Oh yeah…liberty

Since President Obama mentioned hiking the minimum wage in his State of the Union address, it has been a hot topic on the econ blogs. Does it reduce jobs? Does it help the poor? Does it hurt them?

Credit to Grant Davies for kindly pointing out in the comments of my post about the minimum wage that the best argument against it is liberty

As I’ve read the plethora of blog posts about the minimum wage over the past few days from liberty-minded economists and bloggers, who have greatly influenced my thinking, Grant’s comment kept echoing in my mind.

The best (and only argument that should be required) against the minimum wage is liberty. Grant wrote:

As a human being, I have an absolute right to make arrangements between myself and another so long as it does not infringe on the rights of others.

Why should someone be able to prevent me from accepting a wage, if I so choose? If it is agreeable to me and agreeable to person willing to pay it, who cares?

Grant’s comment echoed in my mind as I read those blogs because so rarely was the case for liberty mentioned. They’ve taken the bait. Nearly all of the blog posts I read try to disprove the ‘greater good’ argument, rather than state the case for liberty.

Also, credit to The Pretense of Knowledge blog for including with other ‘minimum wage’ blog links, a link to a post about Dr. Higgs’ essay on the moral case for liberty. I commented on that essay here.

Besides there are also really good reasons to be skeptical about ‘greater-good’ arguments. They usually are wrong or, at best, inconclusive. Why violate liberty for that?

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19 thoughts on “Oh yeah…liberty

  1. Hi Seth – The real issue that our politicians should be addressing is not wages, but wealth – defined as our well-being. It would be easy for the government to double everyone’s nominal income – simply print more money – but what we should be concerned with is our well being. Do these dollars translate to an improvement in the “stuff” and services we can buy, i.e. a better house, better food, better health care, etc. that better satisfy our wants.

    The fact is, simply dictating that someone be paid more dollars – without simultaneously ensuring that more or better goods or services are produced – does not increase the overall wealth of our nation. At best, it might redistribute some of the already existing wealth, making some wealthier at the expense of making some less wealthy, and as many have correctly argued, it will likely make the intended recipients of the redistribution scheme even less wealthy. Merely raising a worker’s wage by government fiat does NOT increase their productivity. In fact, the logical conclusion of having more dollars (from the assumed increase in wages) chasing the same amount of goods and services would be price inflation for the goods and services that these same “minimum wage” workers want – not a very effective way of enabling these workers to afford more goods and services. Rather, it’s just a smoke and mirrors game that attempts to fool those dumb enough to equate money with wealth. Minimum wage laws can determine wages, but they can’t guarantee jobs. While the liberal do-gooders pretend they are punishing the evil business owners, what they are really doing is saying to workers is, “Unless you can find a job that pays at least the minimum wage, you may not accept employment.”

    Minimum wage laws result in a dog chasing its own tails situation. Either business owners recognize that customers now have more dollars to spend or customers have relatively more dollars in relationship to the things they want. In either case, prices increase thereby negating the effect of the increase in wages. The people hurt are typically the middle class – the one’s Obama claims to support (yes, he specifically stated upping the minimum wage would help the middle class workers) – and the less qualified (young/inexperienced) workers. Try getting a non-minimum wage job today with less than 3-5 years experience. Minimum wage laws keep the unskilled workers unskilled. In many ways, low wages can be thought of as compensation for receiving on the job training. By doing so, unskilled workers increase their expected future income. Unfortunately, the left (if the shoe fits, wear it) has convinced the unskilled, uneducated (and now unemployed) that they deserve a certain income simply because they breathe.

    Obama claims to want to help black children to be able to earn a living. Yet his policies make no economic sense and have a record of failure. Head Start programs he favors wasting more money on have been a failure. The minimum wage laws he supports have been demonstrated to increase black teenage unemployment. In fact, an argument can be made that increasing the minimum wage can serve as an incentive for black teens to drop out of school in order to work at a minimum wage job – not exactly a great way to move up the ladder (or to use Obama’s words, “get ahead,”

    History shows that if a worker’s productivity is worth less than the minimum wage, he/she only gets jobs that aren’t covered by the minimum wage laws. Obama and the liberals have doomed the poor, unskilled segment of our population to a life of poverty. In essence, it is the policies of the left that has – to paraphrase Joe Biden – kept black Americans in chains.

    • What if the minimum wage and taxing the rich are an effort to create a society with a smaller gap between the rich and the poor? What if the issue isn’t liberty or wealth but justice?

      I’m thinking specifically of the book “The Spirit Level: Why More Equal Societies Almost Always Do Better”

      “It claims that for each of eleven different health and social problems: physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life, violence, teenage pregnancies, and child well-being, outcomes are significantly worse in more unequal rich countries.”

      (Taken from the wikipedia article below)

      http://en.wikipedia.org/wiki/The_Spirit_Level:_Why_More_Equal_Societies_Almost_Always_Do_Better

      • I’m not convinced that minimum wage laws actually create a smaller gap between the rich and the poor. In fact, by making it more difficult for low skilled people to find employment, they may make that gap greater. Now, it can be argued that for those minimum wage employees that DO keep their jobs, an increase in the minimum wage is beneficial, but this ignores the fact that most minimum wage workers are members of a family that consists of other workers who are often minimum wage workers and who are more likely than not negatively affected by the same law, i.e. they become unemployed. Thus, instead of the family unit making $14.00 per hour ($7 plus $7), the higher minimum wage law has them making only $9.00 per hour ($9 plus $0). This is compounded by the fact that the higher minimum wage (increased cost of labor) induces competitive firms to increase prices. It’s relevant to recognize that the main employers of low skilled workers are fast food chains and other producers of cheaper goods and that poor families are also the main consumers of fast foods and other low-end goods and services that employ low skilled workers. Thus, not only do some of the poor find it harder to get jobs, they also face a higher cost of the goods they consume.

        Next, I’m not sure that income inequality is such a bad thing or, perhaps more accurately stated, I’m not sure that guaranteeing income equality (or less income inequality) is a good thing. In fact, I’m virtually certain that it is not a good thing as it removes one’s incentive to be (more) productive. While I am certain that we can eliminate income (or wealth) inequality with these redistributionist plans (minimum wage laws and progressive taxation, I am equally as certain that such schemes will result not in us all being equally rich, but in us all being equally poor. Sadly, Obama seems to be more interested in everybody getting an equal slice of a smaller pie than in everyone getting a bigger price of pie. He talks the talk about people getting ahead if they work hard, etc., but the policies he proposes are promises of equality of outcomes no matter how much or how little one works.

        I’m not sure what you mean by “justice.” Is it just for the government to tax Mr. Smith more than it taxes Mr. Jones simply because Mr. Smith studied hard in school and works longer and harder than Mr. Jones who goofed off in school and works as little as possible? Is it just for Jones to expect and demand that his lifestyle be financed by Smith? “Fair” is a subjective term. My definition of “fair” has always been what two parties agree upon. If you offer your services to me for $200 per month and I willingly agree, that’s fair. I have no grounds to later state that Wally charges “unfair” prices even if his prices are higher than others who provide similar services.

        It may not be that countries that have less income inequality do better. It may be that countries that do better end up with less income inequality, i.e. the cause and effect are reversed. Or it may be that some other causative factor leads to both less inequality and doing better. Furthermore, even IF the alleged cause and effect is true, that does not mean that the proposed attempts by the Obama administration to “remedy” such inequalities will have either the “desired” effect on income inequalities or that reducing income inequality using such tools will have positive effects on “doing better”, i.e. the proposed remedies may throw some new twist into the mix that reduces income inequality, but has negative implications in terms of “doing better.”

      • Hi Wally — I recommend reading “The Quest for Cosmic Justice” by Thomas Sowell. Arguments for justice are the same ‘greater good’ arguments (or cost-benefit analysis), which are usually wrong or inconclusive.

        I think we often fall for the trick of believing that measures of well-being compiled by folks like the authors of the book you reference are valid, when they aren’t anything more than numbers on a spreadsheet.

  2. I don’t know the answer either – just trying to be generous in assigning motives to people’s actions. I don’t know if raising the minimum wage and/or taxing the rich leads to more income equity or if more income equity leads to more justice but… I do suspect that many on the left have this kind of idea (income equity and justice) as a root of some of their ideas.

    Justice, in terms of folks on “the left” and their policy motivations, probably centers around what they say it does – “giving people a fair shake”. Do the policies result in justice? Not sure. I do think that if we have this thing – income equality and it is measurable and it seems to correspond to all these “good” things when it is low, then it might be worth taking a look at. It might be something that should guide policy.

    Here’s a neat list and map that shows income equality by country:

    http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

      • I grew up in a wealthy family. Now I make a fairly average income. Rich people have the same emotional/personal issues as middle class people. Put another way, rich people seem no more or less happy than average folks.

        I’ve certainly never been poor, so I can’t speak from personal experience but being a martial arts instructor who has spend time teaching at various elementary, middle and high schools around town, I’ve had the opportunity to teach some kids who are poor.

        From what I’ve seen, there seems to be a disproportionate number of poor kids who have emotional/personal issues. I don’t have numbers or statistics on this one but I have no doubt that such statistics exist in spades.

        So my personal experience with income inequality is: poor kids don’t get the same chance to succeed as middle class/rich kids. They get “broken” more often. Some succeed, of course – there are lots of people who pull themselves out of poverty.

        As a teacher, it makes me want to help. My perception of America as a culture is that we try and give people a chance to experience life – suceed, fail and all points inbetween. Kids in poverty (from my perspective) don’t seem to have the same chance.

        • I believe the key here, Wally, is understanding why they are broken. Are they broken because there are people wealthier than they are or because of some statistics crunched by academics somewhere?

          Neither offer a satisfying explanation for me.

          Since the 50s and 60s, society has transferred a great deal of wealth from the better off to the poor with the idea that that would help. Economists Thomas Sowell and Walter Williams (both grew up poor and ‘disadvantaged’) have argued extensively that the ‘war on poverty’ has hurt, rather than helped.

          They point out that the poverty rate was on a long-term declining trend through the 50s, and then it stopped declining right about the time the war on poverty started.

          They contend that some regular feedbacks and principles in society (an honest days wage for an honest days work, save for a rainy day, don’t be a burden on others, show up to work on time, be responsible, don’t be a jackass) were the keys to previous declining trend in poverty.

          Sowell and Williams contend that the war on poverty deadened those feedbacks. Suddenly, you could get by and be a jackass. In some cases, the system was set up to reward it.

        • I think there are two issues:

          (1) Does being poor limit one’s chance of success (however we define that)?

          (2) Does redistributing money from the “successful” to the poor lead to a satisfactory increase in the number of poor people who become successful while not causing significant adverse effects (successful people becoming less productive, etc.) among the successful people?

          Can we actually be preventing some poor kids from becoming successful by throwing money at them? Look at what’s happened to Native Americans, a group that historically has been highly subsidized by the US government. A principle of economics is that is you subsidize something, you will get more of it. Why then, when we subsidize poverty (or, more correctly, non-productivity) do we expect to get less of it?

          Wally, you note that your experience with “income inequality” is that “poor kids don’t get the same chance to succeed as middle class/rich kids.” However, I must ask what difference does it make to the poor kid what the rich kid’s chances of success are? I am looking at this from the perspective that we don’t live in a zero sum game society. That is, my success does not imply that you will succeed less. The only thing the poor kid needs to be concerned with are his own individual opportunities for success and while it MAY be argued that this is influenced by his (or his parent(s) financial state, it has nothing to do with someone else’s financial state, i.e. it may have something to do with his absolute financial state, but not with income inequality.

          As Seth notes, why are they “broken”? Is it because some government do- gooder has convinced them that they are “doomed” by the socioeconomic class into which they were born or a welfare system that removes incentives for them to become productive? “Don’t bother trying, kid. We’re gonna give you a handout because we don’t think you have the ability to achieve success on your own.” Unfortunately, good intentions do not always have good results.

  3. Does being poor limit one’s chance of success? (I’m going to go ahead and define that as a person with decent mental and physical health who feels some degree of control over their lives and has their basic physical needs met.)

    I think so. I think poverty has genuine and measurable physical and mental effects that are caused by the high stress levels that are associated with being poor. These effects make it hard to successful (as defined above).

    (The link below talks in more detail about the physical and mental effects of poverty)
    http://serendip.brynmawr.edu/exchange/node/3880

    Does redistributing from wealthy folks to help poor people increase poor people’s chances of being successful without impinging unfairly on wealthy folks?

    That’s the big question, isn’t it? I don’t think I know the answer.

    Why are poor children more often broken? Again, stress levels are at an unhealthy level.

    Stress is an awesome thing. Provide the right amount and an organism will adapt, thrive and learn. Provide too little and it will stagnate. Provide too much and it will be stunted.

    What difference does it make to the poor kid what the rich kid’s chances of success are? None, but it sure makes me feel lousy as a teacher.

    What does it have to do with income inequality? Nothing except the disparity that I notice between the groups.

    Could we actually be preventing some poor kids from being successful by throwing money at them? Sure, if you don’t provide people with enough challenge, they often stagnate.

    • It’s more like we discourage some poor kids from becoming independent and making good choices because we throw excuses at them and bail them out from the consequences when they make bad choices.

      The Dr. Carson speech I linked to an earlier post discusses the victim piece of that. It was hard, but his Mom didn’t let him make excuses. That attitude led to his success.

      In the the blog post you linked to, I don’t see a convincing causal link between stress of being poor and being poor. Perhaps I know too many people who made it out of poverty to put much stock in that kind of excuse-making.

      • Personally, I think poverty, per se, as a cause for all these purported problems is, to put it bluntly, a crock of $#!7 foisted on us by politically correct politicians who habitually insist that government can solve all of our problems if we just send them more cash, but are afraid to address the real issues because it isn’t politically correct to do so.

        Here’s a bit from USA Today (not exactly a conservative mouthpiece) – my comments are in CAPS:

        Children are most likely to succeed in school when pushed by parents who provide stability, help with schooling, and instill an education and work ethic. But for decades now, the American family has been breaking down. GOT THAT, IT’S THE BREAKDOWN OF THE FAMILY UNIT (NO DAD AT HOME) AND NOT THE POVERTY, PER SE.

        Two-fifths of children born in the USA are born to unmarried mothers, an eightfold increase since 1960. Many succeed thanks to the heroic efforts of strong, motivated single parents and other relatives. But research shows that children of single parents suffer disproportionately high poverty rates, impaired development and low performance in school. MAYBE POVERTY IS A COINCIDENTAL OCCURRENCE RATHER THAN THE CAUSATIVE FACTOR AND THE CAUSATIVE FACTOR IS NO DAD AT HOME!

        Ron Haskins, an expert on children and families at the Brookings Institution, calls single parenthood a “little motor pushing up the poverty rate.” In 2011, the rate for children of single mothers was more than four times greater than that for children of married couples.

        Researchers at Princeton and Columbia, following 5,000 children born to married and unmarried parents, have found that the effects of single parenthood seep into every aspect of kids’ lives.

        A typical pattern in these “fragile families” looks like this: When a child is born, most fathers and mothers are in a committed relationship. By the time the child reaches 5, though, many fathers have disappeared. As the mothers move on to new relationships, the children face more instability, often with new siblings born to different fathers. Boys without strong male role models are more likely to turn to gangs and crime. NOTE – THEY SAY “WITHOUT STRONG MALE ROLE MODELS”, NOT “WITHOUT MONEY”

        Single mothers read less to their children, are more likely to use harsh discipline and are less likely to maintain stable routines, such as a regular bedtime. All these behaviors are important predictors of children’s health and development. NOTE – THEY SAY “SINGLE MOTHERS”, NOT “POOR MOTHERS”

        OK, BACK TO MY NARRATIVE:

        The poor today in America are far richer than the middle class (and even many rich folks) of a century or two ago. Yet, America was known as the land of opportunity – where rags to riches stories were not only possible, but not uncommon. I appreciate the link Wally posted, but as for the “I can’t” attitude displayed by the author – “While it is possible to fulfill the “American dream” and make a better life for oneself, that is not the case for most low SES individuals, especially after they leave school and start supporting a family” – cry me a freakin’ river! That’s the “can’t do” attitude associated with losers and it disgusts me. My wife and I started with nothing – she escaped from Castro’s Cuba with the clothes on her back and I lived in the back of a buddy’s work van while I worked my way through school – and built a successful business simply because we refused to fail. When we do too much coddling, kids learn to accept failure rather than developing the persistence and determination that will help them succeed. Talent, per se, is grossly overrated. I would rather have a strong willed, persistent athlete than a talented quitter.

        • “I would rather have a strong willed, persistent athlete than a talented quitter.”

          As a CrossFit coach and a martial arts instructor, I agree completely.

        • Mike — Good stuff. Do you happen to have a link to that article?

          Thomas Sowell and Walter Williams both make the same point about single parenthood. I just posted a documentary featuring Walter Williams making this case, almost 30 years ago.

          And, I agree that coddling is especially damaging because it doesn’t prepare us to deal with adversity. I think unemployment benefits is a good example of how the coddling culture pervades our thinking.

          I’ve been looked upon as an uncaring monster at the suggestion that folks be expected to save up for a rainy day when they do have a job. Or that they stop receiving unemployment benefits if they get a job offer — even if it’s for less money than they use to make. Or rather than giving this money to folks for nothing, that we expect them to do something productive for it — maybe 10-15 hours per week of community service.

        • Sorry if it looks like I’m replying to myself. I couldn’t find a reply tab to Wally or Seth’s last posts.

          While is has been proposed that being poor limits one’s chance for success, let me propose that being rich also limits one’s chance for success, albeit for different reasons – hence the saying “shirtsleeves to shirtsleeves in three generations.” I think the current literature regarding what it takes for people to succeed supports the idea that children of the rich are likely to fail if they are not faced with obstacles they must overcome at a young age, i.e. if they are coddled.

          It seems that there are two ingredients needed for a successful “personality” – the first is what I will refer to as a nurturing environment where one feels loved or safe, and the second is an environment (or genes) that give one the ability to persist despite failure (what some have referred to as “grit”.

          Now, I think we can all agree that in a poor home – especially one with an absent parent (father) – a child might feel unsafe and/or unloved (i.e. “maybe dad left because he didn’t love me”). However, while I think fatherless homes and poor homes are often one and the same, I think the cause of the unsafe/unloved feeling is the lack of the parent, not the lack of the money.

          I also think that the non-cognitive “skill” of persistence (or grit) needs, for its development, not only situations where the child is allowed to fail, but situations where he is allowed to fail and failure is not accepted. I think in many poor families, failure is expected and accepted and often rationalized. Hence, there is not incentive for the child to persist at a task when he fails. Again, I think this attitude relates to things other than money. I also worry that throwing money, affirmative action programs, etc. at those who fail tells them that they can’t succeed on their own or at least removes their chances for developing “grit” on their own.

          I am reminded of the advice given me when I started training at a new job that required certain expertise (that I didn’t have) in order to avoid costly mistakes: “Don’t just do something, stand there.” In other words, unless we’re really certain of the causes and effects of success, perhaps it’s best that we not be so eager to intervene and make things worse.

        • “I think the cause of the unsafe/unloved feeling is the lack of the parent, not the lack of the money.” -Mike

          Great comment overall, but this is particularly well-stated.

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