Hurting Those You Want to Help (Good Intentions Don't Count)

The Minimum-Wage Stealth Tax on the Poor

When a fast-food business is forced to raise pay, it also raises prices. Guess who gets hit worst by the increase.

By: Thomas MaCurdy, WSJ Opinion, Feb. 22, 2015

Imagine an antipoverty program with the following elements: a value-added tax in which the effective rate increases as family income declines. The tax revenue is distributed to families regardless of their income. Families below twice the poverty level get only one-third of the revenue, with only half of this amount going to families with children.

Most Americans wouldn’t cheer this program, nor would most political leaders champion it. Yet that is what happens when Congress raises the minimum wage.

In a peer-reviewed study, “How Effective Is the Minimum Wage at Supporting the Poor?” (forthcoming in the Journal of Political Economy), I analyzed who won and who lost after Congress raised the minimum wage in 1996 to $5.15 from $4.25, a raise that occurred in phases over the period 1996-97. That would be comparable to raising the current minimum wage of $7.25 to nearly $8.80. The results show the failure of minimum-wage hikes as an antipoverty policy.

To be sure, companies on their own—such as Wal-Mart last week—do raise the wages of their lowest-paid workers, typically when it is necessary to retain a stable, productive workforce. But this isn’t the same as a government-mandated, economy wide raise. Still, most Americans favor such mandated increases because they believe it helps poor workers support their families.

One problem is that only about 5% of families have children and are supported by low-wage earnings; another is that higher minimum wages cause some workers to lose their jobs. Advocates of a higher minimum wage argue that the number of workers who gain far exceeds those who lose. Whatever the credibility of this calculus, there is yet another problem: If someone’s income is arbitrarily increased thanks to a legislatively mandated wage increase, someone else must pay for it.

Since economic evidence indicates that higher minimum wages don’t significantly affect employers’ profit rates, advocates instead say that employers will pass on these increased labor costs by raising the prices of their goods and services—and that “society,” or more affluent consumers, will pay these costs.

Virtually as much of the additional earnings of minimum-wage workers went to the highest-income families as to the lowest. Moreover, only about $1 in $5 of the addition went to families with children supported by low-wage earnings. As many economists already have noted, raising the minimum wage is at best a scattershot approach to raising the income of poor families.

The second step is to consider who actually bears the burden of higher labor costs that are passed on through higher prices of goods and services.

My analysis, using the Bureau of Labor Statistics’ Consumer Expenditure Survey, showed that the 1996 minimum-wage hike raised prices on a broad variety of goods and services. Food purchased outside of the home bore the largest share of the increased consumption costs, accounting for 21% with an average price increase of slightly less than of 2%; the next highest shares were around 10% for such commodities as retail services, groceries and household personal services.

Overall, the extra costs attributable to higher prices equaled 0.63% of the nondurable goods purchased by the poorest fifth of families and 0.52% of the goods purchased by the top fifth—with the percentage falling as the income level rose.

The higher prices, in other words, resembled a regressive value-added, or sales, tax, with rates rising the lower a family’s income. This is sharply contrary to normal tax policy. A typical state sales tax has a uniform rate—but with necessities such as food excluded, and this exclusion (which exists as well in countries with a value-added tax) is adopted expressly to lower the effective tax rate on consumption by people with lower incomes.

My analysis concludes that more poor families were losers than winners from the 1996 hike in the minimum wage. Nearly one in five low-income families benefited, but all low-income families paid for the increase through higher prices.

Consider a McDonald’s restaurant, often cited as ground zero in minimum wage debates. To cover costs of a mandated increase in the earnings of McDonald’s lowest-paid workers, customers pay more for the company’s food. The distributional question becomes: Which group comes from the least well-off families: McDonald’s customers or its lowest-paid workers? Economy-wide evidence shows that the customers disproportionately come from low-income families.

Mr. MaCurdy is an economics professor at Stanford University and a senior fellow at the Hoover Institution.

A Rational Word for the Those That Care of Others

Minimum Wage, Maximum Politics

A mandated 40% increase in labor costs will put people out of work. But, hey, anything to help get out the vote.

By Andy Puzder, Oct. 5, 2014, WSJ Opinion

As the midterm elections approach, President Obama is calling on Congress to increase the federal minimum wage to $10.10 an hour from $7.25. “Let’s give America a raise, and make our economy stronger,” he said on Thursday at Northwestern University. That sounds nice, and the hike would give a raise to Americans who already have jobs earning the minimum wage, assuming that they’re still employed after the required raise. Unfortunately, this 40% minimum-wage hike would also reduce employment opportunities for those who need them most.

The middle class and working poor are struggling. While the stock market soared to historic highs, the labor-participation rate dropped in September to 62.7%—the lowest since 1978—according to the Bureau of Labor Statistics. More than six million people, BLS reports, are “not in the labor force” but “want a job now.”

Will a 40% minimum-wage increase improve this picture? No. Let’s examine how it would affect a restaurant franchisee, a typical small business owner attempting to run a profitable enterprise. My company, CKE Restaurants, has more than 200 franchisees running about 2,000 restaurants nationwide.

Our typical franchised restaurant employs 25 people and earns about $100,000 a year in pretax profit—about 8% of the restaurant’s $1.2 million annual sales. Our general managers, often also the store owners, are responsible for the success or failure of the business. They manage the employees and are in charge of a million-dollar facility. General managers are responsible for at least 25% of store profits. The other 24 employees are responsible for the remaining 75%, which comes to about $3,125 an employee. That is a generous estimate, as entry-level employees likely contribute less than their more experienced colleagues.

If minimum-wage crew members working 25 hours a week received a 40% raise, they would earn an additional $3,705 a year. That is $580 more than what the employee contributes to the restaurant’s profits.

The point is simple: The feds can mandate a higher wage, but some jobs don’t produce enough economic value to bear the increase. If government could transform unskilled entry-level positions into middle-income jobs, the Soviet Union would be today’s dominant world economy. Spain and Greece would be thriving.

But here’s what middle-class business owners, who live in the real world, will do when faced with a 40% increase in labor costs. They will cut jobs and rely more on technology. Such changes are already happening in banks, gas stations, grocery stores, airports and, more recently, restaurants. Almost every restaurant chain in the country from Applebee’s to McDonald’s is testing or already implementing automated ordering with tablets or kiosks.

The only other option is to raise prices. Yet it would be near-impossible to increase prices enough to offset the wage hike, particularly given today’s economic conditions. More important, price increases burden consumers, particularly those with low incomes who are supposed to be helped by a minimum-wage increase.

The better policy would be to encourage the private sector to create more middle-income jobs. North Dakota enjoys the lowest unemployment rate in the country, at 2.8%, thanks to the state’s energy boom. The state minimum wage is $7.25, but entry-level employees typically make $12 to $15 an hour. This happened because the state’s dynamic economy created a demand for labor and supports increased pricing to offset increased wages.

But if the administration succeeds in persuading Congress to raise the wage, the new law should at least attempt to mitigate these negative economic consequences. A more modest increase would help. So would spacing out the increase over time.

An effective minimum-wage policy would also recognize that there are at least two distinct groups of workers who earn the minimum wage. First, there are breadwinners trying to support a family. This is relatively uncommon; such individuals represent only about 15% of minimum-wage earners, or about 0.3% of all wage and salaried employees, according to the nonpartisan Washington Policy Center.

Then there are young people who need entry-level job experience to get on the ladder of opportunity. Half of people earning at or below minimum wage are under 24 and 24% are teenagers, according to BLS. While a minimum-wage increase would benefit heads of households, who retain their jobs, it would typically price America’s youth out of the labor market, particularly America’s working-class youth. A sensible minimum-wage policy would exempt teenagers and students who need these jobs.
Finally, an effective policy would consider geography. Take California: In San Francisco, the unemployment rate was 4.7% in August thanks in large part to the tech boom in nearby Silicon Valley. A mere 80 miles away in Stockton, it was 10.3%. San Francisco’s economy can sustain a higher minimum wage, but in Stockton many people need any job they can find. States and cities should be allowed to adjust the minimum wage based on regional economic conditions or local needs.

While a 40% across-the-board increase in the minimum wage may have political appeal, any politician sincerely attempting to help those in need would recognize the negative impact of federal increases and the need for policies that increase economic growth. At the very least, they would recognize the impact such an increase would have on our youth, particularly in regions where unemployment remains alarmingly high.

The failure to address these issues suggests that the administration’s motive is political, not compassionate. The president’s minimum-wage hike might cost 500,000 jobs, according to Congressional Budget Office estimates. But the pre-election push is mostly about safeguarding the jobs of a smaller group of people: congressional Democrats.

Mr. Puzder is the chief executive officer of CKE Restaurants.

Time To Judge Your Voting Decision - Here's How

Senate Democrats vs. the Middle Class
Senators elected in 2008 made Obama's agenda possible, and its results have harmed most Americans.

By ByPhil Gramm And Michael Solon, WSJ Opinion, August 18, 2014

On Nov. 3, 2008, seven new Democratic senators were elected, giving Democrats 58 votes. Eight months later, with the Minnesota Senate race settled and Arlen Specter having switched parties, Democrats secured the 60th vote to overcome filibusters and impose absolute control over the Senate for the first time in 31 years. In 78 days, American voters will render judgment on the record of the Senate Democratic Class of 2008, and on all 35 Democratic candidates seeking to perpetuate their Senate majority.

The Senate's Democratic majority was united after the 2008 election in its commitment to President Obama's progressive vision to remake America. And with a financial crisis afoot, it was determined to not waste the opportunity.

ObamaCare, which gave government control of the health-care system, was vigorously supported, promoted and defended by every Senate Democrat. It became law in March 2010 without a single Republican vote in either house of Congress. Every Democratic senator cast the deciding vote for ObamaCare.

Since the Progressive Era a century ago, Democrats have dreamed of seizing the commanding heights of the financial system to expand government's ability to influence the allocation of credit. The passage of Dodd-Frank in July 2010, also supported by every Democrat in the Senate, made that dream a reality.

In 1993, President Clinton had been unable to pass a comparatively modest $16 billion stimulus program. Democrats in 2009 passed a massive $787 billion stimulus program with every Democratic senator voting for it. And with the tacit support of Democratic senators who have blocked every bill, resolution or amendment that impeded any aspect of his regulatory agenda, President Obama has implemented the most massive expansion of federal regulatory authority since the Great Depression.

It is impossible for any Democratic senator running for re-election this year to credibly argue that he or she did not support the president's program or provide a critical vote to enact it. No Democratic candidate can argue that by electing him or her and sustaining the Democratic majority in the Senate, voters can hope to alter the president's program.

With his party's Senate supermajority, President Obama achieved a series of historic political victories. But the question most voters will have to answer on Nov. 4 is whether this program has been good for working Americans. We think the answer is clear. As is well known, the Obama recovery is the weakest in postwar history. If the Obama recovery had been as strong as the average of the previous 10 postwar recoveries, 13.9 million more Americans would be working today and the average real per capita income of every man, woman and child in America would be $6,308 higher.

But the real scorecard on the Senate Democrats elected in 2008 is in the Census Bureau's Current Population Survey data. While all Democrats claimed to be champions of the middle class and defenders of minorities and women, census data show how their program did not live up to their campaign promises.

Since the Senate Democratic Class of 2008 took control, the average real income of the poorest one-fifth of American families has declined every year, falling to $15,534 in 2012 from $16,962 in 2008 (the 2013 data will be released Sept. 16). The average real income of the lowest quintile of Americans is now below the level it was in 1968, the year when the War on Poverty began its spending surge.

The next-highest income quintile, often referred to as the working class, has also experienced a continuous decline in real income since January 2009. The average income of these Americans has fallen 6.5% and is now $1,182 lower than it was when President Reagan left office.

The third quintile—America's middle class—has seen its average income decline to $62,464 from $65,672. More than half of this decline has occurred since the recovery officially began in the second quarter of 2009.

Losses for the typical household, as measured by real median income, have been especially heavy in the very states where 2008 Senate Democrats are up for re-election. In Alaska, household income in 2012 was 7.2% lower than it was at the end of 2008, falling back to its 1988 level. In Arkansas, household income has dropped 8.2%. Colorado households have 13.5% less income than they did before the Democratic Congress and President Obama transformed America. The same is true in Louisiana, where household income has fallen 7.9%. And in North Carolina, household income has declined 10.2%—falling to the lowest level in the 28 years the Census Bureau has provided state-by-state income data.

Census data also show the progressive program has failed women and minorities. Married women, unmarried women and women living alone all saw their incomes fall. Under the Obama administration, the median income of women has fallen more during the recovery than it did during the recession, an unprecedented economic failure in postwar America.

The real median income of African-American households has fallen by 9.5%, more than any other major census classification. Hispanic income has fallen, especially for middle-income Hispanic families, whose income has declined every year since 2008. According to the latest census data, the income of middle-class Hispanics is lower than when Jimmy Carter was president.

The Democratic Party's great political victory in 2008 led to the realization of a progressive agenda in the making for a century. But that agenda resulted in economic failure for working Americans. It failed as it has always failed: Progressive policies buy votes but destroy prosperity. The Senate Democratic Class of 2008 and the entire Obama program are now endangered because their program has hurt the very people it was supposed to benefit. 

Minimum Help

Who Really Gets the Minimum Wage

Obama's $10.10 target would steer only 18% of the benefits to poor families; 29% would go to families with incomes three times the poverty level.

By David Neumark, WSJ Opinion, July 6, 2014

President Obama is pushing hard for an increase in the federal minimum wage to $10.10, from $7.25. State and local governments have jumped on the bandwagon. Massachusetts has passed a minimum of $11, the highest state minimum in the country, and Seattle's City Council has voted to raise the wage floor to $15 an hour over seven years; San Francisco is considering a hike to $15 too. The president and others argue that a higher minimum wage is needed to help poor and low-income families, who have suffered from stagnating wages and rising income inequality. But a higher minimum wage would do little for such families.

A higher minimum wage raises wages of low-wage workers, and even though most evidence points to job losses from higher minimum wages, the evidence doesn't point to widespread employment declines. Thus, consistent with a recent Congressional Budget Office report, many more low-wage workers will get a raise than will lose their jobs. But that argument is about low-wage workers, not low-income families. Minimum wages are ineffective at helping poor families because such a small share of the benefits flow to them.

One might think that low-wage workers and low-income families are the same. But data from the U.S. Census Bureau show that there is only a weak relationship between being a low-wage worker and being poor, for three reasons.

First, many low-wage workers are in higher-income families—workers who are not the primary breadwinners and often contribute a small share of their family's income. Second, some workers in poor families earn higher wages but don't work enough hours. And third, about half of poor families have no workers, in which case a higher minimum wage does no good. This is simple descriptive evidence and is not disputed by economists.

A historical perspective is instructive. Assembling Census Bureau data over nearly seven decades, Richard Burkhauser and Joseph Sabia have shown that in 1939, just after the federal minimum wage was established, 85% of low-wage workers (those earning less than one-half the private-sector wage) were in poor families. Such a high percentage implies that, in that year, the new minimum wage targeted poor families well. However, as the public safety net expanded, family structure changed and more people in families began working, this percentage fell sharply over time—to around 17% by the early 2000s.

In contrast, as of the early 2000s 34% of low-wage workers were in families that were far from poor, with incomes more than three times the poverty line. In other words, for every poor minimum-wage worker who might directly benefit from the minimum wage, two workers in families with incomes more than three times the poverty line would benefit.

It is hard to design government programs that narrowly target those we are trying to help, so evidence that some of the benefits accrue to those who aren't targeted should not be used as a blanket condemnation. But the extent to which this happens with the minimum wage is staggering.

The effectiveness of minimum-wage targeting may have improved in the past decade because of declines in wages for lower-skill adults, and a lower employment rate among teenagers. But the improvement is only slight. 

Using data from the Current Population Survey for recent years, my graduate student Sam Lundstrom has calculated that if we were to raise the minimum wage to $10.10 nationally, 18% of the benefits of the higher wages (holding employment fixed) would go to poor families. Twenty-nine percent would go to families with incomes three times the poverty level or higher.

What about minimum wages as high as $15 an hour? A higher minimum obviously affects more workers. But because workers at higher wages are even less likely to be in poor families, the targeting only worsens with a higher minimum wage. For example, applying the same calculation as above for a $15 per hour minimum, the share of benefits going to poor families would decline to 12%, and the share to families more than three times the poverty line would increase to 36%. And this does not account for the sizable employment losses that would likely result from such a large minimum-wage increase.

A higher minimum wage can still reduce poverty if the wage gains for workers in poor families outweigh the job losses caused by the increase. Researchers have studied this question, using data from the Census Bureau's Current Population Survey to compare changes in poverty in states that raised their minimum wage vs. states that didn't. Like the longer-running debate on the employment effects of minimum wages, there are some divergent results. However, most studies—this time in contrast to the conclusions that CBO reaches—fail to find any solid evidence that higher minimum wages reduce poverty.

This evidence suggests we should consider alternative policies. The Earned Income Tax Credit directly targets low-income families, rather than low-wage workers. And my research with William Wascher, using Census Bureau data, shows that a higher EITC boosts incomes of poor families, and even—by encouraging work—leads to more low-income families earning their way out of poverty. The EITC could be made more generous, particularly for childless adults who currently get little from it.

Because the EITC operates through the tax code, it also has the virtue, in this era of rising inequality, of being financed disproportionately by those with the highest incomes. Raising the minimum wage is ineffective on that score because it is paid by those who hire low-wage labor. Some employers of low-wage labor may be rich, but many are not.

The desire to help poor and low-income families is understandable. But increasing the minimum wage is a misguided way to do it.

Mr. Neumark is an economics professor and director of the Center for Economics and Public Policy at the University of California, Irvine. 

Stuck on Welfare

Example As To Why it is Tough

So, the Secretary of Public Welfare in Pennsylvania did a presentation last year trying to find ways to help people get better jobs, higher income and to help people find the ability to get off welfare.  First he tried to define the problem and this example case illuminates so much.  Click to enlarge.

Click to enlarge

Assumptions: (1) Single mom; (2) Two children; (3) Lives in Pennsylvania; (4) no disabilities; (5) Children are 1 and 4 years old and placed in a 'Star 4' childcare center

The line coming from where the axis meet is the income line.  As the woman earns more money, income tax credits are reduced and taxes required become deducted.  Further, state and federal assistance provide through various types of programs including housing, food, childcare, etc. begin to become ineligible or reduced.

To see more interesting charts and graphs or to see the powerpoint presentation click here.

Crumblings

Obama Repeals ObamaCare
Under pressure from Senate Democrats, the President partly suspends the individual mandate.

WSJ, Dec. 22, 2013

It seems Nancy Pelosi was wrong when she said "we have to pass" ObamaCare to "find out what's in it." No one may ever know because the White House keeps treating the Affordable Care Act's text as a mere suggestion subject to day-to-day revision. Its latest political retrofit is the most brazen: President Obama is partly suspending the individual mandate.

The White House argued at the Supreme Court that the insurance-purchase mandate was not only constitutional but essential to the law's success, while refusing Republican demands to delay or repeal it. But late on Thursday, with only four days to go before the December enrollment deadline, the Health and Human Services Department decreed that millions of Americans are suddenly exempt.

Individuals whose health plans were canceled will now automatically qualify for a "hardship exemption" from the mandate. If they can't or don't sign up for a new plan, they don't have to pay the tax. They can also get a special category of ObamaCare insurance designed for people under age 30.

***
So merry Christmas. If ObamaCare's benefit and income redistribution requirements made your old, cheaper, better health plan illegal, you now have the option of going without coverage without the government taking your money as punishment. You can also claim the tautological consolation of an ObamaCare hardship exemption due to ObamaCare itself.

These exemptions were supposed to go only to the truly destitute such as the homeless, bankrupts or victims of domestic violence. But this week a group of six endangered Senate Democrats importuned HHS Secretary Kathleen Sebelius to "clarify" that the victims of ObamaCare also qualify. An excerpt from their Wednesday letter, whose signatories include New Hampshire's Jeanne Shaheen and Virginia's Mark Warner, is nearby.

HHS and the Senators must have coordinated in advance because literally overnight HHS rushed out a bulletin noting that exemptions are available to those who "experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan." A tornado destroys the neighborhood or ObamaCare blows up the individual insurance market, what's the difference?

The HHS ruling is that ObamaCare is precisely such a "significant, unexpected increase." In other words, it is an admission that rate shock is real and the mandates drive up costs well into hardship territory. HHS is agreeing with the Senators that exemptions should cover "an individual whose 2013 plan was canceled and considers their new premium unaffordable." In her reply letter, Mrs. Sebelius also observes that some people "are having difficulty finding an acceptable replacement." She means the new plans are overpriced.

The under-30 ObamaCare category that is being opened to everyone is called "catastrophic" coverage. These plans are still more expensive than those sold on the former market but they're about 20% cheaper on average than normal exchange plans because fewer mandates apply and they're priced for a healthier, younger risk pool. Liberal Democrats hated making even this concession when they wrote the law, so people who pick catastrophic plans don't get subsidies.

What an incredible political turnabout. Mr. Obama and HHS used to insist that the new plans are better and less expensive after subsidies than the old "substandard" insurance. Now they're conceding that at least some people should be free to choose less costly plans if they prefer—or no plan—and ObamaCare's all-you-can-eat benefits rules aren't necessary for quality health coverage after all.

But the White House is shredding ObamaCare's economics on its own terms. Premiums for catastrophic products are based on the assumption that enrollees would be under 30. A 55-year-old will now get a steep discount on care courtesy of the insurer's balance sheet, while other risk-tiers on the exchanges will have even fewer customers to make the actuarial math work.

Pulling the thread of the individual mandate also means that the whole scheme could unravel. Waiving ObamaCare rules for some citizens and continuing to squeeze the individual economic liberties of others by forcing them to buy what the White House now concedes is an unaffordable product is untenable. Mr. Obama is inviting a blanket hardship amnesty for everyone, which is what Republicans should demand.

The new political risk that the rules are liable to change at any moment will also be cycled into 2015 premiums. Expect another price spike late next summer. With ObamaCare looking like a loss-making book of business, a public declaration of penance by the insurance industry for helping to sell ObamaCare is long overdue.

The only political explanation for relaxing enforcement of the individual mandate—even at the risk of destabilizing ObamaCare in the long term—is that the White House is panicked that the whole entitlement is endangered. The insurance terminations and rollout fiasco could leave more people uninsured in 2014 than in 2013. ObamaCare's unpopularity with the public could cost Democrats the Senate in 2014, and a GOP Congress in 2015 could compel the White House to reopen the law and make major changes.

Republicans ought to prepare for that eventuality with insurance reforms beyond the "repeal" slogan, but they can also take some vindication in Thursday's reversal. Mr. Obama's actions are as damning about ObamaCare as anything Senator Ted Cruz has said, and they implicitly confirm that the law is quarter-baked and harmful. Mr. Obama is doing through executive fiat what Republicans shut down the government to get him to do.

***
The President declared at his Friday press conference that the exemptions "don't go to the core of the law," but in fact they belong to his larger pattern of suspending the law on his own administrative whim. Earlier this month he ordered insurers to backdate policies to compensate for the federal exchange meltdown, and before that HHS declared that it would not enforce for a year the mandates responsible for policy cancellations. Mr. Obama's team has also by fiat abandoned the small-business exchanges, delayed the employer mandate and scaled back income verification.

"The basic structure of that law is working, despite all the problems," Mr. Obama added. His make-it-up-as-he-goes improvisation will continue, because the law is failing.

Minimum Economic Thought

Who Really Employs Minimum-Wage Workers?

Don't be fooled by organized labor's talking points. Small businesses do the hiring.

By Michael Saltsman, Oct. 28, 2013, WSJ Opinion

The only thing standing between minimum wage employees and a generous salary with paid time off is the greed of the large corporations they work for. That's the argument voters in SeaTac, Wash., will consider Nov. 5 when they vote on a referendum to create a $15 minimum wage—more than twice the federal minimum of $7.25.

This corporations-can-afford-it narrative isn't confined to the Pacific Northwest. Earlier this year, groups like Fast Food Forward, backed by the Service Employees International Union, organized walk outs at large restaurants in major cities and presented the same $15 demand, arguing that "it's time for these big fast-food and retail companies to pay up."

It's a clever talking point designed to shift the focus from the size of the wage mandate to the size of the employer. But it doesn't square with the facts.

In March each year, the Census Bureau conducts a special survey of many of the same U.S. households that make up the monthly jobs report. Respondents are asked about the size of the company they work for, and the responses are then sorted into six categories ranging from fewer than 10 employees to 1,000 or more.

In a recent analysis, the Employment Policies Institute used this data to determine the size of a typical minimum-wage employer. Contrary to the rhetoric of organized labor and its allies, the vast majority of people earning the minimum wage aren't working at large corporations with 1,000 or more employees. Roughly half the minimum-wage workforce is employed at businesses with fewer than 100 employees, and 40% are at very small businesses with fewer than 50 employees.

The results are similar even if you follow the left's cue and broaden the analysis from minimum wage employees earning $7.25 an hour to "low-wage" employees earning $10 an hour or less: 46% still work for businesses with 100 or fewer employees.

Some of these businesses are small diners or independent grocery stores; others are franchisees that own a handful of stores affiliated with a recognizable brand. (For instance, over 80% of McDonald's locations are owned by franchisees.) In either case, the profits and executive pay at the country's largest businesses have nothing to do with the stark economics these small-business owners face: single-digit profit margins, extremely price-sensitive customers, and no room to absorb a substantial increase in the minimum wage without dramatically reducing the cost of service.

These facts are important because the contrast between corporate pay and entry-level wages is a linchpin in the liberal argument for a higher minimum wage. "Many corporations are posting record-breaking profits," complains the SEIU-backed National Employment Law Project. "They can afford to pay better."

Even President Obama has gotten in the act, arguing that "CEO pay has never been higher" to support his call for a higher minimum wage. The small-business owners that would actually bear the brunt of the president's good intentions are surely scratching their heads at this case of mistaken identity.

Even if the talking point was true, and large corporations were mostly responsible for the country's minimum wage workforce, organized labor's math still wouldn't make sense. Profit margins are determined more by the business model than the size. According to Deloitte's Restaurant Industry Operations Report, the median profit margin at an independently owned fast-food restaurant is 2.6%—and only about a percentage point more at a corporately-owned location. The corporate locations might have more of a cash reserve than their independent counterparts, but any labor cost increase is also magnified across a larger workforce.

The large corporate villain is unlikely to disappear off the public stage anytime soon. It's proved an effective boogeyman in campaigns on health care, paid time off, and a host of other union priorities. It's disappointing, but not surprising: In labor's political campaigns, truth is always the first casualty.

Mr. Saltsman is research director at the Employment Policies Institute.

More Inequality and Less Growth

The Inequality President

The rich have done fine under Obamanomics, not so the middle class.

WSJ Editorial, July 25, 2013

President Obama made his fourth or fifth, or maybe it's the seventh or eighth, pivot to the economy on Wednesday, and a revealing speech it was. We counted four mentions of "growth" but "inequality" got five. This goes a long way to explaining why Mr. Obama is still bemoaning the state of the economy five years into his Presidency.

The President summed up his economic priorities close to the top of his hour-long address. "This growing inequality isn't just morally wrong; it's bad economics," he told his Galesburg, Illinois audience. "When middle-class families have less to spend, businesses have fewer customers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. When the rungs on the ladder of opportunity grow farther apart, it undermines the very essence of this country."

Then the heart of the matter: "That's why reversing these trends must be Washington's highest priority. It's certainly my highest priority."

Which is the problem. For four and a half years, Mr. Obama has focused his policies on reducing inequality rather than increasing growth. The predictable result has been more inequality and less growth. As even Mr. Obama conceded in his speech, the rich have done well in the last few years thanks to a rising stock market, but the middle class and poor have not. The President called his speech "A Better Bargain for the Middle Class," but no President has done worse by the middle class in modern times.

By now the lackluster growth figures are well known. The recovery that began four years ago has been one of the weakest on record, averaging a little more than 2%. And it has not gained speed. Growth in the fourth quarter of 2012 was 0.4%. It rose to a still anemic 1.8% in the first quarter but most economists are predicting even slower growth in the second quarter.

We hope the predictions of a faster growth in the second half will be right, but the Obama Treasury and Federal Reserve have been predicting for four years that takeoff was just around the corner. Stocks are doing great, and housing prices are rising, but job growth remains lackluster. What has never arrived is the 3%-4% growth spurt during typical expansions.

The official excuse is that recoveries coming out of recessions caused by financial crises are always slow. But then why have we been told every few months for five years that faster growth would soon be coming? Perhaps readers recall former Treasury Secretary Tim Geithner's famous 2010 op-ed, "Welcome to the Recovery." Mr. Obama wants it both ways: Take credit for recovering from recession, but blame that recession ad infinitum for the slow pace of the recovery.

What about the middle class that is the focus of Mr. Obama's rhetoric? Each month the consultants at Sentier Research crunch the numbers from the Census Bureau's Current Population Survey and estimate the trend in median annual household income adjusted for inflation. In its May 2013 report, Sentier put the figure at $51,500, essentially unchanged from $51,671 a year earlier.

And that's the good news. The bad news is that median real household income is $2,718, or 5%, lower than the $54,218 median in June 2009 when the recession officially ended. Median incomes typically fall during recessions. But the striking fact of the Obama economy is that median real household income has fallen even during the recovery.

While the declines have stabilized over the last two years, incomes are still far below the previous peak located by Sentier of $56,280 in January 2008. No wonder Mr. Obama is now turning once again to his familiar political narrative assailing inequality and blaming everyone else for it. He wants to change the subject from the results on his watch.

The core problem has been Mr. Obama's focus on spreading the wealth rather than creating it. ObamaCare will soon hook more Americans on government subsidies, but its mandates and taxes have hurt job creation, especially at small businesses. Mr. Obama's record tax increases have grabbed a bigger chunk of affluent incomes, but they created uncertainty for business throughout 2012 and have dampened growth so far this year.

The food stamp and disability rolls have exploded, which reduces inequality but also reduces the incentive to work and rise on the economic ladder. This has contributed to a plunge in the share of Americans who are working—the labor participation rate—to 63.5% in June from 65.7% in June 2009. And don't forget the Fed's extraordinary monetary policy, which has done well by the rich who have assets but left the thrifty middle class and retirees earning pennies on their savings.

Mr. Obama would have done far better by the poor, the middle class and the wealthy if he had focused on growing the economy first. The difference between the Obama 2% recovery and the Reagan-Clinton 3%-4% growth rates is rising incomes for nearly everybody.

House Republicans have put a check on Mr. Obama's most destructive economic policies, but the President could do more to help growth if he crossed party lines to pass tax reform the way Reagan did in his second term, or to work out a budget deal as Bill Clinton did in his fifth year.

Mr. Obama's only pro-growth proposal is immigration reform, and we're not sure he wants even that to pass. Judging by the partisan tenor of his Wednesday speech, he may be setting it up to use as a campaign wedge in 2014. If only Mr. Obama understood that before a government can redistribute wealth, the private economy has to create it.

Keynes, Copernicus & Mayans, Oh My!

The Obamaian Universe

A place where everything revolves around the fixed planet of public spending

By Daniel Henninger, WSJ Opinion, February 27, 2013

It may be that we have to move beyond politics alone to explain events in Washington. We are in the fifth year of the Obama presidency, and Washington is still dead in the water. Four straight years in which the government of the United States of America fails to enact a budget is, well, amazing.

An illustration of the Ptolemaic geocentric system.

The sense is growing around Washington, and this increasingly includes Democrats, of living in an alternative universe. Barack Obama gives his State of the Union speech, the sequester looms, and the president flies around the country giving speeches. He's had virtually no contact on the sequester with the legislative branch. Now he's going to meet with them after the sequester happens. This is unusual. We need to look outside normal politics for explanations.

Mr. Obama likes to convey the impression that he doesn't think or do business like other presidents. It's time to take him at his word. If Washington is starting to look like an alternative universe, that's because the president is creating an alternative universe, the Obamaian Universe. (Obamaian is pronounced Oh-buh-mayan, as in the recently famous calendar.)

The Obama administration is trying to pull us back into what astronomers would call the pre-Copernican world. Copernicus' heliocentric system overthrew what was known as geocentrism—the belief that everything in the universe revolved around the earth. Beautiful maps exist depicting geocentrism.

Economic thinkers since at least the time of, well Copernicus, have understood that national well-being derived from private individuals going out into the private world to produce goods and trade goods, an activity that for centuries has created wealth for many nations. No longer. Mr. Obama and his circle divide the economy into separate parts. In the Obamaian universe, the units of the private economy—companies large or small—are satellites orbiting the great fixed planet of public spending. All material and economic life in the Obamaian model radiates outward from a central source of public spending. This is why spending in the Obama presidency abruptly jumped as high as 25% of GDP from a 40-year average of 20% of GDP.

In "Star Trek," as I recall, its genius creator Gene Roddenberry routinely made clear that people living in an alternative universe always needed a "life force" unique to their planet. Something that kept the people on the planet going, like a magical green ooze.

In the Obamaian universe, the life force is a fairly weird contraption known as the Keynesian Multiplier. As explained by its adherents, for every $1 of public spending, the whole economy will rise by $1.50 or even $2.

As life forces go, the Keynesian Multiplier would be really remarkable. Alas, Copernican economists such as Robert Barro have been asking repeatedly the past four years for the evidence that all this spending in Mr. Obama's public universe has been expanding the economy at this rate. Indeed, the Congressional Budget Office just said that in 2013, which will be the fifth year of Obama budgets that spend about $3.5 trillion annually, the economy is only going to grow 1.4%.

For that, Mr. Obama has an answer: more spending, which would be made possible by ratcheting up the volume of revenue flowing into the spending machine via whatever cats-and-dogs tax increase he can get through Congress.

Maybe the Keynesian Multiplier, like green ooze, just doesn't work.

It doesn't matter. As with geocentrism, the president's pre-Copernican political economy is based in religious belief. This is why House Speaker John Boehner and so many others have never been able to get on the same page with the president about the upward slope of federal spending. He doesn't want to cut spending. He wants more of it. Forever. Public spending is beyond ideology for Barack Obama. It's the oxygen in his universe.

This explains Mr. Obama's End-of-Days speeches the past week. Rationalists around Washington's professional budgeting community have been trying to explain that this apocalypse is entirely avoidable. The bureaucracies can move spending under many shells. But Mr. Obama really believes the stars will fall from the sky if spending declines.

In Washington's standard model, it's all just politics. Mr. Obama is running an established strategy of driving public opinion to marginalize and ultimately defeat Republicans. Who could doubt it? But maybe it is also time to start taking Barack Obama at his word. Maybe it's time to come to grips with the fact that he sees the public economy of federal spending as the life force of the nation as no president ever has, not even Franklin Roosevelt.

If after all these years no one in Washington can cut a deal with Barack Obama on spending, taxes and economic growth, maybe it's because he is in a place indeed occupied by no one else.

At Least He Didn't Say 'Living Wage'

The Liberal Case

I wrote the author a quick critique of this piece which I have placed following the article at the bottom of the post.

Making the Minimalist Case for the Minimum Wage

By: Michael Kinsley, February 20, 2013, Bloomberg News

   Even a conservative who ordinarily doesn’t care much for government regulation of business ought to find the case for a government-mandated minimum wage pretty compelling. In brief: As a conservative, you believe in the dignity of work. And it sends a terrible message about the dignity of work when working full-time doesn’t earn you enough to live a decent life.

     On the other hand, even a committed liberal who’s concerned about growing income inequality ought to have some doubts about the minimum wage. The minimum wage reduces employment (or “destroys jobs,” as the accusation is usually put) by pricing people out of the market.

     When two people (let us call them “worker” and “boss”) voluntarily make a deal, we can presume it must be good for both of them. Otherwise, they wouldn’t do it. This logic applies to employment deals just like any others. No one is forced to take any job, so when someone does take a job, we may surmise that he or she finds this job, at the pay being offered, preferable to other available jobs -- or to no job at all. By what right and what logic do we step in and say: No, this is a deal you’re not allowed to make?

                            No Help

     You may say that when an unemployed worker with a family to support takes a nasty job at a low wage out of desperation, this is hardly the kind of voluntary free-market decision contemplated by Adam Smith. But unless you’re offering a better job or a better wage, simply forbidding this particular deal is of less than no help. The minimum wage restricts workers as well as bosses: It forbids both categories of economic actor from making a deal they wish to make.

     The current federal minimum wage is $7.25 an hour, a figure that reflects our ambivalence about the whole idea. A wage of $7.25 an hour amounts to $15,080 a year. At this rate, we’re violating the principle of free markets by having a minimum wage of any level. But $15,080 isn’t enough for anyone -- let alone any family -- to live on with dignity.

     President Barack Obama proposes to raise the minimum wage to $9 an hour from $7.25 an hour. Economics tells us that this will destroy jobs. Anyone whose hourly work is worth more than

$7.25 but less than $9 will become unemployable. What kind of favor is this to them?

     Critics of the minimum wage like to say that it slices the bottom off the ladder of success. You might be able to work your economic value up from nothing to five bucks an hour to $9 an hour or (we may hope) even more. (Nine dollars an hour is still only $18,720 a year. Good luck.) But if you can’t even start the great game of life until you’re worth $9 an hour, the challenge is greater.

     There are studies suggesting that the minimum wage doesn’t really destroy jobs. These get hauled out whenever an increase in the minimum wage is contemplated. They are hard to believe.

In fact, I don’t believe them. The conclusion is just too counterintuitive and too convenient.

     Critics of the minimum wage think this is the end of the story. To them, the minimum wage is just an anachronism from the New Deal, a sop to people who don’t believe or don’t understand the basic principles of economics.

     Yet many government policies violate basic principles of economics and therefore reduce our prosperity. A perfectly legitimate answer to this objection is, “So what?” A prosperous society such as the U.S. can afford to give up some prosperity in exchange for more equality or some other social goal.

                            No Thanks

     If we were to ask people who actually do work at the minimum wage whether they would like to see it abolished, most undoubtedly would say, “No, thank you.” Is this because they don’t know economics? Because they don’t realize how the minimum wage could take away their jobs? Because they’re crazy or duped by left-wingers who love red tape and hate America and want to see our economy strangled?

     Not necessarily. Minimum-wage workers might quite reasonably think: “This is a gamble. But it’s a gamble worth taking. Maybe I’ll end up without a job, but maybe I’ll end up with a raise of $1.75 an hour.” That doesn’t sound like much of a raise, but it’s 24 percent.

     You can’t know for sure in advance which effect the minimum-wage increase will have on any particular person: A raise? Or unemployment? But it’s far from irrational for minimum-wage workers to conclude at some point that the risk of losing their jobs is worth taking in exchange for the certainty of a raise. It depends on the size of the risk and the size of the raise.

     Of course, it’s possible that a policy such as the minimum wage might be bad for society even if it’s good for the individuals most closely affected by it. So you go and tell someone making $7.25 or even a whopping $9 an hour that you want to eliminate the minimum wage for his or her own good. I’m not going to.

     (Michael Kinsley is a Bloomberg View columnist. The opinions expressed are his own.)

LIVING THE DREAM RESPONSE TO KINSLEY:

I enjoyed your article.  I am of the Californian libertarian/conservative bent. 

I'm not an economist but it looks like you did a (relatively) fair job in outlining the gives and takes of the policies with an outline of the human face.  The faces I would like to also have seen (or better outlined) are those who are currently unemployed or those trying to enter the work force that would then face an even larger barrier to employment as the bar is raised.  How about amending the article to END with that face and not the (entrepreneurial?) gambler seeking a higher rung on the American dream.  Additionally, a little recongnition that families bind together and frequently bring in multiple incomes and, if forturnate enough, have multiple jobs.

Thanks.

Shoot the Messenger

U.S Trashes First Amendment

U.S. Sues S&P Over Ratings
Justice Department Says Endorsements of Risky Mortgage Bonds Fueled Crisis

WSJ Article, February 5, 2013

The Justice Department sued Standard & Poor's Ratings Services late Monday, alleging the firm ignored its own standards to rate mortgage bonds that imploded in the financial crisis and cost investors billions.

The Justice Department and state prosecutors intend to file civil charges alleging wrongdoing by Standard & Poor's in its rating of mortgage bonds before the financial crisis erupted in 2008. WSJ's Justin Baer has exclusive details on The News Hub. Photo: Reuters.

The civil charges by U.S. Attorney General Eric Holder against the New York company, one of the bond-rating industry's three giants, are the first federal enforcement action against a credit-rating firm over the crisis. Several state attorneys general are likely to join.

S&P said in a statement earlier Monday that the government suit would be "entirely without factual or legal merit," and denied wrongdoing.

After The Wall Street Journal reported Monday afternoon that the government intended to launch the civil case, S&P confirmed the expected lawsuit and said the rating firm was being punished unfairly by the U.S. government for "failing to predict" the housing meltdown or financial crisis.

The two sides have discussed a possible settlement for about four months, according to people close to the negotiations, but S&P balked over concerns that a deal could sink the company.

The government was seeking penalties of more than $1 billion, another person close to the talks said, which would be the biggest sanction imposed on a firm related for its actions in the crisis.

S&P officials also were rattled that the government was pushing the company to admit wrongdoing that could leave it more vulnerable to pending or new lawsuits by investors.

For about three years, the government has been investigating whether S&P managers pushed to weaken company standards for rating mortgage-linked deals or ignored the standards entirely, people familiar with the probe said.

S&P said Monday that it "would be wrong" to contend that its ratings were "motivated by commercial considerations and not issued in good faith."

S&P said the government's allegations stem from S&P's rating of collateralized debt obligations, or CDOs, issued in 2007 that included bundles of subprime mortgages.

The government is targeting about 30 of those deals, which plummeted in value soon after being sold to investors, a person familiar with the matter said.

The suit alleges that S&P from September 2004 through October 2007 "knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors in" CDOs and securities backed by residential mortgages.

S&P "falsely represented that its credit ratings of RMBS and CDO tranches were objective, independent, uninfluenced by any conflicts of interest that might compromise S&P's analytical judgment, and represented S&P's true current opinion regarding the credit risks" of the securities, the lawsuit says.

The firm's "desire for increased revenue and market share" led it to "downplay and disregard the true extent of the credit risks," the suit alleges.

Shares of S&P's parent company, McGraw-Hill Cos., MHP -15.98% slid 14%, or $8.04, to $50.30 in New York Stock composite trading at 4 p.m. Monday, erasing $2.2 billion of stock-market value. Moody's Corp. MCO -11.93%sank 11%, or $5.90, to $49.45. A Moody's spokesman declined to comment.

The federal agency has been accused by some lawmakers of failing to properly pursue and punish firms and executives at the center of the crisis that plunged the U.S. into recession.

Neil Barofsky, the former inspector general for the Troubled Asset Relief Program, said the Justice Department move against S&P looked like an effort to get "some measure of accountability" for the financial crisis, which was "something that's been really lacking across the board."

The lawsuit, filed in Los Angeles federal court, is the culmination of a government investigation that dates back to at least 2010, former S&P analysts have told the Journal.

In 2011, S&P, Moody's and the Fitch Ratings unit of Fimalac SA FIM.FR -1.24%and Hearst Corp. were accused by a Senate committee of giving overly rosy ratings to CDOs and then causing an "economic earthquake" by downgrading hundreds of the bonds when the scale of the housing collapse became clear.

S&P suggested Monday it was being unfairly singled out. The CDOs under scrutiny were given the same high ratings from an S&P rival, the firm said. S&P added that it faced charges for not predicting the full extent of the housing bust, "despite [the] failure of virtually everyone to do so."

The Financial Crisis Inquiry Commission, set up by Congress to investigate the causes of the crisis, concluded two years ago that the top credit-ratings firms were "key enablers of the financial meltdown."

Rating firms have said the crisis was caused by many factors.

The Justice Department and other law-enforcement agencies have long been investigating whether the rating firms broke securities laws.

The Securities and Exchange Commission in 2011 warned S&P that it intended to file civil charges over a CDO called Delphinus CDO 2007-01. But the SEC has taken no action in that case.

The SEC was still investigating S&P but wasn't expected to join the Justice Department civil suit, according to a person familiar with the matter.

The civil charges will test the legal argument used by S&P and other rating firms to defend against civil lawsuits filed by mortgage-bond investors who claim they were misled by the firms' ratings.

S&P has said its ratings are opinions protected by the First Amendment, and judges have thrown out dozens of suits based on that argument.

The Justice Department is expected to seek a way around this defense by suing S&P under the Financial Institutions Reform Recovery and Enforcement Act, a 1989 law passed following the savings-and-loan crisis that imposes a relatively low burden of proof.

"The Justice Department appears to be using an end-run strategy of trying to bypass the substantial barriers to suing rating agencies by dusting off FIRREA," said Jeffrey Manns, a law professor at George Washington University.

He added that a rating agency's First Amendment defense could be vulnerable if the firm was a party to alleged wrongdoing by other parties—for example, if S&P knew that information supplied by an investment bank to rate a mortgage bond was misleading.

The S&P case relies, in part, on the Justice Department's view that the First Amendment wouldn't protect a ratings firm if it defrauded investors by ignoring its own standards, according to people close to the investigation.

Illinois's attorney general in November won a circuit-court ruling to proceed with a lawsuit against S&P alleging that the firm misled investors by claiming its rating process was independent and objective.

The argument, brought under state consumer protection laws, sought to skirt First Amendment protections by focusing on what the firm told investors about its rating process rather than actual ratings.

Write to Jean Eaglesham at jean.eaglesham@wsj.com, Jeannette Neumann at jeannette.neumann@wsj.com and Evan Perez at evan.perez@wsj.com

Liberals Complain About Falling Behind

Any Article Where Progressive "Trope" is Central Is Worth A Read

The Myth of a Stagnant Middle Class
Household spending on food, housing, utilities, etc. has fallen from 53% of disposable income in 1950 to 32% today.

By Donald J. Boudreaux & Mark J.Perry, WSJ Opinion, January 23, 1013

A favorite "progressive" trope is that America's middle class has stagnated economically since the 1970s. One version of this claim, made by Robert Reich, President Clinton's labor secretary, is typical: "After three decades of flat wages during which almost all the gains of growth have gone to the very top," he wrote in 2010, "the middle class no longer has the buying power to keep the economy going."

This trope is spectacularly wrong.

It is true enough that, when adjusted for inflation using the Consumer Price Index, the average hourly wage of nonsupervisory workers in America has remained about the same. But not just for three decades. The average hourly wage in real dollars has remained largely unchanged from at least 1964—when the Bureau of Labor Statistics (BLS) started reporting it.

Moreover, there are several problems with this measurement of wages. First, the CPI overestimates inflation by underestimating the value of improvements in product quality and variety. Would you prefer 1980 medical care at 1980 prices, or 2013 care at 2013 prices? Most of us wouldn't hesitate to choose the latter.

Second, this wage figure ignores the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits. This is no small matter—health benefits, pensions, paid leave and the rest now amount to an average of almost 31% of total compensation for all civilian workers according to the BLS.

Third and most important, the average hourly wage is held down by the great increase of women and immigrants into the workforce over the past three decades. Precisely because the U.S. economy was flexible and strong, it created millions of jobs for the influx of many often lesser-skilled workers who sought employment during these years.

Since almost all lesser-skilled workers entering the workforce in any given year are paid wages lower than the average, the measured statistic, "average hourly wage," remained stagnant over the years—even while the real wages of actual flesh-and-blood workers employed in any given year rose over time as they gained more experience and skills.

These three factors tell us that flat average wages over time don't necessarily support a narrative of middle-class stagnation. Still, pessimists reject these arguments. Rather than debate esoteric matters such as how to properly adjust for inflation, however, let's examine some other measures of middle-class living standards.

No single measure of well-being is more informative or important than life expectancy. Happily, an American born today can expect to live approximately 79 years—a full five years longer than in 1980 and more than a decade longer than in 1950. These longer life spans aren't just enjoyed by "privileged" Americans. As the New York Times reported this past June 7, "The gap in life expectancy between whites and blacks in America has narrowed, reaching the lowest point ever recorded." This necessarily means that life expectancy for blacks has risen even more impressively than it has for whites.

Americans are also much better able to enjoy their longer lives. According to the Bureau of Economic Analysis, spending by households on many of modern life's "basics"—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

One underappreciated result of the dramatic fall in the cost (and rise in the quality) of modern "basics" is that, while income inequality might be rising when measured in dollars, it is falling when reckoned in what's most important—our ability to consume. Before airlines were deregulated, for example, commercial jet travel was a luxury that ordinary Americans seldom enjoyed. Today, air travel for many Americans is as routine as bus travel was during the disco era, thanks to a 50% decline in the real price of airfares since 1980.

Bill Gates in his private jet flies with more personal space than does Joe Six-Pack when making a similar trip on a commercial jetliner. But unlike his 1970s counterpart, Joe routinely travels the same great distances in roughly the same time as do the world's wealthiest tycoons.

What's true for long-distance travel is also true for food, cars, entertainment, electronics, communications and many other aspects of "consumability." Today, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past. Consider the electronic products that every middle-class teenager can now afford—iPhones, iPads, iPods and laptop computers. They aren't much inferior to the electronic gadgets now used by the top 1% of American income earners, and often they are exactly the same.

Even though the inflation-adjusted hourly wage hasn't changed much in 50 years, it is unlikely that an average American would trade his wages and benefits in 2013—along with access to the most affordable food, appliances, clothing and cars in history, plus today's cornucopia of modern electronic goods—for the same real wages but with much lower fringe benefits in the 1950s or 1970s, along with those era's higher prices, more limited selection, and inferior products.

Despite assertions by progressives who complain about stagnant wages, inequality and the (always) disappearing middle class, middle-class Americans have more buying power than ever before. They live longer lives and have much greater access to the services and consumer products bought by billionaires.

Mr. Boudreaux is professor of economics at George Mason University and chair for the study of free market capitalism at the Mercatus Center. Mr. Perry is a professor of economics at the University of Michigan-Flint and a resident scholar at the American Enterprise Institute.