Why Do Billionaires Keep Falling for Bad Public Policy?

“What we need is a Marshall Plan for the middle class.”

Is that Elizabeth Warren speaking? Maybe Bernie Sanders? Or Alexandria Ocasio-Cortez?

Nope. It was Blackstone CEO and Chairman Stephen Schwarzman on CNBC’s “Squawk Box” Thursday.

Schwarzman, whose net worth tops $14 billion, was on the program mainly to talk about his firm’s decision to transform from a publicly traded partnership to a C-corp. But he made news when the discussion turned to income inequality.

“I look at this as a systemic problem. This is not anecdotal,” he said. “This is like half of our society is severely disadvantaged. We can’t allow that to continue, so that means you need policy solutions.”

He then laid out three of them. A minimum wage hike. Exempting teachers from taxes. And more federal job training programs.

Schwarzman might know a lot about private equity, but he’s pretty clueless about helping the middle class. In fact, you’d be hard pressed to find three policies that would be more worthless — if not outright harmful — to the middle class.

Minimum Wage Bust

Take the minimum wage hike. You’ll find few issues on which economists are more in agreement than that minimum wage hikes don’t help the middle class, or even the people at the bottom who are supposed to directly benefit.

A recent study of Seattle’s wage hike found that it led to lower incomes, on average, for minimum-wage workers, after businesses cut jobs and reduced hours to cope with the sudden increase in labor costs.

Between 2014 and 2016, the city’s minimum wage jumped from $9.47 an hour to $13 an hour. But when economists at the University of Washington looked at the impact of that increase they found that “the second wage increase to $13 reduced hours worked in low-wage jobs by around 9%, while hourly wages in such jobs increased by around 3%.”

As a result, low-wage employees in the city saw their earnings drop $125 a month.

And as economist Mark Perry has discovered, New York’s hike in the minimum wage for restaurant workers has created a jobs recession in the city. (See the chart nearby that he assembled using data from the Bureau of Labor Statistics.)

Teacher Pay and Performance

How about exempting teachers from taxes? This is nothing more than a sharp pay raise for teachers, one that would set a terrible precedent for every other government worker who could define their job as “essential.”

Do teachers deserve this? Will it improve the quality of education?

Public school teachers are already well paid, especially when you include the generous benefits teachers unions wring out of governments. And that’s to say nothing of the fact that they can supplement their incomes during the three months they’re not working as a teacher. 

What’s the evidence that teacher pay correlates with student success? Well, when the International Journal of Education Research looked into it a few years ago, it found that “new teachers’ average salary in the U.S. is higher than the international average” and that “higher salary for new teachers is not associated with national achievement.”

What’s needed isn’t an automatic increase in wages for all teachers, but more teacher and school accountability. The problem is that if you try to make it easier to fire bad teachers, or promote and reward good ones, you’ll have the teachers unions mounting fierce protests.

Job Training Failures

Last, there’s Schwarzman’s call for more federal money devoted to job training programs.

“Each state could get some allocation from the federal budget,” he said, and businesses in those states would have to set up programs to reach high school kids not headed for college.

Sounds like a fine idea. Except that the federal government is overflowing with job training programs — $9 billion worth — none of which have been shown to do much of anything. Why would Schwarzman think one more stacked on top of that heap would make any difference?

The last time we recall Schwarzman being in the news was when he was tapped by President Trump to head a business advisory council. Trump dissolved that council in late 2017. If this is the kind of advice that business leaders were providing Trump, it’s a good thing that council no longer exists.