No End to Economic Stupidity

We know there is virtually no business experience amongst the President’s advisors. That has been documented in various places. Yet that could have been inferred  from the number of wrongful policies that have been proposed or implemented.

There are so-called economists in the Administration. Larry Summers, for example, is a legend amongst the economic community, or at least in his own mind. Where is this man? Since the election, he has done his best imitation of the invisible man. Is he advising the President or is he just there for the salary? Has he gone into hiding to save his reputation? Is he unable or unwilling to resign? It would be nice to know if he is designing these policies or just watching them being hatched by political hacks.

Based upon what keeps coming forth from Washington, one has to wonder whether there is anyone qualified advising this President. Or is all of this being driven by the political and ideological objectives of the President and the political cronies that surround him?

The latest proposal as reported by the New York Times is just another example of misguided (at least for the country) policy:

“The Obama administration is planning to use the government’s enormous buying power to prod private companies to improve wages and benefits for millions of workers, according to White House officials and several interest groups briefed on the plan…. Because nearly one in four workers is employed by companies that have contracts with the federal government, administration officials see the plan as a way to shape social policy and lift more families into the middle class.”

We are in a recession and unemployment is heading for the sky. This proposal is reminiscent of the Great Depression, when one of the more idiotic ideas was to prop up, if not increase wage levels. That ensured that unemployment would increase more and stay high for longer than it should have. It wasn’t until WWII that unemployment declined, primarily because much of the country was absorbed into the war effort.

Now we hear about this effort. Has no one learned anything? In a recession, wages must fall, not rise. Driving them up will create more unemployment. Markets must clear, and they will if prices are allowed to move to their proper levels. But price and wage controls or other interventions into markets prevent that from happening. Shortages or surplusses result.

Governments, in good times or bad, cannot raise wages. They might be able to do so for a favored group, but that comes at the expense of those outside the favored group. Their wages or their employment must fall. The end result is lower average wages than if the intervention had not occurred. Wages increase based on the value of the worker to the firm, not based on government intervention.

It is likely that an Econ 101 student would see through this latest malarkey. There is also a decent chance that she could design a better economic policy than this Administration, if only by throwing darts to make decisions.

Of course this policy may not result from economic ignorance. It may reflect politics, an attempt to benefit unions at the expense of the rest of the working class.  After all, unions, seem to be the only friends the Administration has left. From what I have seen economic ignorance cannot be ruled out. It is a major explanatory variable for much Administration behavior. But then again, neither can political cronyism, for the same reason. You may take your pick. I am betting on both and don’t expect either to stop soon.

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