There once was a time when Congress did nothing and the nation prospered. From 1997 to 2007 — a full decade — the federal minimum wage remained at $5.15 per hour. Then Congress screwed up in a way only Congress can by mandating three successive increases.
In 2007, the federal minimum wage increased 13.6 percent to $5.85. In 2008, the wage increased 12 percent to $6.55. And in 2009, the wage rose 10.7 percent to $7.25 where it currently remains. All totaled, Congress jumped the federal minimum wage 41 percent from July 2007 to July 2009 — a two-year period.
The 2008 increase kicked in just a month before the financial panic in August of that year. The 2009 increase kicked in as the charts showed the bottom falling out of the economy. But of course, the rising unemployment rate during this period was just a coincidence.
When Congress hikes the minimum wage, that increase drives up wage rates across the board. A worker who made $7.25 per hour in 2006 felt pretty good making 41 percent more than the minimum wage. However, in July 2009, the same worker needed $10.15 per hour to have felt so good.
Unlike Congress, businesses cannot wave wands and escalate payroll wages by 41 percent in two years.
Congress enacted a series of unemployment benefit extensions when the recession started. These benefits can run for 99 weeks. But that was of no matter because Congress convinced itself that spending trillions of stimulus dollars would re-start the economy, and that the unemployed would all be back at work in two years.
We now know that plan did not work. Nevertheless, employers have been stuck with a big bill for unemployment insurance premiums.
Congress enacted the Davis-Bacon Act in 1931 mandating “prevailing wages” on federally funded projects. This gem of legislation has never been anything but a sham and a swindle. But it persists, and President Obama’s shovel-ready projects never got started, in part, because of these artificially high wage rates.
President Franklin Roosevelt pioneered shovel-ready projects — literally. The Works Progress Administration handed out shovels to unemployed men and told them to start leanin’ or start shovelin’. These “lean” and hungry diggers were never paid Davis-Bacon wage rates, however.
And then there was the passage of Obama Care — the national health insurance plan that Rep. Nancy Pelosi, D-Calif., promised to read after it passed. No one knows how much this insurance plan will cost employers.
If a company can afford a K Street lobbyist, it gets a waiver for its group health plan. For companies without such influence, they become prisoners of Obama Care and all of its unknowns.
Congressional meddling with private sector employment law has created massive unemployment. Perhaps for the worse, this meddling has chilled hiring for years to come.
The unemployment rate is trending upward again. If $3 trillion of deficit spending didn’t prime the pump, then a double-dip recession is a real possibility.
The recent job creation report was a big disappointment to the experts who follow these numbers. For June, an expected 90,000 jobs created turned out to be 18,000. For May, the jobs created were revised downward to 25,000. Numbers like these suggest that businesses are only replacing turnover, not expanding.
Businesses would hire workers if consumers started buying more. When UPS recently was asked if it planned to hire additional workers, the company’s spokesman answered, “Packages equal people.” That is a qualified “No.”
Consumers aren’t spending for two reasons. Their houses have dropped in value. And the corn-ethanol subsidies have driven up fuel and food prices. Consumers can’t borrow against their biggest asset. Consumers are spending more of their limited disposable income on food and fuel.
As I recall, the housing bubble and its subsequent collapse had something to do with Congress and its red-handed stepchildren — Freddie Mac and Fannie Mae.
As I recall, Congress loves corn. So much so, that the Capitol’s privies are stocked with bushel baskets full of corn cobs.
The mess we are in has been caused by Congress. Congress needs to quit meddling. Congress needs to take a lesson from the past — do nothing for 10 years.
But this Congress apparently won’t sit on its thumbs. This is a shovel-ready Congress. This Congress is determined to dig an even deeper hole.