California's Economically Illiterate Legislature

California’s minimum wage is set to rise to $15/hour over the next six years. While this topic has been beat to death, it is seldom pointed out that the inflation-adjusted minimum wage, based on 78 years of precedent, at most should only be around $10 per hour. A recent UnionWatch post “Raise the Minimum Wage, or Lower the Cost of Living?,” proved this using CPI data. As can be seen, only once, in 1968, did the minimum wage in 2015 dollars exceed $10/hour.

Historical Minimum Wages
Expressed in 2015 Dollars

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A lot of things have happened since 1968, of course. To name just two, the earned income tax credit didn’t arrive until 1975, and the Affordable Care Act, offering health insurance to low-income participants at give-away rates, didn’t arrive until 2010. Needless to say these programs make it easier to survive on minimum wage.

The point of this isn’t to suggest workers shouldn’t earn more money, or to argue about whether or not we should have a minimum wage. The point is that the minimum wage, at $15/hour, has no historical justification. And because of this, the unintended consequences are more severe. Like never before, this minimum wage increase will kill small businesses and it will kill entry level jobs.

There’s another point missing from the debate over the minimum wage. It is an indictment of the members of California’s state legislature, because collectively, they have a simplistic, ideologically driven view of economics that is divorced from reality. Their naive enthusiasm is harming the working families they claim they want to protect. California’s legislators, nearly all of them coerced and controlled by government unions and seduced by extreme environmentalists, have enacted policies that deny upward mobility to working people.

These policies only begin with an excessive minimum wage hike that is going to reward large corporate franchises and drive small emerging companies out of business. They extend to the unaffordable cost of housing, caused by misguided “urban containment” policies in what is one of the most spacious developed regions on earth. They extend to the high cost of electricity and natural gas, elevated by policies inspired by a futile wish to set an example to the rest of the world – regardless of their regressive impact. They extend to a pension system built by an alliance of government unions and powerful financial interests that guarantees retirement benefits to government employees that are literally five to ten times more generous than Social Security, paid for by taxpayers, teetering on the abyss of insolvency. The list goes on.

Here’s part of the reason why: California’s legislators do not have experience running a business. Most of them have never worked in the private sector. A 2014 UnionWatch post “How Labor Money Undermines the Financial Literacy of California’s Legislators,” documents, based on biographical analysis, the level of business experience in California’s 2014 state legislature. In all, 56% of them have NO experience in business – having spent their entire careers in government or nonprofits. Of the majority democrats, 76% of them have NO experience in business. The 2016 class of legislators is unlikely to be any different.

California State Legislature, 2013-2014 Membership
Business vs. Government Background

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Understanding that you can’t raise the minimum wage without killing entry level jobs is a basic economic concept. So is the fact that if you make it nearly impossible to develop land or energy, prices will rise for those commodities. And it isn’t much of a leap to realize that when you do this, you are hurting the most vulnerable members of society.

More sinister, and perhaps harder to grasp, upper division stuff, is the fact that every time you add a regulation, you further empower the monopolistic corporate special interests who are supposedly the bad guys you’re fighting. Every time you lower interest rates to stimulate spending, you invite people of limited means to go further into debt, and you decimate the savings accounts of people unwilling or unable to gamble their modest fortunes in a volatile stock market. And every time you raise pay and pension benefits for government workers, you create deficits, pouring additional billions into the pockets of bond underwriters, and you redirect the money into the hands of the pension funds and their investment bankers.

And at the graduate level, in that rarefied space where sound-bites (that perform so well in Sacramento) just echo meaninglessly in the vast alpine air, consider this:  The impact of artificially elevating the cost of living creates an asset economy, so pension funds and rich people alike can ride the bubble for one more year, while ordinary folks endure servitude to their $700,000 mortgages. It doesn’t take an economist, however, to know this can’t last. It just takes horse sense. That too, appears to be in short supply in Sacramento.

Could it be that if California’s legislature were committed to lowering the cost-of-living via policies that encouraged competitive development of natural resources including land and energy, maybe they wouldn’t have to bestow such lavish benefits on government workers, nor the crumbs of minimum wage increases to private workers?

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Ed Ring is the president of the California Policy Center.

1 reply
  1. Jack Dean says:

    My daughter learned about the down-side of the minimum wage at an early age. She was still in high school (she graduated in ’96) and was working part-time serving pizzas at Chuck E. Cheese when a minimum wage increase was being considered by our California legislative overlords.

    She came home and told me with a worried look: “Our manager says that he’ll have to cut some people if this passes.”

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