Amity Shlaes has an excellent little history of the enactment of the minimum wage during the Great Depression, and here’s the key bit:
The result, as scholars Lee Ohanian, Harold Cole, and others have discovered, is a tragic perversity. In a depression. when employers were losing money, wages were too high. In real terms, wages were higher than the overall economic trend for the rest of the century. They were sometimes higher than in “socialist” Europe. Wages in the 1930s were even higher than John L. Lewis himself imagined, because the decade saw currency deflation. Reducing wages, the old lesser evil chosen by employers in troubled times, would not be sanctioned by the powerful New Dealers in Washington. So employers often laid people off — hence the mostly double-digit unemployment of the 1930s.
Vice President Biden’s choice of 1938 as subject is no accident. In the very late 1930s, unemployment did drop, though not down to anywhere near acceptable levels. If you want, you can tell yourself this drop was caused by the 1938 Fair Labor Standards Act. But this drop came in good part because the New Deal was running out of steam.
Read the whole thing; it’s worth your time.
What I find telling is that last line about the New Deal “running out of steam.” If we do finally see that long awaited Recovery Summer this year, will it be at least in part because business leaders and investors think the next election will take the steam out of Obamanomics?