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The Minimum Wage and the Problem of Honor



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My own preference for managing the minimum wage is a one-word policy — abolition — but, since that is not in the cards, it is worth considering the other options. Indexing the minimum wage to the Consumer Price Index is a policy far preferable to having Congress raise it willy-nilly whenever the urge strikes. Predictability is preferable to uncertainty.

The problem is that in the current political climate, a deal is never a deal. Republicans might agree to a small increase in the minimum wage in return for indexing it to CPI and then leaving it alone — if not forever, then at least for some meaningful period of time. Once the long-term rule is established, markets can adjust, and investments can be made. In theory, that would be a pretty good deal, but there is nothing to stop Democrats from advocating further increases to the indexed minimum wage every time they feel the need to trot out a little class-warfare artillery, which is about once a week, apparently.

The president, in his State of the Union speech, said (with an absolutely straight face) that the country needs to agree on some long-term, bipartisan solutions to our economic troubles, particularly our fiscal troubles, rather than career from one manufactured crisis to the next. I agree entirely. But President Obama and his party are significant manufacturers of manufactured crises. Not a minute after securing the taxes increased on the so-called rich they wanted, President Obama and the Democrats have proposed a new round of tax increases, and will no doubt accuse Republicans of “holding our economy hostage” if they resist them.

Republicans are not immune from criticism along the same lines, of course; the critical difference is that the core policies that Republicans reflexively support and seek to advance when the opportunity presents itself (tax-rate reductions and, to a lesser extent, spending control) are in fact good policies that will need to be components of any productive package of long-term economic reforms. The policies that Democrats reflexively support (putting the tax code to narrowly political use, expanding the regulatory state) are counterproductive policies that will need to be constrained. Both parties can be unthinking and truculent in pursuing those policies, but that does not make them equivalent.

Compromise is very difficult in a political environment in which a deal is not a deal. Whether the question is trading robust immigration enforcement for an amnesty benefiting those illegals already present in the country or trading tax increases for spending cuts according to some agreed-upon ratio, the main obstacle is not ideology or partisan self-interest, but the belief — a well-justified belief — that cutting a long-term deal is pointless, because such deals will not stand. Countries such as Canada and Sweden have achieved important, meaningful fiscal reforms that are very much along the lines of what American conservatives would like, but were able to do so only because there was a measure of confidence that compromise policies would be allowed to stand for some meaningful period of time.

It is no accident that the verb we use for executing an agreement is “honoring.” Where honor is in short supply, negotiation is impossible. 



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