Ron Paul Classic: Raising Minimum Wage hurts the poor

California and New York are the latest states to raise the minimum wage. As the election season progresses, look for more states to raise the minimum wages. Look also for increasing number of House, Senate, and Presidential candidates to promise to “make more Americans unemployed   “give Americans a rise” by increasing the minimum wage.

While most of those promoting minimum wages will be Democrats, Republicans do not have clean hands on this issue. When Republicans controlled the House and the Senate from 1995-2007, they raised minimum wages at least twice, the last time in 2006.

Republican minimum wage bills combined an increase in the minimum wages with tax cuts designed to spur economic growth and offset the negative impacts on job creation from the minimum wage hike. The “conservative” Republicans who embraced this approach where embracing the notion that Congress could carefully balance minimum wage increases and tax relief to provide both higher mandated wages and job growth. In other words, the Republicans where acting with the same hubris as the Soviet Central Planners.

Here and below is Campaign for Liberty and then-Congressman Ron Paul’s statement on the Republican bill combining a minimum wage hike with tax cuts (note Dr. Paul’s comments about how the bill was rushed to the floor ):

   Mr. PAUL. Mr. Speaker, I appreciate the opportunity to address my concerns with H.R. 5970, a bill to raise the federally mandated minimum wage. Before addressing the substance of this bill, I must address the flaws in the process under which this bill is brought before us.

Neither I nor my staff had received any indication the bill before us tonight would be considered by the House until late this afternoon, and the only way a member of the general public could learn about this bill is to look on the Rules Committee website. Therefore, Members of Congress are being asked to vote for a major piece of legislation that was introduced just hours before being voted on the Friday night before Congress adjourns for the month of August.

The practice of rushing bills to the floor before individual Members have had a chance to study the bills is one of the major factors contributing to public distrust of Congress.

Mr. Speaker, I have introduced legislation, the Sunlight Rule (H. Res. 709), to prevent situations like the one currently confronting Members. The Sunlight Rule prohibits any piece of legislation, including conference reports, from being brought before the House of Representatives unless it has been available to Members and staff in both print and electronic versions for at least 10 days.

H. Res. 709 also requires that conference reports and manager’s amendments that make substantive changes to a bill must be available in both printed and electronic forms at least 72 hours before a vote.

The announced purpose of this bill is to raise living standards for all Americans. This is certainly an admirable goal, however, to believe that Congress can raise the standard of living for working Americans by simply forcing employers to pay their employees a higher wage is equivalent to claiming that Congress can repeal gravity by passing a law saying humans shall have the ability to fly.

Economic principles dictate that when government imposes a minimum wage rate above the market wage rate, it creates a surplus “wedge” between the supply of labor and the demand for labor, leading to an increase in unemployment.

Employers cannot simply begin paying more to workers whose marginal productivity does not meet or exceed the law-imposed wage. The only course of action available to the employer is to mechanize operations or employ a higher-skilled worker whose output meets or exceeds the “minimum wage.” This, of course, has the advantage of giving the skilled worker an additional (and government-enforced) advantage over the unskilled worker.

For example, where formerly an employer had the option of hiring three unskilled workers at $5 per hour or one skilled worker at $16 per hour, a minimum wage of $6 suddenly leaves the employer only the choice of the skilled worker at an additional cost of $1 per hour. I would ask my colleagues, if the minimum wage is the means to prosperity, why stop at $6.65–why not $50, $75, or $100 per hour?

Those who are denied employment opportunities as a result of the minimum wage are often young people at the lower end of the income scale who are seeking entry-level employment. Their inability to find an entry-level job will limit their employment prospects for years to come. Thus, raising the minimum wage actually lowers the employment opportunities and standard of living of the very people proponents of the minimum wage claim will benefit from government intervention in the economy!

Furthermore, interfering in the voluntary transactions of employers and employees in the name of making things better for low wage earners violates citizens’ rights of association and freedom of contract as if to say to citizens “you are incapable of making employment decisions for yourself in the marketplace.”

Mr. Speaker, I do not wish my opposition to this bill to be misconstrued as counseling inaction. Quite the contrary, Congress must enact ambitious program of tax cuts and regulatory reform to remove government-created obstacles to job growth.

However, Mr. Speaker, Congress should not fool itself into believing that the package of tax cuts included in this bill will compensate for the damage inflicted on small businesses and their employees by the minimum wage increase. This assumes that Congress is omnipotent and thus can strike a perfect balance between tax cuts and regulations so that no firm, or worker, in the country is adversely affected by Federal policies.

If the 20th Century taught us anything it was that any and all attempts to centrally plan an economy, especially one as large and diverse as America’s, are doomed to fail.

In conclusion, I would remind my colleagues that while it may make them feel good to raise the Federal minimum wage, the real life consequences of this bill will be vested upon those who can least afford to be deprived of work opportunities. Therefore, rather than pretend that Congress can repeal the economic principles, I urge my colleagues to reject this legislation and instead embrace a program of tax cuts and regulatory reform to strengthen the greatest producer of jobs and prosperity in human history: the free market.

In 2014, Dr. Paul explained why cutting taxes, regulation, and auditing then ending the Federal Reserve where better ways of helping low-income workers than raising the minimum wage:

Fast-food workers across the county have recently held a number of high profile protests to agitate for higher wages. These protests have been accompanied by efforts to increase the wages mandated by state and local minimum wage laws, as well as a renewed push in some states and localities to pass “living wage” laws.

President Obama has proposed raising the federal minimum wage to ten dollars an hour. Raising minimum wages by government decree appeals to those who do not understand economics. This appeal is especially strong during times of stagnant wages and increased economic inequality. But raising the minimum wage actually harms those at the bottom of the income ladder.

Basic economic theory teaches that when the price of a good increases, demand for that good decreases. Raising the minimum wage increases the price of labor, thus decreasing the demand for labor. So an increased minimum wage will lead to hiring freezes and layoffs. Unskilled and inexperienced workers are the ones most often deprived of employment opportunities by increases in the minimum wage.

Minimum wage laws are not the only example of government policies that hurt those at the bottom of the income scale. Many regulations that are promoted as necessary to “rein in” large corporations actually hurt small businesses. Because these small businesses operate on a much narrower profit margin, they cannot as easily absorb the costs of complying with the regulations as large corporations. These regulations can also inhibit lower income individuals from starting their own businesses. Thus, government regulations can reduce the demand for wage-labor, while increasing the supply of labor, which further reduces wages.

Perhaps the most significant harm to low-wage earners is caused by the inflationist polices of the Federal Reserve. Since its creation one hundred years ago this month, the Federal Reserve’s policies have caused the dollar to lose over 95 percent of its purchasing power—that’s right, today you need $23.70 to buy what one dollar bought in 1913! Who do you think suffers the most from this loss of purchasing power—Warren Buffet or his secretary?

It is not just that higher incomes can afford the higher prices caused by Federal Reserve. The system is set up in a way that disadvantages those at the bottom of the income scale. When the Federal Reserve creates money, those well-connected with the political and financial elites receive the newly-created money first, before general price increases have spread through the economy. And most fast-food employees do not number among the well-connected.

It is not a coincidence that economic inequality has increased in recent years, as the Federal Reserve has engaged in unprecedented money creation and bailouts of big banks and Wall Street financial firms. As billionaire investor Donald Trump has said, the Federal Reserve’s quantitative easing policies are a great deal for “people like me.” And former Federal Reserve official Andrew Huszar has called QE “the greatest backdoor Wall Street bailout of all time.”

Many so-called champions of economic equality and fairness for the working class are preparing to confirm Janet Yellen as next Chairman of the Federal Reserve. Yet Yellen is committed to continuing and even expanding, the upward redistributionist polices of her predecessors. Washington could use more sound economic thinking and less demagoguery.

By increasing unemployment, government policies like minimum wage laws only worsen inequality. Those who are genuinely concerned about increasing the well-being of all Americans should support repeal of all laws, regulations, and taxes that inhibit job creation and economic mobility. Congress should also end the most regressive of all taxes, the inflation tax, by ending the Federal Reserve.