Saturday, July 25, 2009

'The Triumph of Progressive Public Policy'

Busy morning so I'll let someone else do the writing today. This is a succinct piece from the NCPA speculating about the effect of unions and government running the show. (Of course there is also the not insignificant matter of the bottom dropping out of the US auto market);


Imagine a city where all the major economic planks of the statist or "progressive" platform have been enacted:

* A "living wage" ordinance, far above the federal minimum wage, for all public employees and private contractors.
* A school system that spends significantly more per pupil than the national average.
* A powerful school employee union that militantly defends the exceptional pay, benefits and job security it has won for its members.
* A powerful government employee union that does the same for its members.
* A tax system that aggressively redistributes income from businesses and the wealthy to the poor and to government bureaucracies.

Would this be a shining city on a hill, exciting the admiration of all? We don't have to guess, because there is such a city: Detroit, says Jarrett Skorup, a research intern at the Mackinac Center for Public Policy.

* In 1950, Detroit was the wealthiest city in America on a per capita income basis.
* Today, the Census Bureau reports that it is the nation's second poorest major city, just "edging out" Cleveland.

Could it be pure coincidence that the decline occurred over the same period in which union power, the city government bureaucracy, taxes and business regulations all multiplied? While correlation is not causation, it is striking that the decline in per capita income is exactly what classical economists predict would occur when wage controls are imposed and taxes are increased, says Skorup.

Specifically, "price theory" predicts that artificially high business costs caused by excessive regulation and above-market labor compensation rates imposed by so-called "living wages" will lead to an increase in unemployment, explains Skorup:

* Detroit's minimum wage is a whopping $7.40 an hour, more than $2 above the federal minimum wage when it was enacted; and pressure groups are pushing for more.
* Additionally, any company contracting with the city must pay its employees $8.23 an hour if they offer benefits or $10.28 an hour if they do not offer benefits.
* The city has the highest unemployment rate among all large U.S. cities.

Source: Jarrett Skorup, "Detroit: The Triumph of Progressive Public Policy," Mackinac Center, July 6, 2009.

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