The financial and economic headlines would have you believe that the economy is purring along like an expensive Italian sports car. Unemployment is down, consumer spending is up. Unfortunately this just doesn’t square with the sentiment among average Americans who are working longer for less pay and more expensive benefits. Folks are working harder than ever just to get back to where they were in 2007 before the housing crisis and recession.
Why does this strong economy feel so weak for middle class? What has the government done to help since the recession ended? The Federal Reserve has focused on something called the “wealth effect” to stimulate the economy. The Federal Reserve has indeed created a massive uptick in paper wealth but it has remained in the bank accounts of Wall Street firms and Corporations who have record profit margins. With rising government regulations and expensive health care changes it hasn’t trickled down to the middle class.
How ironic then that our left leaning policy makers are responsible for the largest explosion of “income inequality” in modern times. To address the problem the Fed has begun to reduce the economic stimulus called Quantitative Easing and the stock market responded by declining more than 6% in January.
The dialog has shifted to enacting an increase in the minimum wage which is characterized as an effort to bring fairness to business pay practices. It sounds so simple. Give the poorest a pay raise. The problem with doing this through the minimum wage is that it has proved to be ineffective. Why? Most people earning the minimum wage are not in poor households and they are not the sole earner or primary breadwinner in their household. Economics professors from San Diego State University and Cornell studied 28 states who set their minimum wages above the Federal standard. After examining five years of data they concluded that minimum wage increases did not lower poverty rates.
