Wednesday, November 26, 2008

If a Policy is Bad in a Good Economy...

On my radio show today I interviewed one of my favorite economists, Steve Moore of the Wall Street Journal. He was on to discuss his latest book, The End of Prosperity, and it is must reading. In a very simple and straight forward manner, Moore and co-authors Arthur B. Laffer and Peter Tanous explain what works and doesn't work in our economic system.

One of the areas Moore and I discussed was the fact that government entertains things they would do when the economy is healthy, but would never do when it is weak. If there is a time that such a policy is harmful at all, isn't it safe to conclude that the policy is not in the economy's best interest ever?

On today's show we discussed the fact that Barack Obama is discussing reversing his position on raising taxes on the top five percent because that could make our weakening economy worse. Obama is finally conceding that jobs are made by that top 5 percent and the country simply can't afford more loses. Yet what jobs have we already lost with an economy that has the top one percent paying 27 percent of the revenue? What is more the top twenty percent pays 67 percent. Obama seems to be admitting that adding any more pressure on this group is harmful, but what of the damage already done? It would be interesting if Obama's tax cut discussion was spread to the job creating highest income group. Am I advocating the end of taxes for the rich? Absolutely not, just a fair tax or flat tax that encourages everyone to want to become richer.

Congress is also talking about slowing down the move towards increasing CAFE standards, which are designed to lower fuel consumption. Because of the dire straights of the Big Three automakers, policy makers are reconsidering because of the potential of further damage. Instead of trying incentives to move towards better fuel standards, they seem to be able to use their complete lack of imagination for either increasing regulations to the automakers demise or do nothing at all. They are considering the latter at this point.

Then there is the minimum wage increase which went up just a few months ago (July 24). Since that time we have seen a dramatic jump in unemployment -- the largest increase in 16 years. Minimum wage increases are not even included in the current economic discussion, but there is no doubt among economists that this artificial increase in wages is weakening job creation. Although there is no discussion about reversing this increase, there may be a growing debate about postponing the massive jump scheduled for July of 2009. Again, if the policy is harmful in a weak economy, why is the policy ever beneficial? Furthermore, if such increases cause no harm (as Democrats often argue), why nickle and dime with a dollar here or fifty cents there? Everyone knows that a twenty dollar an hour minimum wage would put a fork in this economy, so how does one justify a minimum wage at all?

Many cities in the US -- Camden, NJ; East St. Louis, MO; and Detroit, MI are in perennial recessions. How can the federal government determine what is best for these cities when it comes to wages? I have long argued that if we must have a minimum wage (a standard practice today), it should be done by cities and states, not by the federal government.

But the larger principle remains. If these policies do harm in bad economies, how are they beneficial at all? Steve Moore summed it up best, "that is a debate that the left doesn't want to have."

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

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Anonymous James Raider said...

….Projections and predictions conjured by those who took the shotgun seat in the vehicle which drove us to the precipice.

We have created monsters in the form of omnipotent economists. They are not what they seem.
Perhaps society has simply overplayed them. It would be much more productive to listen to entrepreneurs.

3:16 AM  
Anonymous Andre Dent said...

The banking system and the chaos it has caused aside, businesses and more importantly, industries such as that producing motor vehicles that employ in such huge numbers, need to remain competitive internationally.

These cannot be insulated indefinitely from external market pressures and there is a need for governments to incentivise these industries to develop competitive technologies that create efficiencies for the economy as a whole.
The problem for the motoring industry in the past is that the government has had a large part of their pockets filled by the very ineficiency of the vehicles that have been made. America has made a rod for it's own back through outrageous fuel consumption, and this is not aimed from a green perspective.

8:58 AM  

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