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Abolish the Minimum Wage! Says Peter Schiff


During his State of the Union address last Tuesday, President Obama made only one tangible, simple proposal:

"A family with two kids that earns the minimum wage still lives below the poverty line. That's wrong... Tonight, let's declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty, and raise the federal minimum wage to $9 an hour."

Immediately the idea was embraced by the left. Those on the right who objected, were considered elitist haters willing to trample the poor in pursuit of the mighty buck. Suffice it to say, caring about humanity and objecting to the proposed minimum wage hike are not mutually exclusive.

Peter Schiff of president & CEO Euro Pacific Capital isn't likely to cool the heated rhetoric but he does know how to make his point. Characterizing the proposal as the "stupidest" of the President's ideas, Schiff says a hike in the minimum wage would have exactly the opposite of the intended effect. "It's not going to lift the wages of workers," Schiff says in the attached video. "What it's going to do is diminish employment opportunities."

Companies paying minimum wage aren't necessarily rapacious. Being a cashier at Wal-Mart (WMT) or McDonalds (MCD) was never supposed to be considered a lifelong full-time job. However that makes one feel, is beside the point. It's capitalism. A higher minimum wage means lower margins. When you raise hiring costs you reduce the number of jobs available. Period.

"What we really should do is completely abolish the minimum wage, that would make a lot of sense," says Schiff, using Singapore as an example of a strong economy with no minimum wage. "We didn't have a minimum wage for most of American history. It's something that started in the 20th Century. It was a bad idea and we ought to admit that it was a bad idea and get rid of it completely."

Beyond the standard political rhetoric, the President's $9.00 proposal is flawed at its heart. Obama is right that it's a travesty for Americans working full-time to live in poverty. If the solution is a higher minimum wage, Obama isn't going nearly far enough at $9 an hour.

The family of three in the President's example is still below the poverty line by official government measures. Earning $9 an hour rate is equal to $18,000 a year. By neither the official measure nor by the yardstick of humanity is a family of three not impoverished if its making ends meet on $18,000 a year.

Putting minimum wage on the table for national discussion is the right thing to do. What's not right is for a second-term President to waste the opportunity he has to make a real difference. By pegging $9 to inflation Obama takes minimum off the table for years to come. He's squandering the one shot the Left has to do something meaningful.

Minimum wage should either be lower to get as many people on what Schiff calls the first rung of the employment ladder as possible, or much higher to actually ease some pain.

$9 just leads to fewer jobs for working poor. It's not a win for Liberalism or a blow to Conservatives. It's a cynical cop out; the kind the country has grown to expect from Washington.