Minimum Wage Pits Obama Against Keyne

By Martin Fridson, Forbes

In his State of the Union address President Barack Obama reopened an old controversy by urging a boost in the federal hourly minimum wage from $7.25 to $9.00.

Liberal supporters of the proposal immediately cited research by such eminent scholars as Chairman of the Council of Economic Advisers Alan Krueger suggesting that a hike would benefit low-income workers without raising unemployment.[1]

Those who oppose the idea argue that if you raise the cost of doing something (such as hiring workers), you get less of it. In support of their position, policy wonks who would abolish the minimum wage altogether can claim as an ally an economist even more renowned and no less esteemed by liberals than Krueger—John Maynard Keynes.

Keynes stated in 1930 that tax-financed wealth redistribution was a smarter way to help the poor than fixing wages at above-market rates.  This concept is embodied in U.S. economic policy through the Earned Income Tax Credit, introduced in 1975 under Republican President Gerald Ford.

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