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Harry Moroz

Shall We Take This Opportunity To Eradicate The Middle Class?

Although the stimulus jobs numbers released yesterday by the Obama administration reflect less than 1 percent of the $787 billion stimulus package, our Bubble-Boy mentality leads us to assume that this data means that the stimulus is not working. In any case, the persistently high unemployment rate has also contributed to a resurgence of debate about how the federal government can create jobs. The solution of this country's right, it seems, is to systematically dismantle each and every governmental policy that has contributed to the health, albeit currently weakened, of the middle class.

Writing in Forbes this week, AEI scholar Steven Davis suggests not only that we should not extend unemployment benefits for the 1.3 million Americans who will run out of them by the end of the year (a number he conveniently omits), but that we should end state mandates for minimum health insurance benefits, abolish the federal minimum wage, and kill and unceremoniously bury the Employee Free Choice Act. This, the Chicago economics professor argues, will "foster jobs creation and help reverse the downward slide in the labor market."

Davis's opposition to extended unemployment insurance is not shared among all conservatives, many of whom believe this basic social policy is a moral obligation during an economic downturn. But his argument that the benefits "weaken rather than strengthen the financial incentives for the unemployed to seek new employment" is a classic line of free marketers. Yet, in the current economic climate, one would have to strain quite hard indeed to explain that the problem with our labor market is that too few people are seeking jobs.

Similarly, Davis's call for ending state mandates for minimum health insurance benefits seems out of place. Though such mandates might drive up premiums in some cases and thus make hiring an employee more expensive (the research swings both ways on this and significant numbers of Americans are not subject to these mandates, notably those on Medicaid and Medicare), eliminating the mandates would decrease the quality of health care, leading to less preventative care and more sickness and, in turn, more spending on health care. Rather than suggesting benefit cuts, it seems that Davis should be calling for a thorough national health care overhaul that includes a health insurance exchange with minimum benefits for employees and a public option that drives down costs for employers. This would solve employers' cost problems while improving, instead of reducing, employee health benefits.

Further, Davis attacks the federal minimum wage for increasing unemployment among the young and unskilled. His solution is not to, say, expand youth summer jobs programs (as the stimulus bill did) or improve green job training for the unskilled, but to abolish the minimum wage for all workers. Beyond the fact that the minimum wage allows workers to maintain at least a decent, if extremely tenuous, standard of living, recent research suggests that the minimum wage does not inherently increase unemployment. During the economic downturn, higher wages even provide a stimulus to the economy because low-income Americans tend to spend, rather than save, most of their income income.

Finally, Davis instructs President Obama to "forcefully renounce the [Employee Free Choice Act] now." The Act, which allows union recognition by card check rather than secret ballot, is already on ice on Capitol Hill. But Davis's concern is that "Fears that the Act might become law are enough to chill investment by firms that could be targets of card-check certification." First, despite Davis's characterization, EFCA would make unionization marginally easier for employees by preventing employers' strong-arm anti-unionization tactics: these firms already face the prospect of secret ballot elections calling for union recognition. Second, any "chilling" effect on investment now is likely to be at least offset by firms shifting investment decisions forward before the Act's provisions apply.

Despite the overblown criticism of the latest stimulus jobs numbers, job creation is lagging in the United States and the economy is clearly not working for the majority of American middle-class households. Yet, instead of championing job creation measures supported by more reasonable conservatives - for example, a payroll tax cut - Davis has chosen to exploit the stagnant economy to deconstruct the policy latticework that has helped build the middle class.

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Posted at 2:38 PM, Oct 16, 2009 in Economic Opportunity | Economic Stimulus | Economy | Employment | Health Care | Labor | Middle-class squeeze | Stimulus
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