The most startling thing about President Obama’s State of the Union message is what he failed to say about the minimum wage. “Today the federal minimum wage is worth about 20 percent less than it was when Ronald Reagan first stood here,” he declared Tuesday night.
But wait, wasn’t the minimum wage $3.35 an hour throughout Reagan’s two terms? Isn’t it now $7.25 an hour? How does that add up to a drop in value by 20 percent? The president glided right past that point. Maybe he thought nobody would notice.
It strikes me that the president owed the country more of an explanation. After all, he spoke exactly on the 100th anniversary of the start of the Federal Reserve System. The central bank is about to begin its second century. Obama made no reference to any of that history.
Yet a century ago Congress refused to agree to a Federal Reserve until there was a promise about the value of the dollar: It insisted on having the Federal Reserve Act state that it would not lead to an end of the convertibility of the dollar into gold.
That legislative promise came to an end in a series of defaults that started in the Great Depression and ended under President Richard Nixon. By the mid-1970s, America had moved to a fiat currency, meaning a dollar that is not redeemable by law in anything of value. Only what one critic calls “irredeemable electronic paper ticket money.”
The minimum-wage crisis is a sign that fiat money is not working. It’s not, after all, that the nominal minimum wage has failed to go up (it’s been raised seven times since Reagan). It’s that the value of the dollar has collapsed. Today it has a value of only a 1,250th of an ounce of gold, a staggering plunge from an 853rd of an ounce on the day Obama took office.
Gold certainly isn’t the only way to measure what a dollar will buy; Obama appears to be using the consumer price index to reckon the decline in the minimum wage. Obama comprehends that by any measure, a 20 percent decline in the value of the minimum wage since the Reagan years is serious.
Tuesday night, Obama endorsed a proposal by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) to raise the minimum wage by a staggering 39 percent, to $10.10 an hour. But what’s the point of raising the minimum wage if you’re going to run down the value of the dollar?
Today a person has to work 173 hours at the minimum wage to earn an ounce of gold; by the end of Reagan’s presidency, it took only 125 hours. The Harkin-Miller bill would get closer to the Reagan years. But how long would that last?
How is a person to know what his or her wages will be worth if the dollar is always jumping around? Banks and businesses are beset with the same problem. Wouldn’t it be better to focus less on the minimum wage and more on stabilizing the dollar, just as Congress insisted on when it set up the Fed?
Obama has been in office for five years now and has avoided the monetary question at every turn. He has been praising his first Fed chairman, Ben Bernanke, who is leaving us a dollar worth less than half of what it was when he began. Janet Yellen, who’s set to succeed Bernanke, is promising policies that could drive the value of the dollar down further.
It’s not entirely their fault. In 1978, Congress passed the Humphrey-Hawkins law, which gave the Federal Reserve a dual mandate. The Fed must, on the one hand, protect the value of the dollar; on the other, it has to try to bring about full employment.
Even the liberals foresaw trouble. When the bill was passed, The New York Times warned that the law “would play a cruel hoax on the hard-core unemployed, holding before them the hope — but not the reality of a job.”
At the time, unemployment was 6.1 percent. It has been above 8 percent for much of Obama’s presidency and above 7 percent for almost all of it. Isn’t it time Congress looked at Humphrey-Hawkins and other laws that govern the Fed to see if they helped cause of the Great Recession?
That would have been a presidential-scale challenge for the Congress. The Joint Economic Committee has proposed a bipartisan Centennial Monetary Commission to review the first century of the Federal Reserve.
Obama himself says that Americans are tired of “stale political arguments.” If so, rescuing the dollar is the place to start.