KEATING: Obama’s kind of economist

OPINION:

It’s hard to find an economist who questions the relationship between the minimum wage and employment, specifically, that a higher minimum wage reduces employment opportunities for young, low-skilled and inexperienced workers.

After all, this is Economics 101. The impact of price changes and volumes of economic studies over nearly seven decades affirm this negative relationship.

President Obama, however, has found just such an economist, and has chosen him to head up the Council of Economic Advisers.

Princeton University economist Alan Krueger is one of the very few economists challenging minimum-wage orthodoxy. In the early 1990s, he and David Card offered analysis purportedly showing that, in the case of a minimum-wage increase and the New Jersey fast food industry, a higher minimum wage not only fails to decrease employment, but could actually increase it. Assorted left-wing and labor-union groups, of course, have since ignored the seemingly countless studies showing the employment ills of a higher minimum wage in order to embrace the Card-Krueger exception.

But as the Employment Policies Institute (EPI) has made clear, the Card-Krueger analysis was based on flawed labor market assumptions and bad data. Most striking, EPI reported: “The New Jersey fast food study has been re-estimated using payroll records rather than the badly flawed telephone surveys used in the original study. The results, compiled by independent economists, are not surprising: There was significant job loss stemming from New Jersey’s decision to increase the state’s minimum wage in 1992.”

But it’s not just the minimum wage that Mr. Krueger gets wrong.

For example, in a January 2009 piece for the New York Times, Mr. Krueger raised the imposition of a federal consumption tax - on top of current taxes - as “worth considering.” Mr. Krueger argued that announcing that a 5 percent consumption tax imposed two years hence could perk up consumer spending in the near term and jump-start the economy. In the end, of course, such a tax increase would do nothing more than fuel government spending, and reduce private-sector economic activity. Mr. Krueger acknowledged the possibility of dampened economic activity but did not seem all that concerned, claiming that additional tax tinkering could be done if necessary.

But testifying before Congress in May, Mr. Krueger argued that tax increases on domestic energy companies would have no effect on those firms or on energy costs. Higher taxes simply did not matter in this instance.

Mr. Krueger formerly served as an assistant Treasury secretary under Mr. Obama and supported an assortment of failed policies, including more government spending on “infrastructure,” temporary and targeted tax breaks for hiring, expanded subsidies for state and local governments, and the “Cash for Clunkers” automobile subsidies.

Mr. Krueger is an economist who ignores fundamental economic principles, such as the impact of policymaking on prices and incentives, and instead believes that government can manipulate or stimulate the economy.

Mr. Obama has surrounded himself with anti-market, pro-government advisers and has received bad economic advice as a result. But it is advice that reinforces Mr. Obama’s own misunderstandings on the economy. It is not surprising that the president has chosen Mr. Krueger to head up his Council of Economic Advisers.

Quite simply, Mr. Krueger is Mr. Obama’s kind of economist. The Krueger appointment is just more of the same - more misguided, anti-growth policymaking.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.