Amateur economist fails to grasp reality of tax cuts, minimum wage

It is amusing and frustrating to read some of the opinion writers’ views on economics. Today we are treated to an author who states “tax cuts won’t bring more jobs.” The author argues against so-called “supply side” tax cuts on business and in favor of raising the minimum wage. He couldn’t be more wrong, but perhaps not for the reasons you might think.

Jobs are not the issue in our economy. Wealth creation is the issue. I could create millions of jobs in America overnight by banning the use of construction and farm implements. Doing all such work with shovels by hand would sure create jobs, but what would it do to our living standards? They’d go down. So, job-creation in and of itself is not a good thing.

The author mentions Henry Ford to justify the minimum wage. Ford paid his workers more because he wanted them to continue working for him and not to leave for his competitors. Ironically, the labor-saving assembly line which was invented by Ford was a huge job-killer. After all, the time and effort for one craftsman to make a car from hand would be immeasurable. The assembly line created tremendous wealth by reducing the amount of time it took for cars to be built, thus creating plenty of jobs, but it is also a labor-saving-practice which cost many other people their jobs. Imagine the poor horse-and-buggy makers!

Lastly, tax cuts, while not a panacea, should reduce the “friction” involved in every day economic activity. When they are applied at high rates and tax things like income, taxes provide a disincentive to do more of a particular activity. In a federalist system like ours, New Mexico’s high corporate tax rate will chase such businesses to other states. While we’re not celebrating the relatively minor tax plan passed at the end of the legislative session, it would be folly to say that tax cuts are not good for everyone.

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3 Replies to “Amateur economist fails to grasp reality of tax cuts, minimum wage”

  1. What’s surprised me since I moved to New Mexico is the number of people I’ve encountered who are economically illiterate. Because much of the population works for the government or its contractors, they’re unaware of basic principles of capital formation, productivity and profitability. Many folks here oppose merit pay for teachers because they’ve never experienced it themselves.

    1. They may not be so much more illiterate here but rather more in thrall with Keynesian ideas of false economics.

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