Times finally admits it was right


"In the early months of 1935," writes David Leonhardt in today's New York Times, "this newspaper ran a series of editorials warning about a grave threat to the American economy. The Social Security plan being pushed by Franklin D. Roosevelt was 'a bad bill,' the editorials said, that would become an enormous burden on American companies and might be unconstitutional to boot…

Many Congressional Republicans and business executives agreed, predicting that the bill's new payroll taxes would short-circuit the economy's recovery from the Great Depression. With all this criticism, the bill's fate seemed uncertain. On March 21, the editorial page of The New York Times approvingly quoted a news report saying that the bill's prospects were "diminishing daily."

The worries about Social Security may sound silly now, given that it did pass that summer and went on to become one of the most popular government programs in American history. But on the narrow charge that they were making—that Social Security would destroy jobs—the critics at The New York Times and on Capitol Hill were, in fact, correct.

Besides taking money out of the pockets of workers that otherwise might have been spent, the new payroll taxes raised the cost of employing workers, and when the cost of something goes up, demand for it usually goes down. The Social Security Act of 1935, as the historian Edward Berkowitz has noted, laid the groundwork for the "Roosevelt recession" of 1937 and 1938.

Regular readers of the Kan-Do Keynesian's "Economix" column will have guessed already that this stunning admission is just a setup for an argument that "job-killing programs" are good for the economy. Social Security, Medicare, and workplace safety rules, Leonhardt argues, have all elevated standards of living at the cost of only rounding-error-level dips in productivity. So make room for minimum wage hikes, which are on the ballots in Arizona, Colorado, Missouri, Montana, Ohio and Nevada:

[Arguments against the min-wage hike initiatives] seem to be falling flat with voters. A recent poll in Colorado shows 69 percent supporting the measure there, and only 26 percent opposed. In the other five states, the initiatives have similarly big leads…

I think there are two main reasons for the enormous popularity of the proposals. By now, many people probably understand that the dire predictions about higher minimum wages don't come true. In the 10 years since Congress raised the minimum wage, crime didn't become an epic problem, as [Colorado Sen. Hank] Brown forecast. Instead, it has fallen sharply.

In fact, modest rises in the minimum wage don't even appear to kill many jobs. The recent state increases have created a series of natural experiments for researchers to study, and they have generally found that modest changes have only minor effects on employment levels. Some have found no net effect. Higher wages may end up lifting employee morale and reducing turnover, making business more productive and mitigating some of the higher labor costs…

The second big cause of the proposals' popularity stems in all likelihood from the rise of income inequality. The American economy has done so well at creating jobs in recent decades that almost anybody who wants work can find it. The problem is that too many jobs still don't pay a decent living.

There is another argument against the minimum wage, of course: Nobody's forcing you to offer or take any job at any price. If you and another party agree on a price, why is that the government's business? And what powers of perpetual motion does the law have that it can make "income inequality" disappear by fiat?

That having been said, it's worth giving a think to Leonhardt's main point: that the apocalyptic predictions about minimum wages, Social Security, and a host of other expense-creating government mandates have failed to come true, leaving the human race (disappointingly) still alive. Ominously, you could make the same point about almost any regulation on the books.

Courtesy of reader "M," who calls the column, "Pork: The other Social Security."