June 3, 2014
The president and his party have made a cause célèbre out of American's rising income inequality -- the fact that a larger amount of our nation's income is going to a smaller group of people.
That is a worrisome trend but their stereotypical response -- to raise taxes on the rich and raise the minimum wage -- will only make the situation worse.
Economics is beyond the control of politicians. National prosperity is less the result of any grand, national plan than what economist Adam Smith termed the "animal spirits" of humans looking to improve their lot.
Business owners compete with other business owners, investing and expanding to improve their personal situations. When politicians get involved through excessive regulation or by ignoring basic economic principles, things rapidly get worse.
Take the latest fad: the national protest demanding fast food chains pay a $15 minimum wage. Let's apply some simplified math to illustrate the problem.
Labor is a large percentage of the cost behind your burger at the local drive-thru. Say the burger costs $1. Fifty cents of that goes to labor, another 30 cents goes to raw materials and 20 cents are profit and overhead. What happens when you double the cost of labor? That sandwich now costs $1.50, setting off yet another round of inflationary cost spiral for consumers.
No adult should consider a job flipping hamburgers at McDonald's, by itself, sufficient for supporting a family. These are entry-level positions, more suitable for teens entering the workforce, students putting themselves through college and retirees looking for spare change and a means to keep busy. It's not a career, unless one plans to work his or her way up into management.
There is a reason why the issue resonates, and why the Democrats believe their proposal is a winner. The push to raise the minimum wage feeds on a growing disillusion with the modern American economy.
A recent Wall Street Journal/NBC poll found a bipartisan majority now believes the system is stacked against them. We can sympathize with their frustration, but the answer isn't to simply mandate, through federal law, higher wages for those at the bottom.
Rather, the best way to raise income levels is to improve the economy and boost business, which would be forced to compete for good workers by raising salaries.
We remember a time in the 1980s when the economy was so strong that McDonald's struggled to hire people at any wage. Fast-food restaurants in the Washington, D.C.-area were sending buses as far south as Culpepper to fetch hourly workers who were paid considerably more than minimum wage.
If the president wants to improve the living wage, he should stop treating business owners like the enemy, provide tax incentives for business investment and rein in the bureaucrats who saddle business with ever more regulations and mandates.
We sat in at a recent meeting of owners of one franchise group who were told they should not plan on hiring more than 50 employees to avoid triggering expensive new medical care costs under Obamacare. We heard more than one owner who had dreams of expanding into more locations saying they would have to rethink their plans. None of this is good for workers.
The larger problem facing the American workforce is structural, and Washington has done precious little to address it.
Our workforce has not kept pace with changes to the global economy. A growing number of jobs in the modern workforce require overseeing machines through computers, not manually turning screws. By creating an atmosphere conducive to job creation, and preparing our workforce to fill those positions, our economy can blossom.
We continue to call for a greater investment in STEM (science, technology, engineering, math) education as the best pathway to gainful employment and comfortable salaries. Major employers, including our own Newport News Shipbuilding, spend billions each year for on-the-job training, in part because the public school system graduates children woefully unprepared for careers in these fields.
Instead of tackling these complex structural problems, the Democrats took the populist route. Raising the minimum wage won't correct the forces at work. The solution is cutting red tape in Washington and teaching STEM in area schools, not hovering around the deep-fryer for $15 an hour.