March 27, 2000
Answering the Middle Class Squeeze
Central Planning is the Problem, Not the Solution
We hear a lot about how great our economy is doing. Heading the cheerleading squad are people like Vice President Gore and others who want to be re-elected.
If things are so good why do these worshippers of the so-called "new economy" press for items such as raises in the federal minimum wage? Recently the House voted to increase the government-mandated wage rate. This occurred as a result of much prodding by the Clinton-Gore administration.
But is raising the minimum wage a real answer? Of course not! People at the lower end of the wage scale are certainly being hit by increased costs of living. Look, for example, at the recent upsurge in the price of fuel. Will a wage increase solve that problem?
Consider also that recent Producer Price Index figures show costs jumping at their highest rate in about nine years. Those figures indicate that our interventionist economic policy may soon bring about a recession.
Of course it is true that the people who get hurt most in tough times are the middle class, particularly those at the lower end of the wage scale. But as a physician I know that I must diagnose an illness before I can treat a patient.
In the current instance the diagnoses indicates that the squeeze of the middle class is caused not by low wages, but rather by increased costs resulting from central planning. And the key pillars of our current central-planning regime can be found in tax and monetary policies.
The fact that government creates money out of thin air must be addressed, because it is the entire reason why costs of living increase and standards of living decline. In a market economy prices tend to gently fall as a result of the increased efficiencies brought about by competition. If the average person paid half as much for his or her home and half as much for his or her car, would we not be better off than we are with these paltry government-mandated wage increases?
Again, there is only one reason why prices are rising instead of falling. Because the government, through its credit-creation mechanism, is engaged in a sort of price controls, it is in fact following a policy that eventuates in price inflation as well as recession. Plus, this credit creation is at the heart of recent instability in the markets, thus threatening retirement security.
Add to these price controls a federal minimum wage, and our policy now resembles full out wage-and-price controls. Indeed, those who may celebrate the recent wage hike should remember that the same principle that permits the federal government to set higher wages is the very principle which has been used in the past, and will likely again be used in the future, to cap wages. Federal wage-setting power assumes the government has authority to set a maximum wage, as well as a minimum. Richard Nixon did it, and another President may well attempt this in the future if he is charged with creating run-away inflation.
I also mentioned taxes, and I'd like to briefly look at that as well. Our tax burden is at its highest peacetime levels. This means wage earners are being squeezed by the cost of government as well as the cost of living. Had Congress not stopped the Clinton-Gore tax on BTU's, (which they called an economic stimulus package), fuel prices would be significantly higher than they are right now. This points to why government is not the answer.
Increases in costs of living are a real problem, especially for those at the lower end of the wage scale. Those costs will continue to rise if we allow central planning to continue, but the solution to central planning is freedom, not grant further control over wages to government.