to employ them at all.

And there is the reductio ad absurdum: If raising the minimum wage is so great, why not raise it to $100 per hour and we can all be rich?

Some make the mistake of thinking that the problem with a $100 minimum wage is that we would have high inflation.  But inflation is a monetary policy issue.  With a minimum wage of $100 per hour, it would basically destroy the economy if it were enforced and if the Fed did not massively inflate the money supply.  We would be relying on the underground economy at that point because almost everyone would be officially unemployed, except perhaps for some entrepreneurs.

Reich’s short presentation is particularly bad.  He says that people making minimum wage will spend the money, thus helping the economy.  This is pure Keynesianism, and it is the opposite of correct.

An economy grows based on productivity.  You need to increase wealth, not spend more.  The way to increase production is through savings and investment.  So on this point, Reich is absolutely wrong.  He has it almost completely backwards.

He also makes this absurd comment that if the minimum wage had kept up with American productivity since 1968, then it would be at almost $22 per hour.

First, how does he come up with productivity?  Just because we have more productivity, it doesn’t necessarily have to translate into higher wages.  The real median household income has been relatively flat for decades, so why would relatively unskilled minimum wage workers get a greater wage increase than someone in the middle?

Second, is Reich really suggesting that we should eventually raise the minimum wage to $22 per hour from where it is right now?

This is really a basic lesson of supply and demand.  If you make employment illegal below $15 per hour (or any crazy amount), then there will be less demand for labor from employers and a greater supply of labor.  In other words, unemployment will be higher, assuming the Fed does not massively inflate.

If the minimum wage were lowered to $2 per hour, it would be almost the same as abolishing the minimum wage.  It would have virtually no effect on employment because most people would be unwilling to work for anything less than this anyway, at least in the United States.

I don’t know if Robert Reich really believes the ignorant things he is saying.  But based on his policy proposal, he is advocating a massive increase in unemployed people.  The former Labor Secretary wants less labor.  Well, it might mean more labor for the robots.

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