Now You’re Talking

I like some of the latest batch posts that I’ve read on minimum wage.  Here’s a roundup.

1. In this post on the minimum wage on Cafe Hayek, Russ Roberts does a great job articulating a world more complex than any of our models can replicate. True. That’s one reason cost benefit analyses suck. Models are to complex systems as caricatures are to people. They’re nice to hang on the wall, but they don’t talk or anything.

Here’s a sample:

So that when legislation artificially raises price, the debate is over the impact on quantity–how many jobs will be lost (or gained if you’re on the other side.)

But price and quantity are not the only way market forces work. And they are certainly not the only attributes of a job. There is how hard you have to work, how many breaks you get, how much training or mentoring or kindness. What amenities are in the workplace–snack bar, vending machine, nicely decorated walls and so on. When the government requires that wages be higher than what they would otherwise be, that creates an increase in the number of people who would like to work and reduces the number of opportunities available.

2. The Grumpy Economist, John Cochrane, suggests that discussing the minimum wage is “fiddling while Rome burns”, even if the economic magic of raising the minimum doesn’t effect employment were true.

3. Kudos to Russ Roberts’ co-blogger on Cafe Hayek, Don Boudreaux, for his response to a colleague who questioned why he spent so much time writing about the minimum wage:

I protest the legislated minimum-wage because I have a visceral hostility to shabby economics.

Encountering arguments premised on the (typically unconscious) notion that most employers routinely sit on figurative piles of excess profits or returns that can be tapped into by government diktat (“Raise your workers’ wages!”) without any compensating adjustments or reactions by employers makes my head ache.  Encountering otherwise respectable economists performing rococo theorizing in their attempts to explain why unskilled human labor is somehow exempt from the simple application of the law of demand makes my head ache.

Encountering otherwise respectable economists who lend credence, usually unawares, to the person-in-the-street creationist superstition – a creationist superstition held by non-economists on the ideological spectrum ranging from the likes of Harold Meyerson to Bill O’Reilly – that prices, wages, employment conditions, and other economic phenomena are determined arbitrarily, and more or less consciously, by someone in power rather than by decentralized and largely spontaneous market, competitive forces makes my head ache.  Letting stand unchallenged this Meyerson-O’Reilly sense that, therefore, the only question is which powerful group of people will determine prices and wages – the government or the oligarchs? – makes my head ache.

Encountering claims that human welfare can be increased so easily and so surely by mere diktat makes my head ache.

Challenging such claims is the equivalent, for me, of swallowing two aspirin tablets.

2 thoughts on “Now You’re Talking

  1. Boudreaux’s comment regarding “claims that human welfare can be increased so easily and so surely by mere diktat” is a point that I hope I made clear in my post regarding minimum wage laws. There is a fundamental difference between “money” and “wealth”. Unless our productivity increases, simply giving people more money does not improve the overall wealth or well-being of our nation. If more goods and services are not produced, we will simply be rationing the same amount of goods and services among more people (assuming population growth) which means people are less well off than before.

    Too many people have been led to believe that simply because they exist, they are entitled to a certain number of goods and services. This guaranteed of outcome is far different acknowledging that people are entitled to PURSUE such outcomes. As a result if this entitlement mentality, people lack the incentive to develop their human capital so that they have the tools necessary to actually earn the wages that they demand politicians “negotiate” for them. While the outsourcing of jobs has much to do with comparative advantage, it is reasonable to assume that it has been accelerated by unskilled workers pricing themselves out of the market via US minimum wage laws. In a competitive global marketplace, unskilled US workers are not worth the minimum wage they demand and it is foolish to think that US manufacturers can be competitive globally if their labor costs are artificially inflated by US minimum wage laws.

    • I thought you made a good point. I agree.

      There was one sentence in that comment I would nitpick on. I believe you wrote that we can certainly reduce inequality with redistribution. I’m not so sure. I think if you raise tax rates on higher income individuals, that may contribute to even more inequality since their incentive is their after-tax income, not their before-tax income. They, having a bit more bargaining power over their wages, may simply demand more income to offset higher taxes and over time that looks like more inequality.

      Wally pointed to a book about country comparisons in inequality. If I’m not mistaken, the US has one of the most ‘progressive’ tax codes, even more so than the ‘good’ countries listed in that book. It seems that we shouldn’t rule out progressive taxes codes as a contributing factor to inequality, instead of a correction for it.


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