In his 2013 State of the Union address, President Obama unveiled his hopes for a second term in a speech riddled with incredibly collectivist language. The president's answer to nearly every issue he addressed was to advocate for the expansion of government power, the creation of new programs and legislation, and a highly militarized and aggressive foreign policy.
While it would take far too long to correct the president's many fallacies and errors, his desire to raise the minimum wage to $9 per hour stood out as one of his most damaging proposals. This would massively increase unemployment, hurt an already stagnant economy, and further prove that like nearly all presidents before him, he is completely ignorant of economics.
Minimum-wage laws enjoy a bipartisan support in Washington. Both Democrat and Republican administrations have raised it whenever they got the chance, and any opposition to these increases is seen as cold and heartless. This is thanks to one of the biggest economic myths that exists today; namely, that the poor are helped thanks to government intervention, led by noble public servants against big, bad capitalists.
But an understanding of basic economics should cast much doubt on this pervasive myth. In the free market, demand is a function of price; the higher the price, the lower the demand. By creating a price floor with minimum-wage laws, governments make it illegal for anyone to hire anyone else below an arbitrary amount. This not only violates freedom of association and contracts, but essentially creates a situation of compulsory unemployment.
Wages, like prices, are not arbitrary numbers but are the result of millions of individuals' economic choices in the marketplace and their subjective values they place on services and products. In order for an employer to hire an employee, they have to believe that the value created by an employee is greater than the cost. But if the state, using the threat of force, bars wages below a certain arbitrary number (in Obama's case, $9 per hour), the individuals who would add value at $6, $7, or $8 but not at $9 are prevented from being hired.
This is ironically also why minimum-wage laws receive such bipartisan support. Everyone sees the posters and decals in workplaces advertising the minimum wage, and the emotional appeal is understandable. But economics is the study of cause-and-effect, and what politicians don't have to answer for is the unseen amount of jobs, and thus economic production, that would exist were it not for this type of legislation.
And despite what advocates claim, like nearly all government programs and legislation advertised as helping the poor, the minimum wage does the exact opposite.
According to a study by Professors William Even and David McPherson, increases in the minimum wage in the last decade have resulted in huge increases in unemployment for those in society it is supposed to help: the poor, minorities, those with little education, and 16-to-24 year olds. This shouldn't come as a surprise; simple logic would suggest that making it more difficult and expensive to hire low-skilled labor will result in fewer hirings among those that need it the most.
Low-paying jobs are great opportunities to earn the basics of keeping and maintaining a job and building a résumé. One of the best ways to destroy the chances for upward mobility for those liberals and progressives love to speak for is to make it unprofitable for any employer to hire them. It's no wonder that too many see criminal activity or helping the Pentagon occupy the world as their only option out of poverty.
Simply put, wages, employment, and prosperity increase not by employing government force but by increases in production, savings, capital, and private investment in machinery and other tools that increase the productivity of labor and therefore the output that the economy is able to produce. When workers are able to, say, stack pallets with forklifts instead of their hands, each individual's productivity, and thus his added value and wages, is vastly increased.
This is why between 1860 and 1890, when barely 3% of the labor force was unionized and federal regulations virtually non-existent, manufacturing wages in America increased by 50% and another 37% from 1890 to 1914, which was also much, much higher than there heavily unionized European counterparts.
A sound currency as well contributed to the growth of the middle class, giving them an increasingly strengthening purchasing power to go along with a rise in wages. Unfortunately, thanks to central banking and a fiat currency, wages for the last few decades have not corresponded with increases in production.
In others words, sound money, free markets, and peace are what create prosperity, not the use of government force to dictate the terms of voluntary contracts and free exchange.
After all, if minimum-wage laws were as effective as their advocates claim they are, why stop at $9 per hour? Why not $20, $50, or $100 per hour? The results would obviously be catastrophic. To claim that forcibly raising the price floor will not create unemployment is exposed when you take the minimum wage law to its logical conclusion.
Authoritarian states know this, of course, which is why Apartheid South Africa and supporters of the U.S. 1931 David-Bacon Act heavily supported minimum wage laws for the correct fear that free market competition in labor prices would employ and empower minorities at the expense of whites' artificially inflated wages.
Either President Obama is ignorant of economics and history or apparently thinks that the current unemployment rate, especially among the poor, minorities, and 18-to-24 year olds, is much too low. Either way, in combination with an expansion of the warfare state and trillions of dollars in "quantitative easing" strangling real economic recovery, Americans will continue to suffer if the president gets his way.