Dos and Don'ts in a recession

So, what should the domestic auto industry do to survive in this recessionary climate? Pretty simple: they should raise the prices of their cars. Charging more per unit would mean more profit and with that profit they could hire more workers who then build more American cars.

Of course, this is non-sense as raising the prices on the cars will be met by a lessening of demand on the consumer end and which is why we are not seeing a rise in the price of cars, currently. But this same non-sense is being made reality by a rise in the federally mandated minimum wage which went into effect this past Friday from $6.55/hour to $7.25/hour – an 11% increase. In a recessionary economy, with people scrambling for jobs and employers scratching to make payroll, Washington just made it harder for employers to retain employees.

Economists generally agree that increases in the minimum wage cause unemployment even when the economy is prospering—something it has not been doing for the last year and a half. David Neumark, a professor at the University of California, Irvine, estimates this rise will destroy some 300,000 jobs among teens and young adults.

Even proponents of the increase understand the tradeoff. Otherwise they would demand an even bigger hike. If you can force employers to pay higher wages without reducing employment, why set the minimum at $7.25 an hour? Why not $17.25? Why not $37.25?

The suspension of disbelief required to support the minimum wage will only take you so far. It's impossible to deny that if it were illegal to pay someone less than a mere $36 an hour, a lot of jobs would vanish. But a small dose of poison is still poison, and in this case it's being administered to a patient who is already ill.

Read entire Reason article, here.