The View from Abroad

Hard hitting commentary from an American living overseas

Kenn Jacobine

Kenn Jacobine
June 03
Kenn Jacobine is an international educator currently teaching History and Economics for the American School of Doha, Qatar. He has also taught at international schools in Ecuador, Mali, and Zambia. His political transformation took place over the course of many years. Starting out naively as a big state liberal, he became a Reagan Republican in 1982. Disillusionment set in with the realization that small government rhetoric rarely translated into limited government actions. On Christmas day 1992, he became a libertarian. In 1994, Kenn ran for the State Senate in Pennsylvania on the Libertarian Party ticket garnering 5 percent of the vote. He has been active in freedom causes ever since.

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FEBRUARY 14, 2012 7:11AM

Romney is Focusing on the Wrong Mechanism

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Coming off derogatory remarks he recently made about the underclass in America, Republican presidential hopeful Mitt Romney apparently felt the need to throw them a bone.  Last week, he reaffirmed his support for linking regular increases in the minimum wage to the rate of inflation.  Given that Romney has held this position since he ran for governor of Massachusetts in 2002, one could assume that he really believes the proposal would go a long way to helping the working poor.  But, what he is really doing is focusing on the wrong mechanism to help them.

On the surface, Romney’s proposal seems reasonable.  As prices increase, so should wages.  After all, aren’t Social Security benefits indexed for price inflation? 

However, the first realization that must be acknowledged is that
government economic policy causes the price increases that allegedly make the minimum wage necessary for some to live a minimal existence.  In other words, if the federal government would simply live within its means and cease using the Federal Reserve to monetize huge amounts of debt and maintain artificially low interest rates there would be little or no need for a minimum wage.    

As the late, Austrian economist, Murray Rothbard pointed out in his book, The Mystery of Banking, from
the mid-eighteenth century until 1940 prices in the United States actually fell on average from year to year with the exception being during war years.  Since 1940, the Federal Reserve which became responsible for maintaining price stability and the value of the dollar through monetary policy oversaw a decline in the dollar’s value by more than 93 percent.  That calculates to a 1506% annual rate of inflation change!  It’s no wonder we have become a society with a low savings rate and two partners working to make ends meet.

What was the difference between these two economic epochs in our nation’s history?  The first had a Gold Standard and the second was based on a fiat dollar standard.

The bottom line is that minimum wage laws are a reaction by politicians to their own historical bungling of the economy.  If Mitt Romney and his ilk really wanted to help the working poor in America they would endorse a sound money policy instead.  In particular, a gold backed currency that would alleviate the ability of politicians and central bankers to devalue the dollar and cause price inflation by printing money and running deficits.  In short, a return to the Gold Standard would stabilize and eliminate the need for a minimum wage.

Article first published as Romney is Focusing on the Wrong Mechanism on Blogcritics.

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You are correct, of course. The argument is seldom framed as well as you have.

The concept of the minimum wage is often placed on the soccer pitch between the subjective team advocating that the lowest paid workers deserve buying power and the objective team cautioning that it drives jobs away to more cost effective labor markets. In this contest, facts are hard to deduce. Coincidences and emotions tussle while common sense referees.

However, in a recent contest of this sort, we have a winner. Those imposing austerity measures upon the train wreck of the Grecian economy have insisted, and the Greek parliament has agreed, to a 22% reduction of the minimum wage in that country. The losers are burning buildings or are being expelled from their political parties.