U.S. workers have finally received a pay hike — the best in nearly a decade. Forgive us for saying: We told you so.
The government reported that for the year ending in June, wages and salaries rose 2.8 percent from the year before — the fastest rate of gain since before the financial crisis. The increase is not surprising.
Unemployment, currently at around 4 percent, has steadily declined in recent years, and the jobs market is red-hot. For the first time in the country’s history, there are more job openings than applicants.
What is the natural response to such a tight market? Wages go up. That would seem obvious, but that basic premise was lost on the Obama White House and on left-leaning politicians like Sen. Bernie SandersBernie SandersOvernight Energy & Environment — Presented by the League of Conservation Voters — EPA finalizing rule cutting HFCs Manchin fires warning shot on plan to expand Medicare Democrats steamroll toward showdown on House floor MORE (I-Vt.) who have pushed to raise the minimum wage for years.
The Obama White House ceded defeat early on. Instead of promoting economic growth to provide more jobs and higher pay, they accepted the view of advisors like Larry Summers who argued that the United States had entered a period of “secular stagnation.”
We were told that 1-2 percent growth was the “new normal.” We were also told that the U.S. could not compete as a manufacturing hub but rather should focus on providing services and intellectual-capital items like entertainment and software. We also heard that an aging population meant a shortage of workers, further limiting growth.
The pessimism was profound — and unwarranted. Donald Trump ran for the presidency promising we could do better and arguing that U.S. workers deserved a raise. Skepticism from the left was cutting. President Obama scoffed that Trump’s promise to bring back manufacturing jobs would require a “magic wand;" others doubted the country could grow at 3 percent.
Sluggish growth on Obama’s watch and gloomy economic analysis pushed the White House to search elsewhere for relief.
The Obama team, and other Democrat brainiacs, fastened onto raising the federal minimum wage as the answer to income stagnation, even though studies showed (and common sense suggested) that hiking required pay for workers could cost jobs and deny entry-level workers a foothold on the economic ladder.
It has also been noted by many analysts that the federal minimum wage is a blunt instrument; since the cost of living varies greatly among states; what might make sense in New York would cast an appalling damper on hiring in Louisiana, for instance.
Even as the economy has bolted out of the starting gate under President TrumpDonald TrumpTexas announces election audit in four counties after Trump demand Schumer sets Monday showdown on debt ceiling-government funding bill Pennsylvania AG sues to block GOP subpoenas in election probe MORE, many on the left continue to advocate for top-down "Big Government" solutions to problems that are quickly disappearing.
Sen. Kirsten GillibrandKirsten Gillibrand11 senators urge House to pass .5T package before infrastructure bill Hochul tells Facebook to 'clean up the act' on abortion misinformation after Texas law Democratic senators request probe into Amazon's treatment of pregnant employees MORE (D-N.Y.), one of many hoping to run for president in 2020, has put her weight behind a guaranteed jobs program; others champion guaranteed income.
Here’s what will actually guarantee both jobs and income: a booming economy. Over the past six months, real growth in the U.S. totaled 3.1 percent. That compares to about 2.2 percent over the eight years that Obama was in the White House. In the most recent quarter, the economy grew at 4.1 percent.
The acceleration stems from the significant uptick in consumer and business optimism that followed Trump’s election, which has translated into higher spending by both groups. Consumer outlays soared 4 percent in the second quarter, and business investment, which was dormant for the past eight years, rose a hefty 9.4 percent in the first half.
The latter most likely is already boosting productivity, which has been stagnant for the past decade, and in turn contributing to the increase in wages.
These happy developments did not need a “magic wand.” They needed a pro-business agenda of more competitive tax rates for businesses to attract capital and investment from around the world and a loosening of the regulatory knot.
Anyone who has tried to open and operate a small business, or a large one for that matter, will tell you that the red tape unspooled from the White House during the Obama years cast a chill on investment and growth.
Democrats are trying to undermine the good economic news about the second quarter and about the recent wage hike by suggesting the growth spurt is only temporary and cannot be sustained. It may be that 4 percent is indeed unsustainable, but incoming economic data suggest a 3-percent growth for the balance of this year is not only achievable but likely.
The Institute of Supply Management reported recently that its index of manufacturing activity showed a slight tick down in July but held at near-record levels, indicating continued very strong expansion. The “New Orders Index” equaled or topped 60 for the 15th-straight month while inventories remained low, both good news for ongoing growth.
Also, ADP reported that job gains in July totaled 219,000, significantly higher than the 185,000 expected by economists. That’s more good news for workers.
It is gratifying to see that markets remember how to behave. Soaring demand for labor is boosting wages, which is good for workers, good for the country and (need we say it) good for President Trump, who promised to deliver exactly that.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.