Washington Enacts Minimum Wage Boost via ‘Stimmy-Flation’

January 27, 2022 Updated: February 3, 2022

Commentary

Much like the Biden administration’s failed vaccine mandate “workaround”—endowing OSHA with powers it doesn’t have, in place of actual legislation—it seems they’ve stumbled on a workaround for another pet project.

One of the progressive movement’s longtime “wishlist” items has been a national minimum wage—as if the cost of living in New York City is the same as it is in Boise, Idaho.

This is the way big government thinks.

I’ve said it before and I’ll say it again, the only thing the government can deliver regularly, reliably, and without fail are unintended consequences.

This is the story of how the progressive wing got their wish, and in the meantime, made the entire country poorer.

A National Severance Package

When you force a person to give up their livelihood, it’s common practice to offer some compensation to assist in their transition. Private companies usually extend some sort of severance compensation to employees they let go.

But it’s never been done on a national scale. Until now.

Since the government’s act of total economic self-immolation (the lockdown), it’s taken it upon itself to lend a helping hand to those it put out of work and out of business.

Always ready to spend money they don’t have, the Feds began handing out multiple rounds of stimulus (now affectionately known as “stimmy”) checks, designed as a bridge to help people until they could get back to work.

There was the $600-a-week supplement to state unemployment payments that, depending on how much the state offered in benefits, paid many recipients more than they earned when they were working.

Then came the child tax credit, which boosted bottom lines by up to $300 per month.

It’s hard for a group of people who make their living on the public dole to get its collective head around disincentives like these. But as you would expect, once things started to normalize even in the slightest, attitudes about returning to work had changed.

To be fair, there may be other mitigating circumstances keeping people out of the labor market. But to date, employment is still below where it was in 2019.

Employed Persons in the U.S. 2018-2020 (Tradingeconomics.com/Bureau of Labor Statistics)
Employed Persons in the United States 2018–2020. (Tradingeconomics.com/Bureau of Labor Statistics)

Enter Supply and Demand

When you shrink the supply of anything (labor, in this case), and demand remains constant or grows, the cost of that thing goes up.

The shortage in manpower has led to certain industries that still had workers showing up—the trucking industry, for example—to demand higher prices (wages) for their services.

Other industries trying to attract labor are facing much of the same problem.

John Merritt, vice president of Elaine Bell Catering in Napa, California, said staffing was an immediate issue when demand for weddings and other big events came surging back last June. The company raised wages 50 percent in a bid to retain workers and hire new ones.

“People frequently say [restaurant and catering workers] are low-price people. Well, our base pay is now $30 an hour for wait staff, and we still can’t fill positions,” Merritt said. “This is going to be an ongoing problem.”

Granted, that’s Napa, California, but the effect is spreading far and wide. The labor drain has forced employers everywhere to offer higher wages. In some places, businesses can’t hire counter help for less than $15 to $17.

So congratulations … the government has finally (and unwittingly) gotten its national minimum wage increase.

Cue the Unintended Consequence

But like all things government-implemented, it’s coming with a huge array of unintended consequences … namely inflation.

Pump a bunch of free money into an economy, and prices will rise. Create a supply chain crisis on top of that, and prices will rise even faster. Now, bump the cost of doing business for businesses still doing business and … well, you get the idea.

Last December, the consumer price index rose 7 percent year-over-year, the producer price index rose 9.7 percent, but hourly earnings were up only 4.7 percent, according to the Bureau of Labor Statistics. Unfortunately, increases in pay don’t make anyone wealthier unless they eclipse inflation.

I’m fairly sure the brainiacs in Washington never gave a thought to the idea that wage inflation could result from all their “stimmys” (or whether they even understand what wage inflation is).

But here we are. And unfortunately, it’s also going to keep driving prices higher as those costs are passed on to the consumer.

Only the government can inadvertently drive wages higher while at the same time creating so much inflation it actually makes people poorer.

Congratulations, Washington!

When you’re trying to keep up with levels of inflation we haven’t seen in decades, you have to change how you invest. Here are a couple of paths you can take.

Generally, funds that hold real assets, including real estate, precious metals, and commodities funds, should perform well. Additionally, this wave of inflation has sparked growth in what are now being called “inflation ETFs.” Many are new and don’t have much of a track record, but they may be worth a look. And when all else is in doubt, Treasury Inflation-Protected Securities (TIPS) are always an option to consider.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Tim Collins
Tim Collins worked for years as a financial advisor before establishing his own hedge fund, one that would acquire shares in companies like Facebook, Twitter, and AirBnB in the private markets before they went public. He now co-authors Streetlight Confidential investment newsletter with Bob Byrne, and his writing and commentary has been featured on RealMoney and RealMoneyPro on TheStreet.com for over a decade.