This article first appeared at the McAlvany Intelligence Advisor on Monday, March 31, 2014:
King Canute appears to have been reincarnated in the body of Connecticut Governor Dannel Malloy. On Thursday, the governor announced, with great fanfare, that by raising the state's minimum wage to $10.10 an hour, he will be simultaneously raising people out of poverty, restoring business confidence, and bringing days of wine and roses back to the Nutmeg State:
This is just a step in moving people in the right direction.
We will be lifting people out of poverty in the state of Connecticut. Increasing the minimum wage is not just good for workers; it's also good for business.
King Canute's similar indulgence in excessive hubris was first recorded in Henry of Huntingdon's Chronicle of the history of twelfth century England:
With the greatest vigor he commanded that his chair should be set on the shore, when the tide began to rise. And then he spoke to the rising sea saying “You are part of my dominion, and the ground that I am seated upon is mine, nor has anyone disobeyed my orders with impunity. Therefore, I order you not to rise onto my land, nor to wet the clothes or body of your Lord.”
But the sea carried on rising as usual without any reverence for his person, and soaked his feet and legs.
Malloy was assisted in lifting his throne onto the shore by the Speaker of the Connecticut House, Brendan Sharkey, who helped push through the legislation. Said Sharkey:
Raising the minimum wage helps people who need it the most, is good for the economy, and is the right thing to do.
The governor's feet have been wet for some time but he somehow hasn't noticed. For instance, when Bob Funk, the head of Express Employment Professionals, the nation's largest private employment agency, asked 1200 small business owners how they would be affected if the Connecticut minimum wage law increase were established nationwide (as the King's brother, his Holiness Barack Obama, is imploring), he learned that
– One out of five of them would lay off some of their employees
– Two out of five of them would reduce hiring new employees
– Half of them would be forced to raise their prices to cover the increased labor costs.
There was one voice, however, that exposed the folly and the lie, that from Patrick O'Neill, a spokesman for the tiny House republican minority that was steamrolled by the overwhelming Democrat majority:
[This law] isn't going to lift anyone out of poverty.
In Bridgeport, the state's largest city, there is a 50 percent unemployment rate among teens ages 16-19. If they can't get a job at $8.70 an hour [the state's previous minimum wage], what will it be like when the rate goes up?
This is just going to cause employers who create jobs in the state to hire even fewer people.
O'Neill might have mentioned that many of those employers have left the state altogether, moving their businesses to tax-friendly states like Florida and texas. In fact, in the ten years before the great recession hit, the number of small businesses in Connecticut actually declined, while the average across the country showed a 10 percent increase. In fact, during that decade (1996-2006), only Ohio and West Virginia did worse than Connecticut.
Malloy really is from another age. In 2011, he signed into law the largest tax hike in the state's history, with predictable consequences. Conner, Inc., a Hartford-based asset manager that provides financial research for institutional investors, noted in November 2012 that Connecticut took a “nose dive” from a dismal 37th position among all states to a disastrous 50th spot. Paul Mansour, Conner's managing director, wrote:
The reality is quite alarming. The state is among the worst in job creation [and] tax revenue growth ….
It has very high debt and retirement obligations, little budget flexibility, and no rainy day fund balance.
The report added that in the prior 12-month period Connecticut lost 14,700 jobs, more than any other state except Hawaii as a percentage of overall employment. The state also had the highest debt per capita of any state in the union, and was ranked 48th in terms of debt versus personal income. Added Mansour:
When one considers Connecticut's high personal income levels, this low ranking is even more alarming.
The recovery that other states are enjoying hasn't come to Connecticut, either. According to Conning's latest report issued last October, “year-over-year employment has not improved, GSP [gross state product] is still below that of 2008, and tax revenues [despite the tax hike] collected in 2013 are lower than last year.” Consequently, Connecticut remains firmly planted at the bottom of Conner's list.
Other polls put Connecticut at or near the bottom as well. The American Legislative Exchange Council publishes its Rich States, Poor States report annually, ranking states on both current economic performance and anticipated future performance. Its latest report puts Connecticut at #46 on the first, and #43 on the second. The Tax Foundation ranks Connecticut at #42 in its State Business Tax Climate Index.
When present business owners residing in the state were asked how they perceive the value they are getting compared to the taxes they are paying, 70 percent of them believe it to be “extremely low.” And when a small business owner dies, anything left over after a lifetime of paying individual state income taxes (raised temporarily from 7.5 percent to 9 percent in 2009), state corporate income taxes, and state unemployment insurance taxes will be subject to looting in the state's corrupt probate court system. According to Forbes,
Connecticut's probate court system seems to have gained a reputation for loading unnecessary costs on estates and sometimes arbitrarily nullifying wills, a practice that's hard to distinguish from looting.
The negative impact of raising the minimum wage on the economy is entirely predictable. When commenting on the anti-economic growth impact of the minimum wage, Professor Murray Rothbard wrote in 1995:
In truth, there is only one way to regard a minimum age law: it is compulsory unemployment, period.
The law says it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars per hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence there will be a large amount of unemployment.
Remember that the minimum wage law provides no jobs: it only outlaws them.
It is often said that the definition of insanity is doing the same thing but expecting a different result. In Connecticut, the King has taken this to an entirely different level: continuing to do more of the same thing and expecting markedly better results.
Malloy should instead do what the top-ranked states have been doing for years: reducing the burden of taxation on the employment generators, rather than increasing it. According to the Tax Foundation, in seven of its top 10 states, taxes have been reduced, in some cases to zero:
Wyoming, Nevada, and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.
Malloy, however, seems determined to cement permanently in place the state's position at the very bottom of polls measuring excellence in economic and financial performance. The sea along the coastline of Connecticut where the King has planted his throne will continue to rise, despite his protestations to the contrary.
Forbes: How Did Rich Connecticut Morph Into One Of America's Worst Performing Economies?
Newsmax: Connecticut Becomes First State to OK $10.10 Minimum Wage
The New American: Survey: Small Business Will Lay Off Workers if Minimum Wage Hiked
American Legislative Council report: Rich States, Poor States
Hartford Courant: Connecticut Ranks Last Among 50 States
Tax Foundation: 2014 State Business Tax Climate Index
Conning, Inc.: State of the States October 2013 report