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Americans' Compassion Permits Obama's "backward Robin Hood" Economic Agenda

 By Michael Busler
January 13, 2014


President Obama's economic agenda has focused on helping the lowest 15% of income earners while damaging the rest of us, noting that income inequality is the "defining challenge of our time." The reality, of course, is that income inequality has severely worsened during his administration. And it appears as if the President will continue the agenda this year. So what is likely to happen?

If the agenda's focus could change to policy that placed economic growth as the primary objective, the income inequality problem would fade away. The current administration takes a different view and will continue to push "income redistribution" programs that take income away from people that have earned it and give the income to people, who for whatever reason, have not earned it. This "backward Robin Hood" approach applies to the three primary parts of the Obama economic plan for this year.

Obamacare is the clearest and most redistributive transfer program. Over the next few months we will hear stories about millions of people now benefiting from Obamacare. The problem is that for each person that benefits by receiving care that they could not afford, ten people are paying more for their care. Because Americans are very compassionate they approved of this, at least until they found out what it really was.

The administration is now pushing an increase in unemployment benefits. Many of the unemployed have been receiving benefits for more than one year. At one time some recipients received up to 99 weeks of benefits. This is very costly to the taxpayers who fund it and it is costly to workers whose skills may be lost by the long term inactivity which is encouraged by the long term benefits. If we extend the benefits to the 1.3 million people who qualify, the rest of us will eventually have to pay for it. Because Americans are compassionate they will likely favor this, even if it does cost them something.

The next big push will be for the immensely popular increase in the minimum wage. Most studies show the vast majority of Americans favor at least some increase, mostly for compassionate reasons. The problem is that any further increase in the minimum wage may positively redistribute income in the short term but will worsen income inequality and cause higher rates of unemployment, in the long term. Why?

Look at the Walmart example. For the past three years Walmart profit margins have been about 3 ½%. That means from every dollar in sales, they keep about 3 ½ cents. Based on their large volume, that profit margin provides a sufficient return to the stockholders so that Walmart can raise the capital they need to grow. If the minimum wage is raised, Walmart's costs increase. In order to maintain the 3 ½% profit margin, they will be forced to raise their prices. The result is, in the short term, a few million minimum wage workers see an increase in income while the hundreds of millions of Americans who shop at Walmart pay higher prices.

In the long term, Walmart's higher labor cost encourages the use of capital goods to replace the expensive labor, resulting in fewer jobs. This is, for instance, what happened to toll takers on major highways whose relatively high wages led to their jobs being replaced by automation. The net long term effect of raising the minimum wage is an increase in unemployment among the lowest income earners and a reduction in purchasing power for budget conscience shoppers. This worsens income inequality.

The President's appeals will be very convincing. He will say that we have a duty to take care of all Americans. He will ask: Who could oppose giving affordable health care to every American? Who could oppose the payment of a fair wage for a fair day's work? Who could oppose giving unemployment benefits to those people who, through no fault of their own, can't find a decent job?

Americans are very compassionate. In principle, we do not oppose any of those things. What we do oppose, is investing in our education or training, working hard and gaining some success only to have it taken from us by a government that is more concerned with helping the poor than it is with improving the lives of the vast majority. We recognize there is a social responsibility. But the President's agenda of robbing from the masses to give to the poor is counter-productive. At least Robin Hood took from the corrupt and returned it to those who earned it. The President has it backwards.