Walter Block: Criticism of Trump's Economic Policies Has No Basis Whatsoever
In his Wall Street Journal column of Oct. 21, Alan S. Blinder fails economics 101. His essay is titled “The Trump ‘Jobs Boom’ Is a Convenient Myth.”
The Princeton economist provides us with a graph of the unemployment rate from November 2010 to February 2020. Why start at that earlier point? Because he wants to show that joblessness has been decreasing for the last ten years, at a rather steady pace, starting in the Obama years, and, at best, Trump has merely continued the pattern.
No big deal; nothing to see here; the much-vaunted expertise of this president simply does not exist. Why end with the second month of 2020? Because he wants to be fair to our president. He realizes that COVID catapulted the unemployment rate and doesn’t want to lay blame for that at Donald’s door. Fair enough.
However, there are several objections that may be leveled against Blinder’s economic analysis.
First, Mr. Obama served as president from Jan. 20, 2009 – Jan. 20, 2017. Why does the graph start only in November 2010, almost two years after he came into office?
That is because unemployment was on the upswing for these 21 months! So Obama’s record, unlike Trump’s, does not indicate a steady lowering of the unemployment rate. For example, it was 9.5 percent in June 2009 and peaked at 10.0 percent in October 2009; that is, it was increasing for the first 10 months of the Obama administration.
Second, posit that Blinder is correct in his claim that Trump only followed the pattern initially set up by Obama.
But he did so from January 2017 until February 2020, over three long years. Even Blinder acknowledges that Trump had achieved “a wonderfully low 3.5% [unemployment] rate.” If the Donald is as much of an economic doofus as Blinder claims, how was he ever able to do any such thing?
Third, our New Jersey economics professor never inquires as to why not only Trump, continually, but also Obama, after a while, was able to bring down the unemployment rate. One would think this would be a prime inquiry on his part. Not so.
Well, what causes unemployment in the first place?
That is simple. This is basic economics 101 material (evidently not taught at Princeton). It comes about when wages are higher than discounted marginal revenue productivity.
And what are the sources of that? Well, COVID lockdowns, the bust part of the business cycle, vast storms, gigantic floods, etc. Productivity falls, but wages are sticky in a downward direction.
But none of this played anything like a significant role in the years analyzed by Blinder. What did? If you said the minimum wage law, go to the head of the class.
This law does not raise anyone’s wage, at least not when all of the temporary adjustments have shaken out. Rather, it is an unemployment law, mandating in effect that anyone whose productivity is less than their pay required by law will not be able to find a job at all.
If someone can add to the bottom line at the rate of $6.00 per hour but must be paid $7.25, there will be an hourly economic loss of $1.25 — and eventual bankruptcy for firms foolish enough to hire them.
Here is a brief recent history of minimum wage legislation: Sept. 1, 1997: $5.15. July 24, 2007, $5.85. July 24, 2008, $6.55. July 24, 2009, $7.25.
Notice anything peculiar here? Obama came into office with a minimum wage level of $7.25, and guess what? It has been unchanged ever since. That is, Mr. Progressive, Barack Obama, presided over a completely unaltered minimum wage law, as did the supposedly evil Donald Trump.
Why, then, the continual fall in the unemployment rate? This is due to the fact that the inflation rate was above zero all during the months depicted by Mr. Blinder, and, hence, the real value of the minimum wage was continually being eroded (the minimum wage level divided by a rising price index). Fewer and fewer people fell under the unemployment scythe of this problematic legislation.
If Mr. Trump wins the current election, we can look forward to less and less unemployment if he can continue to hold the line on refusing to raise the level of the pernicious minimum wage law.
But if Mr. Biden wins, even if Bernie Sanders is not appointed secretary of labor, it will be boosted to $15 per hour and perhaps later on to $20 or $25 per hour — and it will be automatically adjusted for inflation.
Then watch the unemployment rate skyrocket.
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