December 15, 2018

The Best Argument Against Minimum Wage Laws: You Don’t Own Other People

min wage article picWith Democrats about to take control of the House, it is likely we will see an increase in the federal minimum wage pass the lower chamber, even if it has no chance of becoming a law. We will just as surely hear opponents making completely sound economic arguments against minimum wage laws.

Minimum wage laws cause unemployment, these opponents say, because they price those workers whose skills don’t justify the minimum wage out of the market completely. If a worker only has the skills to produce $14/hour worth of benefits to an employer, the employer is better off not employing that person rather than losing $1 dollar/hour doing so, if the minimum wage is $15/hour. And regardless of where the minimum wage is presently, any increase in the price of labor will result in less demand for labor, all other things being equal.

That’s basic economic reasoning and wasn’t even controversial until recently when, for political reasons, economists like Paul Krugman began contradicting their own earlier writing on the same subject. But as economically sound as the unemployment argument against minimum wages may be, it ignores a previous and much more important one: you don’t own other people.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Tucker Carlson Feeling the Bern Illustrates Conservatism’s Hostility to Free Markets

screenshot-2018-08-31-at-92959-amTucker Carlson is feeling the Bern on at least one well-established left-wing narrative: that corporations are robbing everyday Americans by paying their workers so little that many of them qualify for food stamps or other welfare benefits. Thus, the founders of Amazon, Uber, Walmart, and other corporate behemoths get richer while taxpayers are forced to pay part of their labor costs.

Carlson appears honestly surprised to be saying “Bernie is right,” referring to U.S. Senator Bernie Sanders, who plans to introduce legislation forcing corporations to “pay back” the government by taxing corporations at 100 percent of all food stamps, public housing, Medicaid, and other federal assistance paid to their employees.

He shouldn’t be.

Conservatism shares the same hostility to laissez-faire markets as modern liberalism. Both are ultimately collectivist philosophies, hostile to liberty in general, albeit for slightly different reasons, and prone to economic fallacy to rationalize that hostility.

First, to the economic errors. It’s hard to believe Carlson could get so many things wrong in under five minutes, starting with his general premise. He and Bernie argue the problem is the corporations not paying enough, resulting in taxpayers having to pick up the slack. But business enterprises in a free market are supposed to seek the lowest prices they can find for labor and other inputs. That’s how market economies drive down the costs of consumer goods and make all members of society richer.

The problem isn’t businesses acting in their economic self-interest; it’s the existence of the welfare programs themselves. They are an intervention in the market that distorts the price of labor. If they did not exist, the market would naturally set labor prices higher because employees wouldn’t accept jobs that didn’t pay them enough to cover the necessities currently subsidized by the programs.

Read the rest at Foundation for Economic Education…

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Fast food and retail employees are capitalists, too

fast_food_strikes_ap_img_1TAMPA, January 6, 2014 – It’s startling how pervasive Karl Marx’s worldview has become, even here in the supposed home of capitalism. Economists since Adam Smith have represented the division of labor with names for the different roles played by individuals within it at any given time.

But it was Marx who identified “capitalists” as vampires sucking the blood of victim workers. He didn’t use labels such as capitalist and worker merely to explain economic roles, but identified them as separate classes in a political struggle.

Without even realizing it, even pro-market Americans accept these assumptions and largely base their arguments upon them. When the debate devolves into one in which low income earners claim an entitlement to higher wages and high income earners respond by telling them why they don’t deserve higher wages, Marx has already won.

There is no difference between capitalists and workers. All workers are capitalists, even those currently making minimum wage in the fast food or retail industries.

Somehow, the employment contract has assumed a Romulan cloaking device that prevents people from seeing it for what it is. The employment contract is a buyer-seller exchange, like any other. Employees sell a product to employers at a mutually agreed upon price.

That the employer will use that product to make another and then sell it is not substantively different from a manufacturer buying a tire or a bearing and using it to manufacture a bicycle. This is not to say that human beings in an employment agreement have no more worth than a tire or a bearing. Rather, they are fulfilling the same economic function in a complex production process as the manufacturer of the tire or the bearing.

Employees produce the product they sell to employers themselves. Therefore, they must have capital, i.e. “the means of production.” It is their minds and bodies, with which they produce the products called fast food grill services, or cashier services, or shelf stocking services. They sell these products to the highest bidder, the employer willing to pay the most in cash and benefits in exchange for the products they offer.

Employees at a fast food establishment don’t make lower wages than doctors or engineers because they are less educated, less skilled or part of some imaginary “class.” They make lower wages, i.e., are forced to sell their product at a lower price because the product they produce is less scarce than that produced by doctors and engineers.

There is no question of justice or injustice, social or otherwise. It’s simple supply and demand. The supply of capitalists who can produce fast food grill services is far greater than the supply of capitalists who can produce doctor or engineer services.

Like all exchanges in a free market, the exchange between the capitalists commonly known as “employees” and those known as “employers” should be voluntary. Minimum wage laws destroy the voluntary nature of these exchanges for both parties. It prohibits employers from buying services at the market price and prohibits employees from selling services at the market price.

It turns employees into “crony capitalists,” just like the corporate recipients of farm subsidies or the beneficiaries of favorable regulation. Government intervention allows them to charge higher prices than they could in a free market and insulates them from the competition of people willing to sell the same product at a lower price.

Ultimately, it results in higher prices for consumer goods, which affects everyone, including the employees it purports to help.

Raising the minimum wage raises the cost of production. As capital is finite, that means that less overall goods and services will be produced. Scarcer goods and services mean higher prices. Higher prices lower real wages.

So, unlike the higher standard of living corporate crony capitalists realize through government intervention, employee crony capitalists realize a lower one. Raising the minimum wage also gives politicians cover for all sorts of other interventions, none of which are designed to improve the lives of fast food employees.

During the 19th century, wages increased modestly at the market rate, but vast increases in production made consumer goods more abundant and thus cheaper. Real wages skyrocketed, as average income earners could buy almost twice the amount of goods and services with each dollar by the end of that century.

There was also a gold standard that prevented the inflation we have today, but that is another story.

Minimum wage laws destroy the cause and effect relationships that result in higher production, lower prices and ultimately a higher standard of living for everyone. Lower consumer good prices benefit low income earners much more than high income earners. High income earners can afford a 20% increase in the price of a pound of hamburger or a gallon of gas.

Not once in all of history have low income earners been better off after listening to the demagogues. They won’t be this time, either.

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.