Robert Reich seems to be a smart man. He served under three presidents, and now is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley. His video (below) says raising the minimum wage is the right thing to do. Unfortunately, he gets it all wrong.
Donald Boudreaux of the Cato Institute notes a couple of errors in Reich’s thinking. First,
Ignoring supply-and-demand analysis (which depicts the correct common-sense understanding that the higher the minimum wage, the lower is the quantity of unskilled workers that firms can profitably employ), Reich asserts that a higher minimum wage enables workers to spend more money on consumer goods which, in turn, prompts employers to hire more workers. Reich apparently believes that his ability to describe and draw such a “virtuous circle” of increased spending and hiring is reason enough to dismiss the concerns of “scare-mongers” (his term) who worry that raising the price of unskilled labor makes such labor less attractive to employers.
Reich also seems to think that the additional money paid to workers now earning $15/hour will come from “somewhere” – a “somewhere” that doesn’t affect the rest of the economy. This wishful thinking is – in practice now, not theory – not working out very well in Seattle. There’s also the fact that if a business pays higher wages, that means lower profits, and that has a ripple effect throughout the economy. But, again, Reich misses all this.
Boudreaux also points out that circulating more money doesn’t necessarily make people rich. And Reich misses that as well.
But at least he draws well.