Tuesday, January 28, 2014

Towards greater unemployment

USA Today gives editorial space to Sam Pizzigati to advocate same-old, same-old:

A century ago, Americans faced an income and wealth distribution even more top-heavy than today’s. But Americans trimmed the super rich down to democratic size. Our forbears had the courage, in short, to confront concentrated wealth and power. Do we?

One test: Berkeley economist Emmanuel Saez says our top marginal tax rate could hit 80% — double the current top rate — without negatively impacting anybody but the super rich. In the two decades after World War II, our top tax rate hovered around 90%.

You’d be surprised what you can get away with when you’re the last first-world economy left standing.

The ’50s were a different world, with a different economic incentive structure. In 2014, an 80 percent top tax rate would force the rich to sit on capital rather than risk it, reducing money’s velocity in the economy, prohibiting it from gravitating to producers.

Think of it this way: A millionaire wants to expand his business, so he hires a man to work for him for $40,000 per year. At an 80 percent top tax rate, he will have to squeeze $200,000 of value out of that worker just to get his money back. How many workers are willing, let alone able, to produce $200,000 of value for $40,000 in wages? Not many. At a 40 percent top tax rate, the worker needs only to produce $56,000 of value for his boss to break even.

Another test: Fast-food workers are pushing for a $15 hourly minimum wage. If the federal minimum had risen since the 1960s as fast as the incomes of the top 1%, that minimum today would exceed $22.

In a high-speed, knowledge-based economy, productivity gains at the top of the corporate ladder have an outsized impact on earnings. The right leadership and direction can make an eight-figure difference in a corporation’s performance, placing a high premium on executive pay. Such productivity gains are not reflected at the bottom of the corporate structure, for obvious reasons.

A $15 minimum wage would price roughly 50 million working Americans out of the labor market. Employers would have to hike prices or find ways to reduce costs, such as replacing people with machines or hiring from an underground labor market (aka “the shadows”). In the likely event the Federal Reserve floods cash into the system to stabilize employment, the dollar would plummet, erasing wage gains and then some.

It’s one of the worst ideas in the history of the Left’s bad ideas. Not surprisingly, Obama stumped on raising the federal minimum wage in last year’s State of the Union, from $7.25 per hour to $9.00. For liberals, that wasn’t enough. Fifteen dollars will not be enough. No amount of wage and price inflation will raise the standard of living of a large segment of the population.

Neither of Pizzigati’s policy proposals addresses the real problem: In a high-tax, high-regulatory business climate, the “little guy” doesn’t have the start-up capital to break through economic barriers. To address a problem, you have to first identify it. Liberals see the rich as the problem, not government.

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