Wednesday, July 22, 2009

How to Kill an Economy in Five Easy Steps

The Detroit News is reporting this afternoon that the Michigan Democratic Party is proposing five issues to potentially appear on the 2010 general election ballot. They are:

  • Raise the minimum wage from $7.40 an hour to $10 an hour and remove exceptions in the law that allow employers to pay less than minimum wage to some workers.

  • Cut utility rates by 20 percent.

  • Require all employers to provide health coverage or pay a fine.

  • Increase unemployment benefits by $100 a week, extend benefits by six months and make all workers eligible for unemployment. The maximum unemployment benefit is now $387 a week.

  • Impose a one-year moratorium on home foreclosures.

It's frankly a bit stunning and just goes to show the complete and total ignorance of basic economics apparently held by the state's Democratic Party leadership. The Republicans in the state have actually taken a bit of initiative to propose budget cuts to close the widening state budget deficit, but Republicans long ago gave up the ghost on having any credibility when it comes to walking the walk.

Anyways, perhaps the Democrats have not gotten the memo that the overwhelming evidence shows that a higher minimum wage increases unemployment (or decreases employment). Perhaps 15.2% isn't high enough for them. Why does the minimum wage increase unemployment? Because it prices those out of the market with the least skills. Look at it from an employer's perspective. If you were to hire someone at $10 an hour, would you hire a teenager or someone with little to no skills, or would you hire someone with some skills or prior experience? Of course you would hire the person with prior experience. The higher the minimum wage goes, the less likely that employers will hire people with lower skill sets. This is why, due to our complete and utter failure of public school systems in urban areas in this state, unemployment among teens, African-Americans, and unskilled laborers is close to all-time highs. A higher minimum wage will simply exacerbate this problem. It ends up harming people, not helping them.

Requiring all employers to provide health insurance or pay a fine is another killer of jobs, primarily jobs provided by small businesses. I know someone who recently started a small business and it has done extremely well. He has hired about ten people, all part time. These are ten people who are happy to have any job at all. If he had to pay for health care for these employees, he would probably have to lay about half of them off, depending on the cost. It would degrade the service he provides by being required to provide the same service with fewer people, and it would surely drive up prices.

Oh, and instituting a one year moratorium on home foreclosures would further encourage the moral hazard of walking away from one's home. Heck, I would even consider walking away if I got a year of free rent. House prices in the Grand Rapids area have already dropped 25-30% in the last couple of years. Anyone who has purchased in the last five or so years is probably underwater. It makes simple business sense to stop paying the mortgage, save the payment for a year in a savings account, and walk away with thousands of dollars in savings.

Way to go Democrats! There's nothing like pouring gasoline on a fire to try and put it out!