Experience Trumps Theory

RECEIVED Fri., June 15, 2007

Dear Editor,
    Mr. Vance McDonald's long "explanation" [“Postmarks,” June 8] of classical economic theory about wages and employment overlooks the experience of the 1990s. When the minimum wage was raised in 1991, we were in our last bad recession. Because of the Reagan military buildup, we needed no further production to fight, so we did not get a good economy with our war. The only reason I had work (in factories, at minimum wage) was because so many young people were in Saudi or Kuwait. Instead of the gloom and doom predicted by Republicans, the economy recovered and we got unemployment below what classical economics thought was possible without inflation. After the next increase in the minimum wage, in 1996, we got the wondrous economy of the dot-com boom. No increases in unemployment for low-wage workers were reported. To the contrary, and unlike the 1980s, the 1990s boom "trickled down" to low-wage workers. If the Republican, classical model about wages and employment were true, we would have had the depression the right predicted. Increasing minimum wage boosts consumption and is good for the economy. Remember, according to one of the fathers of classical economics, David Ricardo, wages "naturally" were pegged barely above starvation.
Tom Cuddy
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