minimum wage maximum economic ignorance

Huffington Post is it at again. Showing their disdain for science, a new article declares that:

The minimum wage debate is a shining example of the left’s vigor and academic prowess.

Sadly, that is true. The minimum wage debate is a shining example of the left’s lack academic prowess. Denying that minimum wage causes unemployment is tantamount to claiming that the demand curve does not slope downwards. Econ 101 students will notice that this is like claiming the “Earth is flat”. The ignorance is outstanding.

For non-economists, it is apparent that as the cost of thing increase, people buy less. As the price of workers increase, people buy less workers. The Nation, after criticizing Wal-Mart’s wages, came to this conclusion on their own after they decided to increase(!) the pay of several of their workers to the minimum wage. The California higher minimum wage advocates learned this when hiring workers to canvas neighborhoods. They sued to be exempt from minimum wage laws. When prices increase, people buy less. Additionally, a worker becomes unemployable when an employer cannot at least get more value out of a worker than the worker brings to the company.

I once listened to a highly paid economist talk about what he does for a living. “It is easy,” he said. “I go around to companies and tell them that they can only pay up to the amount of value an employee brings to a company.” If an executive brings in $200,000 dollars, the company can pay him up to $200,000 dollars. Anything over the amount means a loss for a company and they would be better off without the worker. For low skilled workers, sometimes they do not bring in the value of minimum wage. This results in unemployement. But nevermind that, states the author:

But, in a sense, we don’t really have to prove this. When debating the Kyoto Protocol we don’t ask whether unemployment will drop by 1% or 2%, but whether it’s morally appropriate for two dozen or so developed nations to benefit from GHGs that will primarily affect the world’s poorest people.

What they author is really saying is “we don’t care that people lose their jobs and get zero income because we think the new minimum wage is fair. Never mind that the real minimum wage is zero and we have just impoverished real human beings. Never mind that every government law has massive unintended consequences and quickly becomes subject to special interests. Never mind that government law is impossible to adapt or reverse if the outcome is different than expected. Never mind the deadweight loss and compounding hit to our potential standard of living. Just trust the government to increase people’s quality of life.” The author is living in some sort of fantasy bubble where we can just legislate nice ideas and that makes them work.

The author continues:

We must ask ourselves whether we want to live in a society when the poorest working people can not afford to purchase basic necessities.

I do not understand why the author focuses on the “working people”. Why not all people? With a turn of phrase the author is saying “please ignore the people I just impoverished with my laws”. Here is an idea, if the minimum wage was increased to $100 the author could state:

We must ask ourselves whether we want to live in a society when the poorest working people cannot afford to purchase new cars, houses with rooms for every family member, and the best organic food.

Why doesn’t the author propose a $100 minimum wage?

Minimum wage advocates regularly ignore questions asking them why we don’t raise the minimum wage to $100 or $1000. It is because they know that the demand curve slopes downwards. They inherently know that unemployment results and a high minimum wage would be poison to society. They do not want people to understand that they have no metric for determining the optimal minimum wage besides a “nice feeling in their tummy”. They do not want people to know that minimum wage increases have negative effects for some of the lowest skilled workers. They do not want people to see any doubt that their grand ideas will have good consequences.

Although the author waxes confident, economists seem to disagree. Bryan Caplan seems to believe there is strong nonsupport and points out that this represents a surprisingly large overcoming of biases. Of those economists who support increasing the minimum wage, their understanding of the consequences are not as naive as the Huffington Post article.

The mass of evidence shows increasing the minimum wage has exactly the effects predicted by Econ 101. The studies purporting to show that the demand curve does not slope downwards, suffer from methodological errors and, from what I can tell, are designed to boost prestige of the authors among the economically illiterate (as if Krugman has any other goal these days).

None of the economists who say the minimum wage causes unemployment then claim that it is “apocalyptic” as the author claims (again showing his dishonesty). Cutting yourself hurts proportionately to how big the cut is. A paper cut is different than having a leg chopped off. If the minimum wage is increased to $100 per hour, expect massive consequences. If the increase is by 1 penny, expect minor changes. But that also does not mean we should embrace paper cuts. Besides this, only around 2% of hourly workers earn minimum wage. How will we see “apocalyptic” results if only around 2% of hourly (as opposed to all) workers are effected?

The author is correct in saying that Economics is not normative; it can tell us the effects of actions but not the morality of actions. But he is incorrect when he says “That is why raising the minimum wage is the only moral option available to us today.” A third party, armed with guns, telling two consenting adults what minimum or maximum price they can agree to for legal activities, that is what is immoral and unconscionable. Impoverishing low skilled workers. Displacing youth from learning job skills. Increasing the overall costs of consumers (myself, I am raising 4 children). That is immoral. Using guns to enforce his preferences, that was just the first tipoff of McElwee’s immorality.

About christopher fisher

The blog is meant for educational/entertainment purposes. All material can be used and reproduced in any length for any purpose as long as I am cited as the source.
This entry was posted in Econ 101, Economics, Goverment, Labor, Price Controls, Standard of Living, State Worship. Bookmark the permalink.

One Response to minimum wage maximum economic ignorance

  1. Pingback: God and predictability | reality is not optional

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