Obama Seems Determined to Follow the FDR Playbook

Right on the eve of the biggest negative NGDP shock since the 1930s, Congress and the Bush administration got the bright idea of raising the minimum wage by 40%.  Now President Obama seems to want to double down on that failed policy.

WASHINGTON—President Barack Obama’s proposal Tuesday to raise the federal minimum wage is likely to rekindle debates over whether the measure helps or hurts low-income workers.

White House officials say the move to boost the wage to $9 an hour, from $7.25, is aimed at addressing poverty and helping low-income Americans.

FDR tried to artificially raise the nominal wage rate 5 times during the 1930s.  Each increase was followed by a sharp slowdown in industrial production growth.

President Obama seems determined to follow the FDR playbook, but forgot to include the monetary stimulus that prevented an outright disaster.  Admittedly Obama’s proposed increase is far smaller.  But do we really want to make it harder for illegal immigrants to find jobs, just as we consider amnesty?

If the House GOP wants to do something intelligent for a change, they’ll block this insanity.  That’s why I’m so worried.

PS.  It could have been worse:

In 2008, while first running for the White House, Mr. Obama proposed raising the minimum wage to $9.50 an hour by 2011. But the White House never followed through with a push for changes in this area, and he hadn’t brought the issue up again as president until Tuesday night.

PPS.  Yes, I know that there are a few studies that claim higher minimum wages don’t cost jobs.  But as far as I know none consider the monetary offset mechanism.

PPPS.  And universal pre-school.  Modern liberalism: a bottomless pit of “unmet needs.”  No sooner is universal health-care done that we’re on to the next “universal.”

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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