Wednesday, August 16, 2017

Sad story: liberal newspaper columnist gets hate mail for suggesting that government regulations can have unwanted and unintended consequences

See Liberals should look to all tools to help the poor by Catherine Rampell. Excerpt:
"The “Fight for 15” campaign, seeking to raise the federal minimum wage to that amount, is an example of a pre-tax solution with potentially bad consequences. Post-tax solutions such as the earned income tax credit and health care subsidies deserve as much attention.

Extracting more money from evil,  exploitative capitalists has become a rallying cry for much of the grass-roots left. In the meantime, though, it’s largely ignoring other important policies for lifting Americans out of poverty.

In a recent column, I urged progressives to more seriously grapple with the cumulative effects of policies that make workers more expensive to hire. More than doubling the federal minimum wage to $15, for example, would risk pricing a lot of people out of work. Especially in low-cost-of-living areas such as Mississippi, where half of all jobs pay less than $14.22.

In other words, well-intended, feel-good policies can sometimes backfire, hurting the people you’re trying to help.

This humble suggestion generated a lot (like, a lot) of hate mail, along with a good follow-up question: What, then, should progressives who want to help the working poor devote their energy to?"
Rampell suggested that we use more of policies like the earned-income tax credit (EITC). Three very respected economists who generally advise Democrats, tend to agree with Rampell.

ALAN B. KRUEGER, who was once chair of the Council of Economic Advisors (CEA) under Obama, and is usually a supporter of the minimum wage, agrees with Rampell on $15 (at least back in 2015). See The Minimum Wage: How Much Is Too Much? Excerpts:
"Research suggests that a minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences."

"But $15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States."

"Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking, especially because other tools, such as the earned-income tax credit, can be used in combination with a higher minimum wage to improve the livelihoods of low-wage workers.

Economics is all about understanding trade-offs and risks. The trade-off is likely to become more severe, and the risk greater, if the minimum wage is set beyond the range studied in past research."
Alan Blinder is another economist who has advised Democrats. He served on President Bill Clinton's CEA. He is also skeptical of $15. See A Fairness Agenda for Winning Over Angry Voters. Excerpt (also from 2015):
"Raising the federal minimum wage would be an enormous help for wage earners at the bottom. (Many states and cities have done so already.) I’d favor going in stages to something like $10-$12 an hour, not to the $15 that is gaining traction on the left. Moving too high too quickly raises the specter of job losses."
Christina Romer, the first chair of the CEA under Obama, also expressed some skepticism about minimum wage laws. See The Business of the Minimum Wage. Excerpts (from 2013):
"One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment.

But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers."

"Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.

Another reason that employment may not fall is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help."

"the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous."

"The economics of the minimum wage are complicated, and it’s far from obvious what an increase would accomplish."

"But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time." 

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