Hagel’s ‘Defense Cuts’ Are Smoke And Mirrors

Last week Defense Secretary Chuck Hagel proposed an additional 40,000 reduction in active duty U.S. Army personnel, down to 450,000 soldiers. As U.S. troops are being withdrawn from the recent wars in Afghanistan and Iraq, it might make sense to reduce not only the active duty military but the entire military budget. However, from the interventionists’ reaction to Hagel’s announcement you might think President Obama announced he was shutting down the Pentagon!

Representative Michael McCaul, Chairman of the House Homeland Security Committee, claimed that this slight reduction in personnel would hurt our military readiness. He blamed the exploding spending on welfare entitlements for the proposed military cuts, stating, “It’s all being sacrificed … on the altar of entitlements. This President cannot take on mandatory spending, so all we’ve done in the Congress – and this President – is basically cut discretionary spending.”

McCaul is partly right. Welfare spending is bankrupting the country. But military spending is also welfare: it is welfare for the well-connected military-industrial complex, which enriches itself manufacturing useless boondoggles like the F-35 fighter. We should never confuse legitimate defense spending – which I support – with military spending, which promotes interventionism overseas and actually undermines our national security.

Neoconservative Senators Lindsey Graham and John McCain were also quick to criticize Hagel’s announcement. They said the cuts were dead on arrival in the U.S. Senate. “We are going to kill it, not let it happen,” said Graham. McCain added, “We live in an ever-increasingly dangerous world and this budget is out of touch with reality.”

What McCain and Graham won’t admit is that much of the reason we are in an increasingly-dangerous world is that the neocons keep inviting blowback with the interventions they are constantly pushing. If we minded our own business we would live in a far less dangerous world.

Nevertheless, although the neocons make a big deal about this small cut in military personnel, in reality these are not military cuts at all. These are token proposed cuts in troop levels which Congress won’t allow the administration to do anyway. What Hagel proposes is not cuts, but instead a shift in spending away from personnel and toward new high-tech weapons which are favored by and profitable to the military-industrial complex.

The F-35, for example, will continue in production according to Hagel’s plan, despite the numerous cost over-runs and design flaws. This is likely because the F-35 is built in 46 U.S. States and nine foreign countries! That makes it particularly popular in Congress, regardless of its flaws and expense.

We do need real cuts in military spending, not just moving spending around from troops to new weapons systems. But what we really need is for the President to downsize U.S. foreign policy. Maintaining a military presence in 140 countries while continuing to stir up trouble can lead to problems when the military is downsized. So, it’s our intervention that needs downsizing.

A proper foreign policy would mean a strong national defense, but a huge reduction in interventions and commitments overseas. Why are we stirring up trouble in Ukraine? In Syria? In Africa? Why are we defending South Korea and Japan when they are wealthy enough to defend themselves? A proper sized foreign policy would defend the United States instead of provoking the rest of the world.

Ron Paul Straight Talk: Let’s Leave Ukraine Alone!

Last week Ukraine saw its worst violence since the break-up of the Soviet Union over 20 years ago. Protesters occupying the main square in the capitol city, Kiev, clashed with police leaving many protesters and police dead and many more wounded. It is an ongoing tragedy and it looks like there is no end in sight.

The current conflict stems from a divide between western Ukraine, which seeks a closer association with the European Union; and the eastern part of the country, which has closer historic ties to Russia.

The usual interventionists in the U.S. have long meddled in the internal affairs of Ukraine. In 2003 it was U.S. government money that helped finance the Orange Revolution, as U.S.-funded NGOs favoring one political group over the other were able to change the regime. These same people have not given up on Ukraine. They keep pushing their own agenda for Ukraine behind the scenes, even as they ridicule anyone who claims U.S. involvement.

A recent leaked telephone conversation between two senior government officials made it clear that not only was the U.S. involved in the Ukrainian unrest, the U.S. was actually seeking to determine who should make up the next Ukrainian government!

Senator John McCain, who has made several trips to Ukraine recently to meet with the opposition, wrote last week that the U.S. must stand up to support the territorial integrity of Ukraine, including Crimea.

Why are U.S. government officials so eager to tell the Ukrainians what they should do? Has anyone bothered to ask the Ukrainians? What if it might help alleviate the ongoing violence and bloodshed if the Ukrainians decide to re-make the country as a looser confederation of regions rather than one tightly controlled by a central government? Perhaps Ukraine engaged in peaceful trade with countries both to the west and east would benefit all sides. But outside powers seem to be fighting a proxy war, with Ukraine suffering the most because of it.

If you asked most Americans how they feel, my bet is that you would discover they are sick and tired of the U.S. government getting involved in every crisis that arises. Certainly the American people want none of of this intervention in Ukraine. They understand, as recent polls have shown, that our interventionist foreign policy is only creating more enemies overseas. And they also understand that we are out of money. We could not afford to be the policemen of world even if we wanted to be.

And I bet if we asked the Ukrainians, a vast majority of them would prefer that the U.S. — and Russia and the European Union — stay out their affairs and respect their sovereignty. Is it so difficult to understand why people resent being lectured and bribed by foreign governments? All we need to do is put ourselves in the place of the Ukrainians and ask ourselves how we would feel if we were in the middle of a tug-of-war between a very strong Canada on one side and a very strong Mexico on the other. We would resent it as well. So let’s keep our hands off of Ukraine and let them solve their own problems!

Ron Paul Straight Talk: At The Fed, The More Things Change, The More They Stay The Same

Last week, Federal Reserve Chairman Janet Yellen testified before Congress for the first time since replacing Ben Bernanke at the beginning of the month. Her testimony confirmed what many of us suspected, that interventionist Keynesian policies at the Federal Reserve are well-entrenched and far from over. Yellen practically bent over backward to reassure Wall Street that the Fed would continue its accommodative monetary policy well into any new economic recovery. The same monetary policy that got us into this mess will remain in place until the next crisis hits.

Isn’t it amazing that the same people who failed to see the real estate bubble developing, the same people who were so confident about economic recovery that they were talking about “green shoots” five years ago, the same people who have presided over the continued destruction of the dollar’s purchasing power never suffer any repercussions for the failures they have caused? They treat the people of the United States as though we were pawns in a giant chess game, one in which they always win and we the people always lose. No matter how badly they fail, they always get a blank check to do more of the same.

It is about time that the power brokers in Washington paid attention to what the Austrian economists have been saying for decades. Our economic crises are caused by central bank infusions of easy money into the banking system. This easy money distorts the structure of production and results in malinvested resources, an allocation of resources into economic bubbles and away from sectors that actually serve consumers’ needs. The only true solution to these burst bubbles is to allow the malinvested resources to be liquidated and put to use in other areas. Yet the Federal Reserve’s solution has always been to pump more money and credit into the financial system in order to keep the boom period going, and Yellen’s proposals are no exception.

Every time the Fed engages in this loose monetary policy, it just sows the seeds for the next crisis, making the next crash even worse. Look at charts of the Federal funds rate to see how the Fed has had to lower interest rates further and longer with each successive crisis. From 6 percent, to 3 percent, to 1 percent, and now the Fed is at zero. Some Keynesian economists have even urged central banks to drop interest rates below zero, which would mean charging people to keep money in bank accounts.

Yellen understands how ludicrous negative interest rates are, and she said as much in her question-and-answer period last week. But that zero lower rate means the Fed has had to resort to unusual and extraordinary measures: quantitative easing. As a result, the Fed now sits on a balance sheet equivalent to nearly 25 percent of U.S. gross domestic product, and is committing to continuing to purchase tens of billions more dollars’ of assets each month.

When will this madness stop? Sound economic growth is based on savings and investment, deferring consumption today in order to consume more in the future. Everything the Fed is doing is exactly the opposite, engaging in shortsighted policies in an attempt to spur consumption today, which will lead to a depletion of capital, a crippling of the economy and the impoverishment of future generations. We owe it not only to ourselves, but to our children and our grandchildren, to rein in the Federal Reserve and end once and for all its misguided and destructive monetary policy.

Ron Paul Straight Talk: Will No One Challenge Obama’s Executive Orders?

President Obama’s State of the Union pledge to “act with or without Congress” marks a milestone in Presidential usurpation of Congressional authority. Most modern Presidents have used executive orders to change and even create laws without Congressional approval. However President Obama is unusually brazen, in that most Presidents do not brag about their plans to rule by executive order in State of the Union speeches.

Sadly, his pledge to use his pen to implement laws and polices without the consent of Congress not only received thunderous applause from representatives of the President’s party, some Representatives have even pledged to help Obama get around Congress by providing him with ideas for executive orders. The Constitution’s authors would be horrified to see legislators actively adding and abetting a President taking power away from the Legislature.

Executive orders are perfectly legitimate and even necessary if, in the words of leading Constitutional Scholar Judge Andrew Napolitano, they “…. guide the executive branch on how to enforce a law or…complement and supplement what Congress has already done.” The problem is that most modern Presidents have abused this power to issue orders that, as Judge Napolitano puts it, “restates Federal law, or contradicts Federal law, or does the opposite of what the Federal law is supposed to do.”

Political opponents of the president rightly condemned Obama for disregarding the Constitution. However, it was not that long ago that many of the same politicians where labeling as “unpatriotic” or worse anyone who dared question President Bush’s assertions the he had the “inherent” authority to launch wars, spy on Americans, and even indefinitely detain American citizens.

Partisan considerations also make some members of the opposition party hesitate to reign in the President. These members are reluctant to set a precedent of “tying the President’s hands” that could be used against a future President of their own party.

The concentration of power in the office of the President is yet one more negative consequence of our interventionist foreign policy. A foreign policy based on interventionism requires a strong and energetic executive, unfettered by Constitutional niceties such as waiting for Congress to pass laws or declare war. So it simply was natural, as America abandoned the traditional foreign policy of non-interventionism, for Presidents to act “without waiting for Congress.” After all, the President is “commander-in-chief” and he needs to protect “national security,” they argued. Once it became accepted practice for the President to disregard Congress in foreign affairs, it was only a matter of time before Presidents would begin usurping Congressional authority in domestic matters.

It should not be surprising that some of the biggest promoters of an “energetic” executive are the neoconservatives. They are also enthusiastic promoters of the warfare state. Sadly, they have misled many Constitutionalists into believing that one can consistently support unchecked Presidential authority in foreign policy, but limit Presidential authority in domestic matters. Until it is fully understood that virtually limitless Presidential authority in foreign affairs cannot coexist with strict limits on Presidential authority in domestic matters, we will never limit the power of the Presidency.

The people must also insist that politicians stop viewing issues concerning the separation of powers through a partisan lens and instead be willing to act against any President who exceeds his Constitutional limitations. Thankfully we have scholars such as Louis Fisher, who has just published an important new book on Presidential power, to help us better understand the Founders’ intent with regard to separation of powers. The key to achieving this goal is to make sure the people understand that any President of any party who would exceed Constitutional limitations is a threat to liberty, and any member of Congress who ignores or facilitates Presidential usurpation is being derelict in his Constitutional duty.

Ron Paul Straight Talk: The Continuing Al-Qaida Threat

Appearing last week before the Senate Intelligence Committee, Director of National Intelligence James Clapper testified that he could not say the threat from al-Qaida is any less today than it was ten years ago. It was a shocking admission. Does he mean that the trillions of dollars spent fighting the war on terrorism have resulted in no gains? That those who urged us to give up some of our liberties to gain security have, as Benjamin Franklin warned, lost both?

There may be reasons Director Clapper would want us to believe that the threat from al-Qaida is as strong as ever. An entire industry has arisen from the government’s war on terror, and for both the government sector and the security-industrial complex the terrorist threat is big business. Economic pressure has thus far not affected the military or intelligence sectors – despite false claims that the sequestration cut military spending. However, emphasizing continued high threat levels without being able to openly explain them due to secrecy requirements is one way to keep the security budget untouched.

Also, emphasizing the continued high threat level from terrorists overseas is a good way to frighten citizens away from their increasing outrage over reports of massive domestic spying by the NSA. Unfortunately Americans may still be more willing to give up their liberties if they are told that the threats to their security remain as high as ever.

What if Clapper is telling us the truth, however? What would this revelation mean if that is the case?

For one, it means that we have gotten very little for the tremendous amount of spending on the war on terrorism and the lives lost. We are told that the military and intelligence community can protect us if they are given the tools they need, but it appears they have not done a very good job by their own admission.

More likely, it may mean that the US government’s policies are causing more al-Qaida groups to arise and take the place of those who have been defeated by US drone and military attacks. Clapper does mention that there are so many different al-Qaida franchises popping up it is difficult to keep track of them all, much less defeat them. But why is that? A former State Department official stated last year that every new drone strike in Yemen that kills innocent people results in the creation of 40-60 new enemies. Likewise, the young girl from Pakistan who had been brutally shot by the Taliban for her desire to go to school told President Obama during a White House meeting that “drone attacks are fueling terrorism. Innocent victims are killed in these acts, and they lead to resentment among the Pakistani people.”

Are there more al-Qaida groups out there because our policies keep creating new ones?

On that point, Clapper said to the Senate that in Syria the al-Qaida affiliated al-Nusra Front “does have aspirations for attacks on the homeland.” It is all the more disturbing, then, to have also read last week that Congress voted in secret to resume sending weapons to the Syrian rebels, who are dominated by al-Qaida-affiliated groups. We have read about US-supplied weapons meant for “moderates” in Syria being seized by radicals on several occasions, and the Voice of America reported last year that our Saudi “allies” are arming the same al-Nusra Front that Clapper identifies as a threat to the US. Is the US Congress arming the very people who will commit the next attack on US soil?

Why is al-Qaida as much a threat as it was ten years ago? Perhaps it is that we continue to fight the wrong war in the wrong manner. Perhaps because we refuse to consider that many overseas are angry because of our government’s policies and actions. After ten years of no progress, is it not time to try something new? Is it not time to try non-intervention and a strong defense rather than drone strikes and pre-emptive attacks?

Ron Paul Straight Talk: Every Week Should Be School Choice Week

National School Choice week takes place from January 26 to February 1, and during this week education freedom activists around the country will be participating in events highlighting the need for parental control of education. I wholeheartedly endorse National School Choice Week, as parental control of education is a prerequisite for a free and prosperous society.

When government usurps control of education from parents, education can easily become indoctrination. Centralized, top-down models of education are also doomed to failure as there is no way a bureaucrat in D.C. can design an education system capable of meeting the needs of every child in the country. The failure of centralized education is shown by the correlation between American students’ declining tests scores and the growth of Federal control over American schools. Education reforms that further, or expand, the Department of Education will prove fruitless. The only effective education reform is to restore parental control over education.

The key to restoring parental control is to give parents back control over the education dollar. This means shutting down the Department of Education and returning the money currently spent promoting schemes like “common core”. Ideally, this would be accomplished by eliminating all Federal taxes on American families. However, if the political support for outright abolition of Federal taxes is not available, education tax credits can also serve as an effective way of getting control over education back into the hands of the people. Unlike taxpayer-funded vouchers, private tax credits do not open the door to government control of education. This is because tax credits allow parents to use their own money on their children’s education, rather than relying on funds provided by the Federal government. Since “he who pays the piper calls the tune,” Federal funding of education—whether in the form of Federal grants or taxpayer-funded vouchers—inevitably means schools will spend more time trying to please Federal bureaucrats than parents.

One educational model that I am particularly interested in is homeschooling. Many of the most devoted and most effective advocates of liberty I have worked with come from homeschooling families. This might be because many homeschooling families have personal experience with government harassment, ranging from having to comply with government regulations to being threatened with the loss of their children for the “crime” of homeschooling. It is ironic that government would attempt to force homeschoolers to conform to its regulations considering that homeschoolers constantly out-perform their public school-educated peers.

In order to encourage the growth of homeschooling I have developed my own homeschool curriculum. The Ron Paul Curriculum consists of a rigorous program of study in history, economics, mathematics, and the physical and natural sciences.

Older students will also have the opportunity to get practical experience creating and running their own on-line businesses. Frequent written assignments will ensure students have the maximum opportunity to develop strong communication skills.

Giving my strong belief in liberty, the history and economics curriculum will provide a good grounding in liberty, including the principles of Austrian Economics. However, the drafters of the curriculum took great care to never sacrifice intellectual rigor and accuracy.

Education is one of those things that is simply too important to be left to the government. The best way to ensure quality education is to ensure that parents have the ability to pick the education option that best fits their child’s unique needs and abilities. Everyone who wishes to see America remain a free and prosperous society has an interest in parental control of education.

Ron Paul’s Straight Talk: Warfare, Welfare, Wonder Woman

Supporters of warfare, welfare and Wonder Woman cheered last week as Congress passed a $1 trillion “omnibus” appropriation bill. This legislation funds the operations of government for the remainder of the fiscal year. Wonder Woman fans can cheer that buried in the bill was a $10,000 grant for a theater program to explore the comic book heroine.

That is just one of the many outrageous projects buried in this 1,582-page bill. The legislation gives the Department of Education more money to continue nationalizing education via “common core.” Also, despite new evidence of Obamacare’s failure emerging on an almost daily basis, the Omnibus bill does nothing to roll back this disastrous law.

Even though the Omnibus bill dramatically increases government spending, it passed with the support of many self-described “fiscal conservatives.” Those wondering why anyone who opposes increasing spending on programs like common core and Obamacare would vote for the bill, may find an answer in the fact that the legislation increases funding for the “Overseas Continuing Operations” — which is the official name for the war budget — for the first time since 2010. This $85 billion war budget contains $6 billion earmarked for projects benefiting Boeing, Lockheed-Martin and other big defense contractors.

Ever since “sequestration” went into effect at the beginning of last year, the military-industrial complex’s Congressional cheering session has complained that sequestration imposed “draconian cuts” on the Pentagon that will “decimate” our military — even though most of the “cuts” were actually reductions in the “projected rate of growth.” In fact, under sequestration, defense spending was to increase by 18 percent over 10 years, as opposed to growing by 20 percent without sequestration.

Many of the defenders of increased war spending are opponents of welfare, but they are willing to set aside their opposition to increased welfare spending in order to increase warfare spending. They are supported in this position by the lobbyists for the military-industrial complex and the neoconservatives, whose continued influence on foreign policy is mystifying. After all, the neocons were the major promoters of the disastrous military intervention in Iraq.

While many neocons give lip service to limiting domestic spending, their main priority remains protecting high levels of military spending to maintain an interventionist foreign policy. The influence of the neocons provides intellectual justification for politicians to vote for ever-larger military budgets — and break the campaign promises to vote against increases in spending and debt.

Fortunately, in recent years more Americans have recognized that a constant defense of liberty requires opposing both war and welfare. Many of these Americans, especially the younger ones, have joined the intellectual and political movement in favor of limiting government in all areas. This movement presents the most serious challenge the bipartisan welfare-warfare consensus has faced in generations. Hopefully, the influence of this movement will lead to bipartisan deals cutting both welfare and warfare spending.

The question facing Americans is not whether Congress will ever cut spending. The question is: Will the spending be reduced in an orderly manner that avoids inflecting massive harm on those depending on government programs, or will spending be slashed in response to an economic crisis caused by ever-increasing levels of deficit spending? Because politicians are followers rather than leaders, it is ultimately up to the people what course we will take. This is why it is vital that those of us who understand the dangerous path we are currently on do all we can to expand the movement for liberty, peace and prosperity.

Congress Defers to President On NSA Reform

Congress’ decline from the Founders’ vision as “first among equals” in government to an echo chamber of the unitary executive, has been a slow but steady process. In the process we have seen a steady stream of unConstitutional wars and civil liberties abuses at home. Nowhere is this decline more evident than in the stark contrast between the Congressional response to intelligence agencies’ abuses during the post-Watergate era and its response to the far more serious National Security Agency abuses uncovered in recent years.

In 1975, Senator Frank Church (D-Idaho) convened an historic select committee to investigate the U.S. intelligence services for possible criminality in the wake of Watergate. Thanks in part to reporting by Seymour Hersh and others, abuses by the CIA, NSA and FBI had come to light, including the monitoring of U.S. peace activists.

The Church Committee played its proper Congressional role, checking the power of the executive branch, as it had been spiraling out of control since the 1950s and the early CIA covert action programs. The Committee sought to protect U.S. citizens against abuses by their government after those abuses had come to light through leaks of secret government documents.

The parallel to the present NSA scandals cannot be ignored. What is completely different, however, is that Congress is today acting as an advocate for the executive branch’s continuing abuses, and as an opponent to the civil liberties of U.S. citizens. Not only has Congress — with a precious few exceptions — accepted the NSA’s mass spying program on American citizens, it has actually been encouraging the President to continue to expand the program!

Where once there was a Congressional committee to challenge and oppose the President’s abuse of power, today the President himself has been even allowed by a complacent Congress to hand pick his own NSA review commission!

Are we really expected to believe that a commission appointed by the President to look into the activities of the President’s intelligence services will come to anything more than a few superficial changes to give the impression of real reform?

One of the President’s commission recommendations is that the NSA cease holding our phone records and demand that the private phone companies retain those records instead — for the NSA to access as it wishes. This is supposed to be reform?

The President will make a speech this Friday to tell the rest of us which of the suggestions made by his own commission he will decide to implement. Congress has no problem with that. Representative Adam B. Schiff (D-Calif.) admitted last week that Congress has no intention of asserting itself in the process. “It’s my hope that [Obama will] do as much as he can through the executive process because the legislative process will be difficult, perilous and long.”

Church famously said back in 1975: “In the need to develop a capacity to know what potential enemies are doing, the United States government has perfected a technological capability that enables us to monitor the messages that go through the air… We must know, at the same time, that capability at any time could be turned around on the American people, and no American would have any privacy left… There would be no place to hide…. I know the capacity that is there to make tyranny total in America, and we must see to it that this agency and all agencies that possess this technology operate within the law and under proper supervision so that we never cross over that abyss. That is the abyss from which there is no return.”

Have we reached that point? Let us hope not. Real reform begins with the repeal of the Patriot Act and of the 2001 Authorization for the use of military force. If we keep our eye on that goal and not allow ourselves to become distracted with the President’s phony commissions, we might force Congress to listen.

Iraq: The ‘Liberation’ Neocons Would Rather Forget

Remember Fallujah? Shortly after the 2003 invasion of Iraq, the U.S. military fired on unarmed protestors, killing as many as 20 and wounding dozens. In retaliation, local Iraqis attacked a convoy of U.S. military contractors, killing four. The U.S. then launched a full attack on Fallujah to regain control, which left perhaps 700 Iraqis dead and the city virtually destroyed.

According to press reports last weekend, Fallujah is now under the control of al-Qaida affiliates. The Anbar province, where Fallujah is located, is under siege by al-Qaida. During the 2007 “surge,” more than 1,000 U.S. troops were killed “pacifying” the Anbar province. Although al-Qaida was not in Iraq before the U.S. invasion, it is now conducting its own surge in Anbar.

For Iraq, the U.S. “liberation” is proving far worse than the authoritarianism of Saddam Hussein, and it keeps getting worse. Last year was Iraq’s deadliest in five years. In 2013, fighting and bomb blasts claimed the lives of 7,818 civilians and 1,050 members of the security forces. In December alone, nearly 1,000 people were killed.

I remember sitting through many hearings in the House International Relations Committee praising the “surge,” which we were told secured a U.S. victory in Iraq. They also praised the so-called “Awakening,” which was really an agreement by insurgents to stop fighting in exchange for U.S. dollars. I always wondered what would happen when those dollars stopped coming.

Where are the surge and awakening cheerleaders now?

One of them, Richard Perle, was interviewed last year on NPR and asked whether the Iraq invasion that he pushed was worth it. He replied:

I’ve got to say I think that is not a reasonable question. What we did at the time was done in the belief that it was necessary to protect this nation. You can’t a decade later go back and say, well, we shouldn’t have done that.

Many of us were saying all along that we shouldn’t have done that — before we did it. Unfortunately, the George W. Bush Administration took the advice of the neocons pushing for war and promising it would be a “cakewalk.” We continue to see the results of that terrible mistake, and it is only getting worse.

Last month, the U.S. shipped nearly 100 air-to-ground missiles to the Iraqi air force to help combat the surging al-Qaida. Ironically, the same al-Qaida groups the U.S. is helping the Iraqis combat are benefiting from the U.S. covert and overt war to overthrow Bashar Assad next door in Syria. Why can’t the U.S. government learn from its mistakes?

The neocons may be on the run from their earlier positions on Iraq, but that does not mean they have given up. They were the ones pushing for an attack on Syria this summer. Thankfully, they were not successful. They are now making every effort to derail President Barack Obama’s efforts to negotiate with the Iranians. Just last week, William Kristol urged Israel to attack Iran with the hope we would then get involved. Neoconservative Senators from both parties recently introduced the Nuclear Weapon Free Iran Act of 2013, which would also bring us back on war-footing with Iran.

Next time the neocons tell us we must attack, just think “Iraq.”

Ron Paul Straight Talk: Government Policies Hurt Low-Wage Workers

Fast-food workers across the county have recently held a number of high profile protests to agitate for higher wages. These protests have been accompanied by efforts to increase the wages mandated by state and local minimum wage laws, as well as a renewed push in some States and localities to pass “living wage” laws. President Obama has proposed raising the Federal minimum wage to ten dollars an hour.

Raising minimum wages by government decree appeals to those who do not understand economics. This appeal is especially strong during times of stagnant wages and increased economic inequality. But raising the minimum wage actually harms those at the bottom of the income ladder. Basic economic theory teaches that when the price of a good increases, demand for that good decreases. Raising the minimum wage increases the price of labor, thus decreasing the demand for labor. So an increased minimum wage will lead to hiring freezes and layoffs. Unskilled and inexperienced workers are the ones most often deprived of employment opportunities by increases in the minimum wage.

Minimum wage laws are not the only example of government policies that hurt those at the bottom of the income scale. Many regulations that are promoted as necessary to “rein in” large corporations actually hurt small businesses. Because these small businesses operate on a much narrower profit margin, they cannot as easily absorb the costs of complying with the regulations as large corporations. These regulations can also inhibit lower income individuals from starting their own businesses. Thus, government regulations can reduce the demand for wage-labor, while increasing the supply of labor, which further reduces wages.

Perhaps the most significant harm to low-wage earners is caused by the inflationist polices of the Federal Reserve. Since its creation one hundred years ago this month, the Federal Reserve’s policies have caused the dollar to lose over 95 percent of its purchasing power—that’s right, today you need $23.70 to buy what one dollar bought in 1913! Who do you think suffers the most from this loss of purchasing power—Warren Buffet or his secretary?

It is not just that higher incomes can afford the higher prices caused by Federal Reserve. The system is set up in a way that disadvantages those at the bottom of the income scale. When the Federal Reserve creates money, those well-connected with the political and financial elites receive the newly-created money first, before general price increases have spread through the economy. And most fast-food employees do not number among the well-connected.

It is not a coincidence that economic inequality has increased in recent years, as the Federal Reserve has engaged in unprecedented money creation and bailouts of big banks and Wall Street financial firms. As billionaire investor Donald Trump has said, the Federal Reserve’s quantitative easing policies are a great deal for “people like me.” And former Federal Reserve official Andrew Huszar has called QE “the greatest backdoor Wall Street bailout of all time.”

Many so-called champions of economic equality and fairness for the working class are preparing to confirm Janet Yellen as next Chairman of the Federal Reserve. Yet Yellen is committed to continuing and even expanding, the upward redistributionist polices of her predecessors. Washington could use more sound economic thinking and less demagoguery.

By increasing unemployment, government policies like minimum wage laws only worsen inequality. Those who are genuinely concerned about increasing the well-being of all Americans should support repeal of all laws, regulations, and taxes that inhibit job creation and economic mobility. Congress should also end the most regressive of all taxes, the inflation tax, by ending the Federal Reserve.