Minimum Wage Laws: State Intervention Leads to Individual Degradation

The following article from the Objective Standard Blog explains how minimum wage laws hurt individuals.  In addition, it highlights how the issue has become mischaracterized, cloaked in the shrouds of altruism.  This ideology is perhaps the most dangerous of all, for it legitimizes the State in almost every aspect of life.  Regarding the minimum wage, altruism supplants the individual’s ability to earn a living, with the State’s authority to forcefully redistribute wealth.

Minimum Wage Laws: Immoral, Crippling, and Nevertheless Supported by Many.

Why America Needs to Kill Its Entitlement Ideology

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Largely a result of decades of government dependence, too many people today lack the basic concept of personal accountability.  Many view the act of collecting their government benefits (whether they be food stamps, WIC, TANF, or other programs) as an act to which they are entitled.  Yet, few acknowledge that this ideology is politically counter-intuitive, morally alienating, and fiscally unsustainable. The following account of a Walmart employee’s encounters with welfare recipients illuminates not simply a few bad apples, but an ideology of rot.

“I understand that sometimes, people are destitute. They need help, and they accept help from the state in order to feed their families. This is fine. It happens. I’m not against temporary aid helping those who truly need it. What I saw at Wal-Mart, however, was not temporary aid. I witnessed generations of families all relying on the state to buy food and other items. I literally witnessed small children asking their mothers if they could borrow their EBT cards. I once had a man show me his welfare card for an ID to buy alcohol. The man was from Massachusetts. Governor Michael Dukakis’ signature was on his welfare card. Dukakis’ last gubernatorial term ended in January of 1991. I was born in June of 1991. The man had been on welfare my entire life. That’s not how welfare was intended, but sadly, it is what it has become.”

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What we are witnessing as a society is not a few destitute people, but a culture gradually consumed by an ideology that fails to permit returns on personal growth and achievement.  Rather, the welfare-entitlement ideology rewards bad behavior. This is known as perverse incentive in professional circles and has been linked to the actions of our most troubled institutions: banking, investing, education, and of course government.

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The political implications that this destructive force has reached everyday Americans is certainly not without importance.  From the voting booth, the problem is a double-edged sword.  So long as my neighbor feels social justice entitles him to a portion of my paycheck, he is likely to vote in politicians supporting the same ideology.  And a particularly disturbing political phenomenon known as “the tail wagging the dog” states that if such an ideology grabs hold of America many politicians will – against their better judgment – adopt said ideology in order that they be voted into office. The average voter holds onto sentiments divorced from the productive attributes of healthy society, while the politician embraces the same political ethos for personal gain.  The people think they’ve earned such benefits, while politicians enjoy the wide support they receive for supporting them.   Thus, the welfare-entitlement ideology is especially damaging because it attacks America from both ends of the social scale.  The result is often the demise of the middle, and most productive, segment of any three-class structure.

Where this will lead America is of course the core question that lies at the heart of the welfare debate.  Laying emotional attachments to notions of entitlements aside, the debate should focus on the financial implications to the health of America.  The insolvency of our federal government cannot be ignored and, coupled with the notion of dependence, highlights a further complication as to how those dependent upon government handouts will survive once the government (by fiscal necessity) withdraws its hand?  This is a loaded question, for most will be destitute absent the necessary skills to survive.

So the moral and practical implication of the welfare-entitlement ideology is two-fold as well.  Just as government spending crowds out the private sector, reliance on government crowds out self-reliance.  Benjamin Franklin knew this fact well.

“I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I traveled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.” 

Necessity is the mother of invention, as the saying goes, but our current ideology completely negates necessity.  The consequences are severe.  Under the welfare-entitlement ideology, America becomes not a nation of promise and prosperity, but one where government controls both its economic vitality and the very sustenance of its people.

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Entitlement America, Fiscally and Morally Bankrupt

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If one were to make the claim that America is fiscally insolvent, as I’ve made numerous times, one would then have to ask themselves why. While there is no one answer to this question, there is one ideology that underlies today’s reality.  The “Entitlement Generation,” a term thrown around characterizing today’s western youth, has more to say about America’s fiscal bankruptcy than any politician or campaign slogan could possibly utter.  Yet, the entitlement disease in not confined to western youth. Rather, our youth are only the latest victims of an ideology begun nearly 80 years ago amidst the wake of the Great Depression.  Four generations later, we are seeing its effects. Charles Hugh Smith comments:

“The entitlement mindset atrophies self-reliance, adaptability and flexibility, all key survival traits. If the government will “fix” our health, we no longer feel responsible in the way one does if there is limited government/employer-provided healthcare. If we expect our Social Security retirement regardless of what other conditions may be affecting the global economy or our nation, then we stop being responsible for managing our financial affairs in the same way as one does when there is no “guaranteed” retirement entitlement.”

Yet, few American’s recognize our current situation as an effect of the entitlement ideology, seeing it instead through the lens of the mainstream media and our policy hounds throughout Washington as a debate over the “social good.”

Ask any politician interested in maintaining his or her Congressional seat what surrounds debates in Washington.  They will quickly answer that they seek only what is best for America.  Best according to who? The Washington ideology underlying much of its policies such as stimulus spending – both from the fiscal side (government) and the monetary side (the Federal Reserve) – never ending tax cuts, or a perpetually climbing debt ceiling is grounded on the false notion of an endless line of credit.  We all saw that assumption severely weakened this year with the S&P downgrade of U.S. sovereign debt.  Despite a jobless recovery, lack of lending from banks to businesses and consumers, and a still-floundering housing market, their ideology has not changed.

Jeremy Bentham, by Henry William Pickersgill (...

The “social good” still sits atop the pedestal of Washingtonian rhetoric as not only something obtainable, but something that is real and quantifiable.  Nothing could be further from the truth.  If one were to place this false notion within the context of an already developed area of political economy, they would look to Bentham’s utilitarianism and its “greatest happiness principle,” which simply states that government should pursue such that produces the greatest good for the greatest number of people.  However, there is an inherent conflict embedded within this utilitarian philosophy.  Bentham also recognized the futility of measuring the “social good” without the individual.  Yet, his greatest happiness principle places the individual as a sacrificial lamb to the needs of society.

Utilitarianism is much the same as the entitlement ideology, except for one small development.  The latter is the next step in utilitarianism’s development.  Charles Smith stated, “The poisonous problem with the entitlement mindset is intrinsic to human nature: once we deserve something, then our minds fill with resentment and greed, and we focus obsessively on creating multiple rationalizations for why we deserve our fair share.”  Fulfilling the expectation and demand for one’s bread at the expense of another for no other reason than one’s entitlement is the basis of Washington politics today.  This is their philosophy and, contrary to rational expectations concerning the fiscal solvency of America, encapsulates their policies, campaign slogans, and empty promises for a better future.

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The entitlement state effectively supplants the market as the arbiter of social relations.  An entitlement state creates bread lines, while a market creates factories that produce bread.  An entitlement state creates zombies that stand in those lines, breathlessly awaiting their next handout, while a market creates laborers who work in the  bread factory and who upon payment for their labor purchase the bread they produced.  An entitlement state creates animosity among the people, lest the government deem their neighbors needier than they, while a market distributes goods and services according the natural laws of any harmonious society.  An entitlement state is the result of an ideology based on self-neglect, weakness, and irrational expectation, while the market is the result of an ideology based on self-sufficiency, strength, and rational thought.  The entitlement state is crucial in establishing a statist government, while the market ensures a small decentralized federal government.  Essentially, the market is the result of a multitude of individual desires (choices made by free individuals) and thus has an inherent aptitude at coordinating society in such a way that benefits the most people in the most ways.  But underlying all this is the key component of any market system, liberty.

Life is freely given, but its preservation must be earned everyday.  Our politicians live in a world where their hubris is matched only by their want of control.  The entitlement ideology is taking hold, effectively bankrupting America both fiscally and morally.  Government would have you believe otherwise, yet the ideology underpinning their policies and programs will not change the nature of reality.  In fact, it is the market, and the market only, that preserves the natural rights (rights granted to all by virtue of one being human) of the individual.

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What is it About Economics…The Debt Deal Examined

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Government spending is out of control.  The national debt is almost equal to GDP (97%).  Unemployment is at 9.6% officially, almost 20% unofficially.  The debt ceiling game in Washington leaves little room for comfort among middle class Americans and investors.  A U.S. credit downgrade is imminent.  The future is not bright.  So what is it about economics that leaves so many people (on many occasions myself included) confused and bewildered into a state of apathy?  After all, are we not taught the fundamental aspects of economics, namely that competition preserves ingenuity, the law of demand determines fair (market) prices, and that a market free of government encourages investment for future growth because the market is the amalgamation of millions of choices – for America approximately 311 million.  So long as these phenomena are allowed to occur unimpeded, the path toward prosperity continues.  As more jobs are created and more products enter new markets, economic growth occurs both vertically (established markets grow) and horizontally (new markets emerge). The net result is a forward-moving economy and a growing people. So how is it the average American has ended up in the ditch, given only the choice to take the hand to his Left or Right?  The Cato Institute’s Daniel Mitchell discusses just how Keynesian economics has contributed to the growing bewilderment surrounding economic analysis, namely the misdirected attention given to GDP as a measure of the health of an economy.  He engages in useful analogy, using the finances of an individual home in place of an entire economy.  In economics, models are often used to simplify economic variables, rendering understanding of the fundamental more prevalent.  Mitchell has done this beautifully.  He demonstrates two key points contrary to the Keynesian solution.  

  1. Government expenditure crowds out the private sector.  That is, as government spends more, less is left for private consumption and investment, the driving forces for economic growth.
  2. As taxes increase, spending (as measured by GDP) stays the same, while less expenditures are free for things that improve our lives because more of our total income (fixed in the analogy) is redistributed as a tax expenditure.

Mitchell’s message is this: “government is capable of redistributing how national income is spent, but it isn’t a vehicle for increasing national income.”  The wealth of a nation is not determined, nor can it be significantly increased, by government spending (as shown in GDP).  Rather, wealth is determined by gross national income (GNI).  While GDP reflects higher levels of spending, an actual increase in GDP is only a product of increased national income. This point is particularly important given the debt deal just passed by the House.  It incorporates “enforcement mechanisms” built into what I would call a debt deal that pays only lip service to the people.  Besides the fact that the deal only trims a “projected” $1 trillion from the national debt over the next ten years (this is paltry and means very little), President Obama rejected any proposals that would enact cuts from entitlements after 2013.  Here is a passage from the White House fact sheet:

“In Securing this Bipartisan Deal, the President Rejected Proposals that Would Have Placed the Sole Burden of Deficit Reduction on Low-Income or Middle-Class Families: The President stood firmly against proposals that would have placed the sole burden of deficit reduction on lower-income and middle-class families. This includes not only proposals in the House Republican Budget that would have undermined the core commitments of Medicare to our seniors and forced tens of millions of low-income Americans to go without health insurance, but also enforcement mechanisms that would have forced automatic cuts to low-income programs. The enforcement mechanism in the deal exempts Social Security, Medicaid, Medicare benefits, unemployment insurance, programs for low-income families, and civilian and military retirement.”

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Although tax-reform is on the agenda upon the expiration of the Bush tax cuts at the end of 2012, which according to the President would require higher earners to help pay for deficit reductions, the reality of exempting entitlements entirely will necessitate either higher taxes for everyone or continued growth in the debt.  Moreover, although the debt deal reduces the rate of spending, discretionary spending still projects upward over the next ten years.  Consequently, the debt deal will most likely result in higher taxation and less disposable income for the people – an additional and significant detractor from economic recovery.  In short, it is my contention that the deal does nothing for the long-term financial solvency of the U.S. government and will result in tax increases and spending allocations that will surely out pace our weak recovery, leaving less for private consumption and investment. Despite often conflicting ideologies regarding issues such as entitlement spending, foreign wars, and tax reform, our dual-party system hardly represents differing views when it comes to economics, namely spending.  That is, they both prescribe to a school of economic thought that has led America to where we now kneel.  Whether you have heard of Keynesian economics or not, you have felt its impact via stagnant wages, lost jobs, and growing government.  The new debt deal only reinforces this. While typically associated with the Left, Keynesian economics, whether in the name of stimulus, tax reform, or entitlements, promotes government expenditure at the expense of the private sector, stifling growth and rendering competition, demand, and the free-market mute.  These trends have grown beneath both parties in recent decades.  Consequently, more spending for entitlements and foreign wars is rendering the welfare-warfare state an increasingly stark reality.

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Welfare-State Philosophy Grabbing Hold

I have focused attention recently on the Federal Reserve and its QE policies, but circumstance warrants a needed digression.  By chance, I ran across two complementary articles that speak to the most debilitating trend seen in American history.  The first speaks of the growing welfare state in America, while the second illustrates, via a concrete example, its power to sway the minds of rational individuals towards an ideology of entitlement.  James Shott writes of the ideological shift that is gripping Americans.  Namely, what once was a nation of self-sufficient, independent-minded individuals is becoming a den of government dependence.  We realize, of course, the increase in size of our federal government over the last half century, but reiterating some information laid out by Shott develops perspective:

1) The federal tax code is 17,000 pages and involves more than 700 different forms.

2) The Code of Federal Regulations, the codification of the general and permanent rules created by Congress and the executive departments and agencies of the federal government, comprises a mind-blowing 163,000 pages, weighs more than 1,600 pounds, and stands 54 feet high.

3) Since President Lyndon B. Johnson launched the War on Poverty in 1964, welfare spending increased 13 times by FY 2008, rising from $50 billion to over $700 billion in inflation-adjusted dollars.

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Perhaps we have a neighbor collecting food stamps or a relative on Medicare, but do we really see these programs for what they are?  We are told by both the media and our universities that these programs are for those in need, that some are simply incapable of providing for themselves.  We are told that it is our moral duty to take care of our own, but at the expense of taking care of ourselves.  We are told such programs are for the public good, without an adequate definition of what the “public good” is or means.  We are told solutions to problems we have not yet identified, and our failure to question such rhetoric is to turn a blind eye to judgment, accountability, and our own best interest.  Ideology aside, basic economic principles highlight the simply unsustainable nature of our current welfare state.  Add to this burden Uncle Sam’s deficit spending spree in the name of economic recovery, and the future points more and more towards severe economic instability coupled with higher taxation and declining purchasing power for our dollars.

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So the question is not what America wants.  This is a question asked of bureaucrats to produce a sound bite.  Questions of “want” that neglect objective consideration of circumstance -i.e. principles based in reality – are symptoms of a far greater problem.  They are symptoms of a fundamentally broken political system, a system that regards ideas, solutions, and even problems as a means to an immediate end, namely securing one’s political office.  Ayn Rand commented on this phenomenon in 1974.  She stated in Philosophy: Who Needs It, “On this view, a man does not seek to be elected to a public office in order to carry out certain policies – he advocates certain policies in order to be elected.” (“Selfishness Without a Self,” 66-67).   A more modern classification of this problem is known as the tail wagging the dog.  This is not a new phenomenon, but what is important is the degree to which it is threatening our future.   So long as politicians speak in ideological sound bites for the evening news and act according to their desire for reelection instead of advocating for objective principles based in reality, America can only expect leadership built upon a platform of graft, avarice, and irrational exuberance.  And as such, they can no longer claim the title of leaders. You see it!  But until you accept it as reality, you cannot hope for change.

But the problem is two-fold, for we ought not simply to blame our elected representatives and bureaucrats.  The same degree of apathy and ignorance is saturating the American public as well.  A recent example of our failure to judge and act from objective principles based in reality comes from a Michigan lottery winner.  Leroy Fick, after winning a two million dollar prize, continues to collect food stamps.  According to a technicality in the law, lottery winnings are not considered income – the primary criterion for recipients.  Consequently, Mr. Fick continues to collect and denounces any guilt in doing so.  Such a position leads one to the logical conclusion that Mr. Fick feels he is entitled to such aid.  Is this the road we are all walking?  By what standard does Mr. Fick claim entitlement?  By what standard do any of us claim entitlement to the unearned?  The basic premise of capitalism is an equal trade of value for value.  The welfare state is clearly eating away at the most fundamental ideology underlying capitalism, namely that of free trade in a marketplace that fuels incentive and innovation.  Perhaps more importantly, whereas entitlement leads to dependence, it logically leads one away from independence – a term synonymous with America, opportunity, and liberty.  But what once was a term imbued with pride and honor is quickly becoming a term of endearment to the lost principles of American strength.

How is it that a nation built upon principles of liberty, individualism, and self-sufficiency has dwarfed itself into one of apathy, ignorance, and self-neglect?  This trend renders us incapable of sustaining ourselves.  Our future is increasingly mortgaged by Washington policies – whether they be the unlimited printing of money and its subsequent draining of purchasing power, future retirement savings, and declining equity of our homes, or a more subtle and corrosive ideological vacuum that has gripped Washington and our nation’s universities.  Consequently, in an attempt to pacify our conscience, we often examine these issues in the context of what they mean for America’s future.  But what we forget is that the future of any nation is the amalgamation of millions of individual lives.  So I ask my readers to consider not their nation, their state, their community, or even their neighbor in regards to the standard of value to which we hold America’s future.  If you must look outside yourself for a degree of prudence and judicious action, do so in the context of your children’s future, with your child as your final standard of what is sustainable, rational, and just.  Ask yourself not what a given policy or ideology will do for the public good, but what it will do for the future of your most prized possession, your child.

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