Federal Wish-List Should Raise Eyebrows
Despite this, Schumer announced his desire to see an FDR-styled presidency and recited his wish-list, including a national $15 an hour minimum wage and the cancellation of student loans—even if President-elect Biden must unilaterally erase the debts without congressional approval. These aren’t revolutionary ideas; myriad others have previously proposed them, but they are nonetheless fraught with problems.
In fairness to Sen. Schumer, his intentions are probably noble—an urge to help those in desperate financial straits, and there are many who need this assistance. America is grappling with a 10.5 percent poverty rate and a 6.9 percent unemployment rate. What’s more, around 45 million Americans have student loan debt—totaling around $1.6 trillion. Schumer’s answers to these woes—at least in part—is to require companies to pay employees more and to wipe out debt with the stroke of a pen. But the federal government should act with caution.
Regardless of how anyone feels about raising the minimum wage, the federal government isn’t well-positioned to do it. Rather, it should be left up to the states, and it currently is. As it stands, the minimum wage ranges from $5.15 in Georgia for those not covered by the Fair Labor Standards Act – though most Georgia companies adhere to the $7.50 federal minimum wage – to $13.50 in Washington. However, Sen. Schumer is calling for a uniform, national minimum wage of $15 an hour, but this one-size fits all approach seems doomed to failure. The cost of living varies considerably from state to state. Thus, it would make little sense for the minimum wage to be the same in every location, like in Hawaii—the state with highest cost of living—as well as Mississippi, which has the lowest.
Further, America is in the midst of a tenuous economic recovery—thanks to the coronavirus pandemic. To raise the minimum wage now would risk economic reverses and might imperil some industries and employees. After all, if companies in Georgia, for instance, are forced to double the minimum wage, they would have to make difficult decisions to balance their budgets. Many would likely have to consider increasing their prices, laying off employees and/or replacing them with automated systems.
In fact, fast food restaurants are already moving toward using self-service kiosks instead of cashiers and robotic cooking systems are replacing humans. Raising the minimum wage could accelerate the transition to automation and result in fewer jobs for lower-skilled workers, which probably isn’t Sen. Schumer’s goal.
Beyond these matters, waiving student debt seems imprudent. First, Sen. Schumer appears to have endorsed the idea of President-elect Biden forgiving upwards of $1.6 trillion of student loan debt via executive order. After scouring the U.S. Constitution, I cannot for the life of me determine where the president is given this unchecked authority. Rather, it seems like it would be an egregious overreach of executive power.
Aside from this, the federal government cannot afford to continue making unwise financial decisions. To date, the U.S. government has $27 trillion of debt that is climbing rapidly—due to mismanagement from many congressional Republicans and Democrats. Virtually tacking on another $1.6 trillion just seems silly, and it will likely inflame numerous Americans who will denounce the endeavor as problematic for a variety of reasons.
According to Forbes, such an approach will disproportionately benefit the privileged because “The top fifth of households holds $3 in student loans for every $1 held by the bottom fifth.” Moreover, many tax-paying college graduates who have repaid their outstanding debts will complain that it is unfair that not only were they required to satisfy their loans, but now they must repay someone else’s. And those without college degrees will certainly grouse about having to fund the higher education – that they never enjoyed – for others. These are understandable gripes.
Finally, cancelling student loan debt doesn’t address the root problem because the lending paradigm would presumably remain the same. This means that student loan debt would surge once again in the near future as students assume vast amounts of debt, and they might in turn expect the same treatment of total student loan debt forgiveness as the cycle continues.
Ultimately, Sen. Schumer’s proposals—while likely well-intentioned—are cause for concern, but if the Biden presidency is nearly as audacious as FDR’s, then Schumer’s cavalier wish-list may become a reality.