Disspelling Minimum Wage Myth.

Quote:

http://www.mises.org/story/2447

Libertarians have been exasperated by the Bush Administration's supposedly laissez-faire policies that are anything but. Yet as enjoyable as it is to poke holes in the plans to "privatize" Social Security and so forth, there's nothing quite so fun as economic commentary from a good old-fashioned leftist. In this respect, Robert Reich's recent commentary on NPR didn't disappoint.

The former Labor Secretary under Clinton was discussing President Bush's offer to go along with the Democrats' plan for hiking the minimum wage $2.10 per hour, so long as it is accompanied by tax relief for small businesses. Reich would have none of this, claiming that the proposed hike in the minimum wage wouldn't burden small businesses at all. To defend this paradoxical claim, Reich offered three main reasons.

Reich's Reason #1: Businesses can pass the hike along to consumers.

In Reich's words:

"[V]irtually all small businesses that pay the minimum wage compete in the local service economy. They're retailers, contractors, providers of elder care and child care, local hospitals. They don't compete internationally or even nationally. Their competitors are in the same city or town and all of them will be paying the same minimum-wage increase. So it's likely that the increase will be passed on to consumers."

Here Reich overlooks the fact that ultimately all businesses are competing for the consumers' money. It is certainly true that a hike in labor expenses will be much more tolerable for a given operation, so long as all of its direct competitors are given a similar handicap.

If all the hardware retailers raise prices 5 cents per item, that won't hurt any individual store's revenue as much as would be the case if a single store unilaterally raised its prices. Even so, the industry's revenue could still fall drastically, especially when foreign imports face no such burden.

Remember that the consumer can always choose to forgo a product or service altogether, or to produce it outside of the market. If the government hiked the minimum wage to, say, $50 per hour, this would annihilate the child care industry, as plenty of working parents would elect to stay home with the kids.

Reich is also simplistically ignoring the differential impact of the minimum wage hike on various small businesses. Some of them might be able to weather the blow fairly easily, by substituting out of labor and into more automation, or (as Reich suggests) by raising prices. But other small businesses enjoy no such luxuries, and will have to make hard choices should the Democrats' plan go through.

Finally, I note with some irony that Reich conveniently fails to complete his train of thought. Let us suppose for the sake of argument that Reich is correct, and that Bush's call for small business tax relief is unnecessary, since the increase will be passed along to consumers. Fine, fair enough. Even so, shouldn't we then couple the minimum wage hike with tax relief for consumers? Perhaps Reich's call for such cuts was edited out for reasons of space…

Reich's Reason #2: The minimum wage increase wouldn't be a minimum wage increase.

You may suspect that I'm misrepresenting Reich's claim. See for yourself:

"Besides, it's not really an increase anyway. The current minimum wage was enacted 10 years ago, and inflation since then has eroded its value so much that the new proposed minimum is more like an inflation adjustment than a real increase. Most small businesses charge prices that have risen with inflation. So it's only fair that their employees' wages should rise with inflation, too."

Here Reich is quite openly conflating his notion of fairness with the entirely different condition of one number (namely, $7.25) being larger than another (namely, $5.15). He also adopts the typical political trick of using a moving baseline that biases the outcome in the direction he favors. This is how the government can "slash spending" and "gut programs" while federal outlays increase, or how "core inflation" isn't so bad after we've filtered out the volatile components (i.e., the ones that increase a lot). Using this approach, I could argue that Robert Reich multiplied by Ludwig von Mises is a decent economist.
Naturally, the free market economist would point out that small businesses are currently operating in an environment where the minimum wage is $5.15 an hour, and their prices reflect the real (inflation adjusted) magnitude of this regulation. The burden is indeed lower than it was ten years ago, but that doesn't mean businesses pocketed the annual gains with the steady creep of inflation. No, it meant that they could gradually hire more low skilled workers, and raise prices more slowly than otherwise would have been the case, because of the shrinking real minimum wage.

Now to "adjust" the regulation for inflation will simply force businesses to lay off some of those marginal workers and to restrict the quality of their products, not to mention hiking prices.

There is something even more fundamentally wrong with Reich's statement. He seems to think that there was something magical about the minimum wage of $5.15 an hour when it was set in 1997, and that returning to that level of hardship on small businesses is only appropriate.

But what is the basis for this judgment? Suppose Vladimir Putin answered conspiracy theorists by pointing out that the mysterious murders of a few journalists was no real hardship for the profession, because the percentage of such killings had declined drastically since Stalin's purges. Would Reich get behind that argument? If not, then so what if the Democrats' proposed hike merely adjusts the minimum wage for inflation? That's completely irrelevant to whether it would pose a hardship for small businesses (and also to whether it's "fair").

Reich's Reason #3: The minimum wage increase would actually help small businesses.

Before letting Reich speak in his own words, let us review lest the reader become lost. First, Reich argued that the minimum wage hike wouldn't hurt businesses because the damage would be passed on to another group. Then, Reich denied that the hike would be a hike. Now, in his third argument, Reich is claiming that the non-hike hike, the harm of which could be shunted to others, is actually not harmful. OK? Let us proceed:

"In fact, a minimum wage hike may actually help small businesses. Evidence from states that have already increased their own minimum wages suggests that a modest increase convinces more people to enter the labor market — people like retirees, spouses or teenagers who wouldn't bother working at a lower minimum wage. For all these reasons, small businesses won't be harmed by the proposed minimum wage increase and don't need a tax cut."

Isn't that interesting? I bet there were a few small business owners who almost caused an accident while listening to NPR, so excited were they, to learn that higher pay attracted more workers.

Seriously, Reich's argument here is so silly that he can't possibly believe it. If a particular small business would benefit from the larger pool of applicants responding to higher promised wages, its owner doesn't need encouragement from Robert Reich (or Nancy Pelosi) to offer such wages. After all, most employers currently pay more than the government mandated minimum.

What's truly ironic is that this alleged benefit is reduced when the government forces every business to raise wages. For example, a business that currently pays $7.25 an hour (and yes, there really are such employers right now) can be far choosier with its employees than will be the case when all businesses pay at least that rate. But no worries: I'm sure such businesses will make up for the reduction in productivity by cutting product quality and raising prices.

Conclusion

It's been fun to watch the Republicans get government off our backs and bring some conservatism to the federal budget. But if Robert Reich's NPR commentary is any indication, we can look forward to some great yuks under the Democratic Congress, too.

Also for further consideration, in 2005 Wal-Mart lobbied for a minimum wage hike. Many people suspect it was because Wal-Mart already payed most of its workers above the minimum wage, and that such an increase would make it harder for other retailers to compete with them.

Jam it back in, in the dark.

Wage caps sort of eliminate the whole profit motive. Establishing a wage cap is like telling the most productive members of society that they should only produce so much. Why bother making more money just to have it seized and redistributed to jerks you don't know?

They don't really make wages in any case.

I also don't think the purpose of a "laissez-faire" economic policy is to "protect business." Protecting business is usually the realm of corporate welfare, breaking up strikes with police power, and military adventurism.

There's nowhere I can't reach.

It sustains me.

What I'm going to get at, though, is that Laissez-faire doesn't protect anybody's interests in an exchange. In a free market, deals go both ways when it comes to relationships between sellers and buyers, and employers and labor. "Protecting Business" is the very essence of Keynesian economics, yet in protecting business, it also destroys competition and discourages the growth of new industries.

My argument is semantical, and while you can claim that not interfering in exchanges and observing property rights benefits "business," I would claim that it benefits everybody in the sense that all people are consumers, yet not all people engage in business.

Laissez-Faire is the observance of free exchange, not protection of business.

Most amazing jew boots

Well, the simplest way to fix the problem would be to get rid of minimum wage.

Why are there so many Keynesians? A number of reasons. Keynesian economics have been popular since the New Deal, and since Roosevelt used the practice of appointing economist to central planning authorities (not an insignificant irony of history) economists understood that Keynesian policies were how their bread was going to be buttered.

The reason free market economists and monetarists aren't high in positions of government is because free marketers want government to roll back, and monetarists want government to treat the money supply responsibly. States, however, have an inevitable tendency to expand their duties and spend more, because they have a monopoly of force. With that monopoly, the only way the state can expand its business is by making more laws and spending more, which justifies higher revenues through taxes or borrowing. "Rolling back government" doesn't appeal to government. As for the money supply, if the government was responsible with it, then it couldn't finance welfare programs, and military adventurism.

I am a dolphin, do you want me on your body?

Maybe there are exceptions for small businesses in the state of Missouri. Either that, or your boss is breaking the law, and lying to you.

I was speaking idiomatically.

Hm. How do you think the Federal Minimum would affect the laws in Missouri? Or do you think that Missouri will maintain its current laws and not give in to Federal extortion?

What kind of toxic man-thing is happening now?

No, if executives and business owners want to give themselves obscene salaries and make their businesses less competitive, that's their perogative. It's essentially the same problem with discriminating based on race.

Consequently, I don't think people are putting enough faith in the power of labour to affect change independent of the government. If labor feels that capitalists are making obscene amounts of money relative to the wealth that's being created, then they're perfectly capable of negotiating the gap to an acceptable end for all parties.

Quote:

c) You cancel welfare & etc. and let minimum wage float. Pay becomes just enough to make work hours more productive than other activities you might try to stay alive (e.g. crime, begging). Or just barely enough to get the creame de le poor-masses crop, if your business happens to need that.

It's unlikely that anybody would work for a mere dollar-fifty an hour, yet people who subsist on the current minimum wage are already living below the poverty line as it is. The primary demographic of people who would work low-skill jobs should be teenagers and those living on fixed incomes, such as the elderly, in order to supplement lifestyles. Otherwise, if they subsist their lifestyle on a low-skill income, then they're fucked unless they can pool resources in a cohesive family unit (although, if they had cohesive families, then they would probably have a few college graduates at this point).

Also, if minimum wage floats, it essentially means that everybody can be employed, meaning that businesses have to compete for labor instead of drawing from a pool of unemployment. I mean, most low-skill workers already make above the minimum wage as it is, wouldn't wage rates naturally gravitate to be relative to the amount of wealth that a worker produces?

There's no reason any business shouldn't want the most productive workers possible, and if a business doesn't take steps to provide incentives for labour, then it has no real right to remain competitive.

Most amazing jew boots

It doesn't matter if the minimum wage is tied to a real wage or not. If you raise the minimum to a point where it begins to coincide with more skilled labor, there's no incentive for unskilled workers to get those kind of jobs.

If the minimum wage was 7.50 at the time I was job-hunting in 2005, I probably would've accepted the job as a mall janitor instead of working for a steel detailing firm in Baton Rouge where that was the starting rate. I ended up being their fucking janitor anyways, but at least I had more duties that actually involved work I needed to be trained for. (also avoided incontinent old people stool)

Even worse, if the minimum wage had been 7.50, chances would've been that the job opening wouldn't exist and they'd just pay their current janitor more for expanded duties. The only reason I got the job in detailing was because of old church connections, and if I hadn't been connected in an environment where I had absolutely no marketability, I would've been shit out of luck.

What, you don't want my bikini-clad body?

Reich is saying that the current wage increase values the minimum wage at the "real value" 10 years ago because it's been accounted for inflation. Legal minimums can't be fluid, because they require a legal process with which to be implemented, as well as a re-negotiation of existing wages for current earners of the minimum.

Robert Murphy, the article writer, is saying that it's besides the point because the market has already adapted to the current minimum, and that increasing it will still create unemployment.

The argument of Free Market theorists is that business owners don't pocket the higher real-value they get from inflated currencies, but instead use the real wealth gained to hire more low-skilled workers and/or raise prices at a slower rate than if they had been accounted directly in accordance to the inflated currency. Hypothetically, it's how the price of a good may only rise by 5% over a year, whereas inflation has devalued the dollar by 15%.

Jam it back in, in the dark.

Adam Smith was right, the free movement of capital would destroy the state, because it eliminates their ability to control it.

Free market theorists don't preach an "untruth" it's just that Free Market theory assumes that the state is an impediment to exchange, not a facillitator of it.

Because we don't have a Free Market doesn't mean that the theorists aren't right, it simply means that they have no sway in the body politic.

There's nowhere I can't reach.

Quote:

But without state regulated mechanisms there is no market. You wouldn't have property rights. You wouldn't have stock markets or any of the large institutions that need state legitimization to exist. Without the state you don't have confidence in money. The state can be an impediment to efficiency in many ways, yes. But there is no such thing as a free market and the state is necessary.

1. Any environment which facilitates an exchange is a market. There is such a thing as a market anarchy. I'm not going so far as to say that the state should be completely abolished, but that ensuring property rights and other basic rights of its citizens should be its sole function. Of course, property rights are also enforceable in a free market depending on how well private security firms are capable of enforcing them.

2. A stock market does not need state legitimization, but may instead have private legitimization, with security enforced by private firms. If one's exchanges are guaranteed, and ownership observed, then the stock market is trusted as an institution. If a stock market doesn't guarantee exchange or proof of ownership, then confidence in the market is lost, and it dissolves.

3. Confidence in state money is only backed up by fiat. In the case of a governmental collapse, it's essentially worthless. There are currently a few successful electronic currencies backed by gold which are being exchanged on the internet. Some theorists think we'll be exchanging gold electronically in the future instead of fiat money, or even commodity-backed paper. There's also talk of a gold denar to be used as a pan-Arab currency.

4. Free markets exist where the state has no impact on exchange. Free markets exist all over the internet, where people exchange goods between each other free of taxation, and instead pay a service for the exchange. It's not unrealistic to presume that there can't be real-world free markets. Somalia, for instance, has a free market because it's the only country in the world which lacks a government. There's little good to say about it, because it's still factionalized, but the point is that it exists.

Quote:

I also don't think the free movement of capital will destroy the state.

If capital moves freely, then the state has no means to seize it. The only alternative to taxation is a donation-state, a business-state, or a gambling state, which earns revenues by facilitating gambling. While it may not destroy the state, it effectively limits its ability to expand, which runs contrary to the nature of a state. It's inconceivable for any state to accept the absolute freedom of capital, because it erodes the majority of its power.

Quote:

So yeah, it costs a few jobs, with the noisy data hard to say how much. But it's an administratively simple way to help the people good enough to still get jobs.

Have you not been paying attention? We live in a welfare state. If people can't work, then they become a burden of the taxpayer. This doesn't just lower employment for teens and uneducated adults, it further ensures the chronic unemployment that plagues minority communities.

If things get as worse as they could, as Shin said, and we're faced with a further surge of illegal labor, it's not inconceivable to cause severe hatred of Mexicans by blacks, possible enough to where the Irish/black race riots of the 19th century would occur again, only with the roles reversed and the whites replaced with Mexicans.

Either that, or it's more rappers, drug dealers, and B-ball players. Future's lookin good, Black People.

This thing is sticky, and I don't like it. I don't appreciate it.

Quote:

1. Yes. But, these are all political entities that interfere with markets for their own interests. Hegemons help to make markets work in their interests and, more subtly, help shape the discourse about what is a free market. That's why I think the institutions necessary for free markets often help to curb market freedom. There is definitely a tension there.

Elaborate on this, please.

Quote:

3. Yep, although I'm not sure that gold is really a hard backing. If its perceived value goes away it has the same problem as paper money.

From 1952 until 2001 gold did lower in value, not in small part because it stopped being used in currencies and lost value as a storage of wealth. If gold becomes worthless, then people will begin to base moneys and currencies on other commodities. However, Gold and Silver are the most likely materials to be used for money because they're rare, easily malleable, don't decay, and have artistic applications. Even when people were using wheat as money, they still stored bushels in terms of their weight in gold.

Gold and silver are too soft to use in weapons or industry, so it was only natural that its artistic applications would encourage people to use it for money.

The likelihood of Gold losing its value for currencies depends on how much gold is being produced, and the rare case where people suddenly consider gold worthless for social reasons, at which point, like I mentioned before, they'd simply use other commodities to back up their currencies.

Quote:

4. I'm not sure that you can argue that Somalia has a free market. I know little about Somali ethnology but I presume that to some degree areas still work on kinship ties rather than market principles--because they are so underdeveloped. Also, the best argument against them having a free market is that there is really little exchange of information. Without information to make decisions you don't have free markets--or so I was taught.

If a market allows two parties to make exchanges without the oversight of a third party, that's a free market. If not the whole country, then the Somali arms market is certainly a free one.

Quote:

Capital movement: Possibly. I think states can benefit from states have access to force so they can stop free movement when they deem it necessary. So, I think it could be free as long as states think it's helping them. Once their arms industry flees the country they will cry national security and put holds on capital movement. This goes back to point 1. If free markets aren't perceived to benefit the state they will often act to curtail it.

I think.

You're essentially right, which is why the powers of the state itself must be curbed.

I am a dolphin, do you want me on your body?

If gold is used as the base of currencies again, then the cost would have to be a concern.

Even if there is no substitute for technological applications, the economic and social benefits are too great.

I was speaking idiomatically.

Originally Posted by RacinReaver

They used gold for jewelry when it backed currency, so why couldn't they use it in mission-critical devices nowadays (an even less frivolous use)? Like, there's a reason replacement knees are made out of titanium instead of stainless steel even though it's shitloads more expensive. Hell, didn't they use gold fillings for teeth 100 years ago?

That's true. It depends in large part on how popular the use of gold is in industry. I mean, Jewelry was a store of wealth unto itself, just one which was worn instead of one which could be immediately exchanged for money. Jewelry and gold fillings, though, are also much more easily convertable into money than the gold used in industry. It's much more simple to melt down a bracelet than to extract the tiny bit of gold from complicated circuitry and finding a substitute for it.

How ya doing, buddy?

Quote:

I don't think that you can completely say that minimum wage is necessarily good or bad. If we were to completely eliminate the minimum wage, then we would be reverted back to the Gilded Age where corporations ruled and all union strikes (the most known was the Haymarket Affair) were controlled by private police.

No, that would involve the dissolution of unions and the criminality of unionization. It's alternatively possible to marginalise unions but so long as the threat of organized labour exists, then corporations and business owners are willing to work with their employees on grievances. The police who broke up union strikes also weren't private, they were bought off by the corporations, and if you can buy into the state's monopoly of force, you can get away with pretty much anything.

If it were truly possible to organize private police then the unions could have organized their own police forces for the purposes of security. The Black Panthers did a similar thing by having brothers and sisters work security to make sure the police didn't try and break up rallies. It didn't work all the time, and some people still ended up getting shot but the point is that it worked.

Quote:

What Reich said about the cost of minimum wage being diverted to the customers would actually reverse what he wanted minimum wage to do in the first place. Raises minimum wage and then raising product price would cause inflation which would make the wage increase in essence moot.

Raising prices doesn't cause inflation, it's the prices which have inflated. The problem is that there's nothing to account for inflation, such as the maintenance of existing minimum wages that ease the price rise. Your understanding is correct, though. If prices rise to meet higher wages, then minimum wage workers have essentially gained nothing.

Now, if you admit that such is true, how can we justify the minimum wage when we just expect business owners to pass on the greater costs to consumers, which includes the people receiving a higher minimum wage?

FELIPE NO