The economic spending fallacy

One cannot help but marvel at the pervasiveness of the misguided idea that spending is good for the economy.

The other day, for instance, an acquaintance lamented that his weekly restaurant expenses were hard on his pocket book, but he then quickly rejoined that at least his lavish dining habits boosted the economy. Such thinking is hardly uncommon. Indeed most cultural and media elite attribute upticks in economic growth to surges in spending and the opposite to reductions in spending. Presidential aspirant Bernie Sanders has gone so far as to suggest $1 trillion in public infrastructure spending over five years partly to “help the economy.”

On its face this thinking appears to make sense, but when examined it does not wash. Consider the following scenario.

Why the minimum wage promotes discrimination

Despite lofty rhetoric to the contrary, minimum wage laws increase the likelihood of racial discrimination.

According to black economist Walter Williams, it is “for a number of socioeconomic reasons that white youths, more often than their black counterparts, have higher levels of educational attainment and training,” and thus tend to be higher-skilled. While reasons for this are beyond the purview of this article, interested observers can read Williams’ Race and Economics.

The Equality Illusion

In The Quest for Cosmic Justice, Thomas Sowell raises questions concerning “equality” scarcely considered in our time: How is “equality” defined, and what are the costs of pursuing it?

“Equality” may be easy to define for concepts like numbers, as they have “only one dimension, magnitude (2 + 3 = 5),” Sowell notes. The same is not true for people. A confluence of various and often unquantifiable factors—intelligence, ability, beauty, geographic location, economic status, luck, among many others—forms multidimensional human beings.  Striving to level one human dimension—say, the economic—invariably results in the inequality of another dimension—the political—by transferring political power into the hands of those anointed to pursue economic equalizing. Determining how much economic inequality to trade for political inequality is arbitrary. “Equality,” it turns out, is an illusion.

A Challenge to Minimum Wage Advocates

The only positive thing about minimum wage logic is that it is easily defeated. Common sense economics rejects it, but non-economic arguments cause it problems, too.

Here is a non-economic challenge to minimum wage proponents I have yet to hear convincingly answered (perhaps a commenter or my counterpart Tim can provide an explanation): If someone—say, John—wants to work for six dollars an hour at Company X, and Company X wants to hire John for that wage, why should that be illegal?

Minimum Wage: Minimum Idea

Tim recently argued that raising the minimum wage is sound economics. However, doing so would hurt many poor people.

The crux of his argument is that low-wage workers are not paid their proper value for their contribution—in economic jargon, their “marginal product”—and that therefore an increase in the minimum wage would render little, if any, job loss. He further bolsters his case by stating that studies since 2000 demonstrate “little to no employment response to modest increases in the minimum wage.” In fact, he reasons, “a higher minimum wage may even save some employers money in the long term because it reduces costs associated with higher turnover and vacancies by making minimum wage jobs more desirable.”

These points do not support the case for raising the minimum wage.