#168 How Fiscal Policy Harms the Poor

#168 How Fiscal Policy Harms the Poor | The Christian Economist

I Timothy 5:18, states, “The worker deserves his wages.”  Five fiscal policies harm the poor by denying fair wages: Inflation, minimum wage, unemployment benefits, favoring unions, and licensing requirements. 

 I’m from the government, and I’m here to help.  That sarcastic anecdote serves as an introduction to today’s podcast.  Because where the government is supposed to help the poor, there are five ways in which it HARMS the poor. All five violate the scriptural command found in 1st Timothy 5:18, which states, “The worker deserves his wages.”  In the Amplified Bible, there is an additional comment, “He deserves fair compensation.”  The scripture is repeated from Leviticus and Deuteronomy. 



When the government has a fiscal policy of spending more money than it’s taking in, the Fed is forced to adopt a monetary policy of printing more dollars to cover the debt.  This is called “monetizing the debt.”  When you increase the supply of money, each dollar is worth less, and that’s called inflation.

Inflation harms the poor more than the rich.  You would think that inflation harms those who HAVE more dollars, but the rich have financial advisors who move their assets into investments that rise along with inflation, so they are not hurt.  Also, the rich can delay the purchase of big cars and yachts, and vacations, while the poor must buy milk and diapers on the daily market. 

So government-induced inflation violates the fair compensation command from I Timothy.  The worker is paid in deflated dollars that don’t buy what’s fair for the recipient.  Think about it: When any government representative or bureaucrat says they support the poor, they’re doing it with other people’s money.  And, as Margaret Thatcher wisely observed, “Eventually, you run out of other people’s money.”  My addition to that quip is “People run out of their OWN money”, because it won’t buy what it used to.


Minimum Wage

Minimum wage is one of the few things that cause both of the evils of macroeconomics: Inflation – which I just explained – and unemployment, which comes next.  I know it SEEMS nice to pay people more, but when you pay more for the same level of production, you cause more of that nasty stuff I just talked about: Inflation.  And, you violate the commandment about paying fair wages, because you are paying a wage that is NOT fairly determined.

The government reports incomes in quintiles, maybe that’s because there are five fingers on one hand.  Minimum wage is supposed to help the lowest paid folks, in the bottom 20%.  But it doesn’t, for two reasons explained by Thomas Macurdy, who is a senior fellow at the Hoover Institution at Stanford.  His article in the WSJ is titled The Minimum Wage Stealth Tax on the Poor.  He reports that minimum wage workers are dispersed throughout the five income quintiles.  Huh?  Well, he’s right, because income is not measured by the individual, it’s measured by families.  So, if one of my Dallas Baptist University students belongs to a wealthy family, but he coached soccer at his church league this summer at minimum wage, his income is taken back to his rich family, where it gets reported.  The afore-mentioned Professor Macurdy says that minimum wage workers are NOT concentrated in the bottom quintile, they are EQUALLY spread throughout the quintiles.  I know, I had to read that three times the first time I saw that data point, but it seems to be accurate.  Thus, increases in minimum wage helps the rich.  Oh, and what about minimum wage supporting children?  Macurdy reports data showing that only 5% of minimum wage workers are supporting children.  

If you pay labor a higher wage, the products and services they produce cost more.  Now, if you could somehow pay higher minimum wages to the poor, and have the products and services they produce be purchased by the rich, you might enjoy some effective wealth distribution.  But, sorry, it doesn’t work that way.  Let’s just consider a McDonald’s hamburger.  If minimum wage increased, and you could guarantee that all the burgers were bought by rich folks, that would be good.  Sorry, it’s actually the reverse: Poor people buy more minimum wage produced goods than the rich.  So, you give them a raise, then charge them more for the goods they buy.  It’s a vicious cycle.

Oh, by the way: How then SHOULD we enrich the poor?  Make them more productive.  I’ve often said Policies that Promote Production is the only thing that separates rich from poor nations.  When the poor are more productive, they can be paid more, without causing that previously-mentioned evil of macroeconomics, inflation.

So, is the Christian Economist a mean guy who wants NO minimum wage?  Well, that actually WAS called for in the New York Times, on January 14, 1987.  It seems that the Biblical view from I Timothy is to pay a fair wage.  “Fair” is often described as an environment where everyone gets a vote.  In economics, we call that the equilibrium wage: Where everyone demanding and supplying a job, expresses their view about the “correct wage.”  When all the votes are tallied, you get the equilibrium wage. 


Unemployment Benefits

People respond to incentives.  That’s why one of the first books in economics was titled Human Action by Ludwig Von MisesIf you pay people NOT to work, as the government did during the pandemic, they won’t work.  When you stop rewarding sloth, people will go to work.  Unemployment benefits HARM the poor, because they keep people out of the workforce, where they have the opportunity to learn new skills and increase the value of their economic output. 

As I stared at this subtitle Unemployment Benefits, I began to wonder, “What are the Employment benefits?”

Andy Puzder was President Trump’s nominee for Labor Secretary.  He makes the interesting point that we gain much more from work than just the monetary rewards.  Workers learn how to perform a skill, how to get along with others, and how to please customers, and a boss.  One of President Joe Biden’s favorite quips is, “My father used to say, Joey, a job is more than a paycheck.”  Uh-huh.  Then why does the president support giving people “Only a paycheck” for not working? 

That clearly violates the command from I Timothy to pay the WORKER his wages.  Paying wages to someone who does NOT work, violates that edict.

Steven Moore, writing in the Epoch Times points out: “President Joe Biden eviscerated all work requirements during COVID-19, and they haven’t returned.  Why? Do they want to make people dependent on the government?”

“Work is good,” is one of the ten Biblical Commandments of Economics found in the book Biblical Economic Policy, that I co-authored with Sergiy Saydometov.  Getting welfare recipients back into the labor force is good for the ECONOMY.  Work is also good for the poor, because it helps them escape welfare dependency.

Quoting Stephen Moore again, “Every study shows that having a job is highly associated with better health, longer life expectancy, happiness, and improvements in family conditions. Children and spouses of someone who is working are better off,” Mr. Moore concludes.


Favoring Unions

The US Labor Relations board has pretty much a singular purpose: To support labor unions.  When I joined the US workforce, about 45 years ago, 33% of my fellow workers belonged to unions.  It’s now about 11%, and over half of those are government employees.  The evil of unions in the government sector was more clearly emphasized by the New Dealer himself, FDR, than I can explain it.   

But, how does this harm the poor?  Well, unions are that other effect that cause BOTH of the evils of economics: Inflation and Unemployment.  Their clearly-stated purpose is to raise the wages of their union members.  Well, that’s half the definition of inflation, which is “Increasing wages and prices.”  And, as I pointed out earlier, as a product or service gets more expensive, consumers demand less of it.  As union wages get higher, there is more supply than demand of labor, and that’s unemployment.

Here’s how this violates our dicta from I Timothy about paying the worker his wages.  It’s because you’re paying the worker someone ELSE’s wages, not HIS wages.  And, it’s certainly not a “fair wage” by any calculation, because the union has unfairly increased the wage.  


Licensing Requirements

More than a quarter of the US workforce have jobs that require licenses. These types of jobs are out of the question for the poor, unless the individual has the required license.

 Occupational licensing restrictions cost millions of jobs nationwide and raise consumer expenses by as much as $203 billion per year.  I had a personal friend who was getting his hair cut by an alley-dwelling stylist who just moved to Texas, but refused to pay the licensing fee.  OK, the stylist was not literally working in an alley, but she was “In the shadows” of the economy, as people like to say about people who operate without legal status.  

Licensing drives up the cost of the services that are provided under its requirements.  Econ 101 tells you that as the price gets higher, less is demanded, and the supplier of the service is harmed.  This violates our standard about paying the worker his wages, because the worker who gets locked out by licensure requirements makes NO wage, and the worker who gets licensed, pays part of his wage for the license.    

In Federalist paper #51, James Madison wrote, “If men were angels, we would not need government.”  As I’ve stated in the podcast, the men who make the governmental laws are also not angels; because we assume angels would help the poor.  




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