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Presidential Issues: Economic Growth

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Hillary Clinton’s Grossly Wrong Here – Worker Purchases From Higher Wages Don’t Increase Profits

August 12, 2016

By Tim Worstall

Politics of course gives us all sorts of examples of things which are simply wrong in an economic sense. But it’s rare to see someone proposing something that just doesn’t make sense at all. And yet that’s what Hillary Clinton just did in her speech on the economy Michigan. She repeated the old and entirely wrong story about how Henry Ford increased wages to $5 a day – which is true he did – as a way of gaining more profit as his workforce could now afford to buy the cars – and that’s hopelessly untrue. And not just hopelessly untrue it can never be true as even a moment’s thought will show. That we’re getting this seriously put forward by someone who is a major party candidate for the Presidency is a serious blow for the state of economic understanding in the country. That Jill Stein, or the various socialist party candidates, might believe something so absurd is one thing but someone with a 50/50 or better chance of actually getting the job?

Please do note that I am being entirely and wholly serious here. The idea is that if you raise the wages of the workers then they will be able to buy more of your product. This will then increase profits. As I say, this contention is worse than simply wrong is is wholly impossible that it could ever be true. All of which raises the question of how anyone smart enough to have passed the bar exam could possibly believe it. But apparently Hillary does.

Here’s where she says it:

Raising the federal minimum wage won’t just put more money in the pockets of low-income families – it also means they will spend more at the businesses in their neighborhoods. Trump’s against that as well.

This is something that even the original automakers understood, way back at the beginning of the 20th century, when they decided to pay the unbelievable sum of $5 a day to autoworkers. And when they were criticized by other businesses, ‘How can you pay that much?’ they had the best answer, ‘We want people to be able to buy our cars.’ This is Economics 101, we need to get incomes and wages rising and it will help the whole economy grow and be fairer.

I’m afraid that it’s not Economics 101 it’s economic idiocy. As even a moment’s logical thought will prove.

Read the full article at Forbes.com: Hillary Clinton's Grossly Wrong Here - Worker Purchases From Higher Wages Don't Increase Profits