Thomas Donlan uses his latest Barron’s column to put some of President Obama’s chief public policy proposals to the economic test.
The president’s economic proposition is that the U.S. should grow its economy “from the middle out,” not from the top down.
The policy prescription that follows is that the federal government should do everything it can to push more people up into the middle class:
1) It should push more students into college and subsidize their tuition loans.
2) It should push more graduates into home ownership and subsidize their mortgage loans.
3) It should determine the employment cycles of the future and subsidize loans for the businesses deemed most likely to create jobs.
4) It should re-equalize the classes by more heavily taxing those who earn the highest incomes, and when that is not enough to finance all the subsidies for job creation, college tuition, and home mortgages, the government should borrow any sums necessary—and the central bank should finance the borrowing by any means necessary.
Such prescriptions are economic poison.
A simpler way to raise more people up from the bottom is to make it illegal to be in the bottom. On this theory, in which every day is Labor Day, no business should be allowed to pay less than a middle-class wage. …
… Higher minimum wages, whether voluntary or enforced by law, have consequences. They are good for the existing work force but raise the employers’ cost of hiring more workers. They force employers to find ways of using machines and computers instead of people. …
… Thirty years after the New Deal consensus came apart, Obama is trying to restore it with speeches. His view of recent economic history includes the destruction of a mythical economic compact. “The link between higher productivity and people’s wages and salaries was severed—the income of the top 1% nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.”
If you remember 1979, you should remember the way that inflation, inefficiency, and government programs combined to create a period of “stagflation,” in which the economy faltered, jobs grew scarcer, and money declined in value.
The modest reforms in the era of Ronald Reagan, two Bushes, and a Clinton brought economic change unseen since the 1930s. The changes included a rebalancing of the rewards to increased productivity in favor of the managers and innovators and owners and investors who create it.
It would be nice if one of these Labor Days the grumblers would put the cart behind the horse: Economic growth creates jobs, not the other way around.
