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Reckless Clintonomics

By George Wang

When asked if the Clinton Administration's economic proposals would force some businesses into bankruptcy, Hillary Rodham Clinton replied, "I can't save every undercapitalized enterprise."

This attitude rings a striking discord with Bill Clinton's campaign rhetoric on job creation, when he claimed that increasing employment would be one of his administration's foremost priorities.

Indeed, judging by the economic plans he has supported to date, the president probably will end up destroying more jobs than he creates.

While most agree that a lack of economic growth and job creation caused President Bush's defeat last year, economic growth in 1992 was actually double what it has been under Clinton. In addition, the unemployment rate still hovers around seven percent. And most of the few new jobs that have been created are in low-wage sectors.

Candidate Clinton promised to be a New Democrat, free from the statist left wing of the party. But President Clinton, with the notable exception of NAFTA, has opted to fight the free market and pursue an interventionist economic agenda.

First Clinton proposed, and Congress passed, one of the largest tax increases in history. Most economists agree that raising taxes reduces employment. Clinton's taxes are particularly harmful because they fall heavily on small businesses and their 35 million employees. Clinton, by raising the top federal tax rate to almost 40 percent, seems to be trying to balance the budget on the backs of small businesses.

But businesses employing fewer than 150 workers have traditionally been the engineers of both economic growth and job creation. In the 1980s, they created over ten million jobs; today, while blue-chip corporations such as IBM and GM continue to lay off tens of thousands of workers, small businesses create 80 percent of new employment opportunities.

But Clinton has crushed much of their optimism. A Citizens for a Sound Economy survey found that 40 percent of small business thought they would likely have to lay off workers as a result of the tax hikes.

In addition, many believe that, in all likelihood, Clinton's tax hike will force them to hire fewer employees in the future. Only the most die-hard Keynesian still believes we can tax and spend our way to economic prosperity. Nonetheless, Clinton seems to fall into this category as even his health care plan involves higher taxes.

Under the guise of reform, the Clinton Administration wants to control an industry which composes a large fraction of total GNP. He has introduced the same old proposals--increased taxes, greater government control, new bureaucracies, price controls and rationing--which have failed time and time again.

Baker Professor of Economics Martin S. Feldstein '61 has exposed some of the Clinton proposal's shortfalls. Feldstein estimates that the health care plan may run a deficit as high as $120 million, which would necessitate yet another monumental tax increase.

Again, Clinton's plan hurts small businesses and their workers the most. Most workers who do not receive health care coverage from their employers work for small businesses. By forcing these employers to provide coverage even though they cannot afford it, Clinton's health plan will further reduce job availability.

As if the Administration has not already done enough to damage the economy, Clinton's right-hand man Secretary of Labor Robert Reich has begun his push for what may be the knock-out blow to job creation. Reich has proposed to raise the minimum wage by 12 percent, to $4.75 an hour, and institute automatic annual increases.

If Reich gets his way, the economic livelihood of thousands of people across the country will be put into grave danger. Study after study has proven that jobs are lost when the government coerces businesses to pay a certain wage regardless of the worker's contribution.

Workers' wages depend on their skill and productivity; in short, employers pay their workers what their labor is worth. Since the act of passing minimum wage laws does not increase worker productivity, businesses will have to pay more for the same labor.

Proponents of Reich's proposal assert that it would help those who currently earn the minimum wage. It's certainly true that some will benefit from a wage increase of 12 percent. But surely, others will not appreciate a decrease of 100 percent.

What is most ironic about the minimum wage is that it actually ends up harming the people that it's intended to aid. Spokespersons for industries which employ a high percentage of low-skilled employees have already warned that Reich's proposal would likely leave them with no other alternative but to reduce employment.

Minimum wage laws have tremendously detrimental effects. Most economists recognize the many inefficiencies, but some Americans still support minimum wages under the delusion that such regulations help the poor. But government intervention actually harms these people by decreasing job opportunities.

Even if the consequences of minimum wage laws weren't so harmful, they would still be highly inefficient. Less than 20 percent of minimum-wage workers live below the poverty line, meaning that the benefits go primarily, not to the poor, but to people such as well-off students who have summer jobs.

If the president does not turn away from the path of increased taxes and towards a more prudent economic policy, the jobs of countless Americans will be lost.

Fortunately, Americans are waking up. As polls have shown, Americans have grown increasingly dissatisfied with Clinton and his economic record. He promised jobs, but has failed to deliver.

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