What would you think if tomorrow’s lead newspaper headline read: Gas Prices Skyrocket Overnight: Pass the $5 Barrier to $5.25 per Gallon!? As bad as it sounds, as you read more, the news gets worse. A gallon of milk isn’t $3.50 like it was yesterday, it’s now $4.88. And what about your daughter’s planned enrollment to Cal? You’ve been budgeting for tuition of $13,800.00, but today it is announced that you’ll need to come up with quite a bit more–$ 19,300.00 a year!
When the price of a new car that costs $38,000 today jumps to $53,000 overnight, and when a house valued at $800,000 at 9:00 a.m. is worth $1,114,000 at 5:00 p.m., I would say something is horribly wrong in the marketplace. This is exactly the kind of out-of-control economic spiral possible when some in the federal government believe one of their constitutional duties includes tinkering with the free market.
Right now, several marketplace intervention ideas are being proposed by the Obama Administration. The first is a raise in the minimum wage, from $7.25 to $10.10 per hour. If the prices hikes mentioned above seem incredible, then the one in wages should as well—they all represent a 39% increase. Other proposed regulations include mandated paid sick, family and parental leave laws.
There is nothing within the General Welfare Clause of our constitution that implies the authority or responsibility of our elected representatives to set prices or wages, and all Americans should be concerned when politicians—especially ones with zero business experience—start down this path. Our antennae should be up for their election year game of “We’d Like to Buy Your Vote,” with promises of chickens in every pot, two cars in every garage, and… higher wages—all mandated via government decree!
The fact is, wages are a cost on any business’ income statement, and when wages are arbitrarily forced to rise, business owners will make adjustments in other areas of their budget to account for that rise. They will either raise their prices or cut costs in other areas—like laying people off. In a recent survey by the nation’s largest privately held staffing firm, Express Employment Professionals, 65% of business owners said they would raise prices to adjust for an increase in the minimum wage and 38% said they will cut their workforce. In other words we’ll all pay more for goods and services and unemployment will rise.
Those who support government mandated wage hikes argue that it stimulates the economy by giving consumers more money to spend. By that logic, why then only raise it to $10 per hour? Wouldn’t a minimum wage of $20, $40 or even $150 per hour be even better? As the level of these spurious wages rises, so too the flaw in the logic supporting them becomes more obvious.
The real value of goods, services and labor are most accurately determined by the marketplace. Prices and wages are inextricably linked and should reflect a legitimate relationship between market-driven forces of supply and demand.
Whenever the government imposes changes on one part of the market, the rest of the market will react in kind.