Friday, February 15, 2013

The curse of the minimum wage law

Amidst all the talk by Democrats led by Obama about raising the minimum wage once again, it is well to remember that it is the AFL-CIO and other unions who are behind this destructive move in order to protect their overpaid members from marginal lower wage workers. Murray Rothbard explains:

Outlawing Jobs: The Minimum Wage

Mises Daily: Friday, February 15, 2013 by Murray N. Rothbard

[This piece originally appeared in the December 1988 issue of The Free Market and is also included in the collection Making Economic Sense.]

There is no clearer demonstration of the essential identity of the two political parties than their position on the minimum wage. The Democrats proposed to raise the legal minimum wage from $3.35 an hour, to which it had been raised by the Reagan administration during its allegedly free-market salad days in 1981. The Republican counter was to allow a "subminimum" wage for teenagers, who, as marginal workers, are the ones who are indeed hardest hit by any legal minimum.

This stand was quickly modified by the Republicans in Congress, who proceeded to argue for a teenage subminimum that would last only a piddling 90 days, after which the rate would rise to the higher Democratic minimum (of $4.55 an hour.) It was left, ironically enough, for Senator Edward Kennedy to point out the ludicrous economic effect of this proposal: to induce employers to hire teenagers and then fire them after 89 days, to rehire others the day after.

Finally, and characteristically, George Bush got the Republicans out of this hole by throwing in the towel altogether, and plumping for a Democratic plan, period. We were left with the Democrats forthrightly proposing a big increase in the minimum wage, and the Republicans, after a series of illogical waffles, finally going along with the program.

$20.00$17.00

In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.

All demand curves are falling, and the demand for hiring labor is no exception. Hence, laws that prohibit employment at any wage that is relevant to the market (a minimum wage of 10 cents an hour would have little or no impact) must result in outlawing employment and hence causing unemployment.

If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, permanently, those who would have been hired at rates in between these two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be disemployed and devastated by this prohibition will be precisely the "marginal" (lowest wage) workers, e.g. blacks and teenagers, the very workers whom the advocates of the minimum wage are claiming to foster and protect.

The advocates of the minimum wage and its periodic boosting reply that all this is scare talk and that minimum wage rates do not and never have caused any unemployment. The proper riposte is to raise them one better; all right, if the minimum wage is such a wonderful anti-poverty measure, and can have no unemployment-raising effects, why are you such pikers? Why you are helping the working poor by such piddling amounts? Why stop at $4.55 an hour? Why not $10 an hour? $100? $1,000?

It is obvious that the minimum wage advocates do not pursue their own logic, because if they push it to such heights, virtually the entire labor force will be disemployed. In short, you can have as much unemployment as you want, simply by pushing the legally minimum wage high enough.

$30.00$29.00

It is conventional among economists to be polite, to assume that economic fallacy is solely the result of intellectual error. But there are times when decorousness is seriously misleading, or, as Oscar Wilde once wrote, "when speaking one's mind becomes more than a duty; it becomes a positive pleasure." For if proponents of the higher minimum wage were simply wrongheaded people of good will, they would not stop at $3 or $4 an hour, but indeed would pursue their dimwit logic into the stratosphere.

The fact is that they have always been shrewd enough to stop their minimum wage demands at the point where only marginal workers are affected, and where there is no danger of disemploying, for example, white adult male workers with union seniority. When we see that the most ardent advocates of the minimum wage law have been the AFL-CIO, and that the concrete effect of the minimum wage laws has been to cripple the low-wage competition of the marginal workers as against higher-wage workers with union seniority, the true motivation of the agitation for the minimum wage becomes apparent.

This is only one of a large number of cases where a seemingly purblind persistence in economic fallacy only serves as a mask for special privilege at the expense of those who are supposedly to be "helped."

In the current agitation, inflation--supposedly brought to a halt by the Reagan administration--has eroded the impact of the last minimum wage hike in 1981, reducing the real impact of the minimum wage by 23%. Partially as a result, the unemployment rate has fallen from 11% in 1982 to under six percent in 1988. Possibly chagrined by this drop, the AFL-CIO and its allies are pushing to rectify this condition, and to boost the minimum wage rate by 34%.

Once in a while, AFL-CIO economists and other knowledgeable liberals will drop their mask of economic fallacy and candidly admit that their actions will cause unemployment; they then proceed to justify themselves by claiming that it is more "dignified" for a worker to be on welfare than to work at a low wage. This of course, is the doctrine of many people on welfare themselves. It is truly a strange concept of "dignity" that has been fostered by the interlocking minimum wage-welfare system.

Unfortunately, this system does not give those numerous workers who still prefer to be producers rather than parasites the privilege of making their own free choice.

Thursday, February 14, 2013

Who really makes things happen

Steve Hayward discusses a friend and some intellectual interests in this short piece. I understand the cultural distinctions between the various types of individuals discussed in these findings however there appears to be a missing link that goes unmentioned. That missing link is what perceptive economists would call the entrepreneurial factor. Without entrepreneurs capitalism would not exist because it is they who take the risks, bring capital and labor together and put simply, "make things happen". Think Henry Ford, Bill Gates, Steve Jobs and thousands upon thousands of other risk takers whose foresight, intuition, and drive have resulted in companies that hire everyone who works in commerce for a living. These people clearly fall only in the first category of types discussed by the Cultural Cognition theory Hayward refers to. The other three categories mentioned are out there but not really relevant to any discussion of what works in an economy to bring rising incomes and wealth to a society. Unfortunately intellectuals always seem to overlook this perspective and for that reason in many instances promote solutions to economic issues that don't work or are counterproductive. The capitalist system depends on the energy and risk taking of entrepreneurs. Subvert these individuals and you get the kind of economy Obama wants which does not grow or create wealth.

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POSTED ON FEBRUARY 13, 2013 BY STEVEN HAYWARD IN SOCIAL ISSUES

THE ROOTS OF POLARIZATION?

So this is another of my occasional highly idiosyncratic posts, like previous ones on Progressive Rock, that is difficult to categorize and present. I’ve been talking lately with one of my moderate liberal friends, David Ropeik. He doesn’t like it when I call him a liberal because he is not a partisan, but I don’t mean it as a pejorative, insult or provocation. He would surely seem a liberal to most readers of this site, but if more liberals were like him, the world would be a better place. I like David very much personally and I often find him very sensible. In fact, I posted a video conversation with him here about 18 months ago on risk assessment, about which he is very sound.

Lately David has been giving a lot of thought—perhaps too much thought in some ways—about a favorite subject of everyone these days: political polarization in America. He has written a long blog post at BigThink.com about the historic roots of polarization. I think he’s been too ambitious and complicated here, and I can quarrel with some of his narrative. However, I am quite keen on two of the frameworks he mentions—the Yale Cultural Cognition Project, which is based on the very useful analytical framework of the late Aaron Wildavsky (one of my academic heroes), and Jonathan Haidt’s social science work, which I’ve also mentioned favorably here before.

Some aspects of this have been on my mind because I’ve lately been trying to get my head around phenomenology, which I’ve always found baffling and largely incomprehensible, though I have a suspicion some of it may bear on this question of polarization and what David calls our “tribal instincts.” David’s whole post is worth a read if you have the leisure, but here’s one snippet to give the flavor, along with a BigThink video of him below discoursing about the background of related issues. Now go easy Powerliners! David is a pal and I want to keep him a pal!

Research on the theory of Cultural Cognition has found that our views on issues of the day are in fact only reflections of deeper worldviews about the basic way we prefer society to operate. We adopt views on various issues based not just on the facts but so our views align with those of the groups with which we most closely identify. This helps us feel safe, since as social animals we depend on our group, our tribe, literally for our safety and survival. Agreeing with the group maintains us as a protected member in good standing. And if everyone in our group agrees, that social unity increases our group’s influence in the competition with other tribes for setting society’s rules. The more powerful and successful our group is, the safer we feel.

Cultural Cognition identifies four basic groups;

Individualists, who prefer a society that maximizes individual freedom and choice and control. (They prefer less government, i.e. “socialism”.)

Communitarians, who prefer a ‘we’re all in it together’ society that sacrifices some personal liberty in the name of the greater common good. (They prefer a more active role for government.)

Hierarchists, who prefer a traditional and unchanging society operating by fixed and commonly accepted hierarchies of social and economic class. (They prefer less government butting in and making things fair.)

Egalitarians, who prefer a more flexible society, unconstrained by traditional fixed hierarchies. (They prefer more government, as an engine of social and economic equity.)

The influence of these underlying worldviews on how we feel about individual issues is profound. Cultural Cognition research has found that these basic group identities are more accurate predictors of our positions on many of the contentious issues of the day than political affiliation, education, religion, or any of the more common demographic identifiers.

Sunday, February 10, 2013

Speaking truth to power

Dr. Ben Carson's "talk" at the National Prayer Breakfast one week ago is a major put down of the Progressive philosophy and governance for the last 60 years. The irony of this put down was the presence of Obama sitting five feet away from Dr. Carson. Carson's life is a revelation, which is detailed in this article that follows. There is really not much else that needs to be said about Obama, his "progressive" administration, including of course Obamacare and all the rest, beyond this very brief presentation made by Dr. Carson. It becomes painfully obvious that the Democrats/progressives/socialists do not have any answers to the problems or opportunities in our society today or any other time in history. Doctor Carson said it all at this event. We have been victimized as a society by the aforementioned and there is little we can do at this point in time except suffer the consequences of all the misguided programs and policies, pick up the pieces after the storm is over, and reconstruct our way of life. There are difficult times ahead.

February 10, 2013

A Perfect Contrast

By William Sullivan

Contrast can bring clarity. And I do not think that the two warring political ideologies in America have never been personified, juxtaposed, and as clearly defined as the contrast we witnessed at this week's National Prayer Breakfast.

Dr. Benjamin Carson, the famed director of pediatric neurosurgery at Johns Hopkins University, was given the unique opportunity to share his beliefs before a distinguished audience, including President Barack Obama. He did not waste the opportunity, and courageously expressed his beliefs with conviction, contrary though they are to those of the president.

Much has been made of Dr. Carson's alternative solution to make healthcare more efficient:

Here's my solution: When a person is born, give him a birth certificate, an electronic medical record, and a health savings account to which money can be contributed - pretax -- from the time you're born 'til the time you die. When you die, you pass it on to your family members, so that when you're 85 years old and you got six diseases, you're not trying to spend up everything. You're happy to pass it on and there's nobody talking about death panels.

Number one. And also, for the people who were indigent who don't have any money we can make contributions to their HSA every month because we already have this huge pot of money. Instead of sending it to some huge bureaucracy, let's put it in their HSAs. Now they have some control over their own healthcare.

We must admit -- there is something amazing about this. In two paragraphs, Ben Carson has offered a free market solution to create competition and reduce healthcare costs that is feasible, understandable, and compassionate. (And one that has already been tested -- it is very similar to the system used in Singapore. ) Its relative simplicity alone stands in stark contrast to Obama's healthcare solution pitch, the mechanics of which were so confusing that after two years of explaining it, Democrats entreated Americans to not even try to understand it. Just accept it and see what happens, as Nancy Pelosi suggested.

But to focus on the contrast between their healthcare approaches alone is to miss the deeper contrast on display. That is, the contrast between Dr. Ben Carson and Barack Obama, the ideologies that have driven their life's work, and the results of that work.

Years ago, I remember my mother asking if I had ever heard of Dr. Ben Carson. She explained that he was a pioneer in neurological medicine, and that he had an amazing and inspiring story. She had a copy of Dr. Carson's book, Gifted Hands, and began to read passages that she had selected. I was captivated, committed to reading more about him, and later watched the film of the same title starring Cuba Gooding, Jr. Indeed, his story is one of the most amazing and inspiring I'd ever heard, from his unique upbringing to his design of a groundbreaking procedure in 1987 which successfully separated two cranially conjoined twin babies. His life, his work, is nothing short of miraculous.

Dr. Ben Carson was one of two sons born to Sonya Carson, a single mother who had married Ben's father at thirteen years of age. Ben's father was a bigamist, and after learning of his other family, Sonya resolved to raise her two sons alone. Though in poverty, and though she herself had no formal education beyond third grade, she insisted that her sons devote diligent efforts to their education. She required that the boys read books from the public library each week and write lengthy reports for her (which she would review for them to support their effort, despite being unable to read). She worked hard to support them financially, in staunch determination that she would not be a victim, and neither would her children. In short, the Carson family is a testament to personal perseverance and the success that follows.

One story of Dr. Carson's childhood that particularly stood out to me is an instance where he, an admittedly angry child, attempted to stab his friend in the stomach, only to have the blade of the knife blocked and broken by the other child's belt buckle. This was a moment that shaped his worldview thereafter, and he has expressed a belief that it was divine intervention. And I could not help but agree. Could it be anything but Providence that this good fortune, without which he may have been incarcerated and set on a different path, became the good fortune of the world, allowing Dr. Carson to touch and save so many lives?

Knowing of his background, it came as no surprise when I reviewed the entire speech at the National Prayer Breakfast that nearly everything Ben Carson said was a perfect contradiction of the values expressed by Barack Obama.

Dr. Carson began his speech, even as he shared the stage with the world's most renowned spokesman for political correctness, by decrying political correctness as a "dangerous" concept. He argued that political correctness acts as a "muzzle," keeping people from "discussing important issues while the fabric of their society is being changed," even as the architect of that "change" sat just a few feet to his right.

He related the admirable tale of his mother's unwillingness to be a victim, as he was in the presence of our president who unequivocally demands that women in such circumstances be viewed and treated as such. Dr. Carson told the audience about his revelation that poverty is a "temporary" condition, one which people could personally alter. And he said this in the presence of a man whose political ideology is founded upon the notion that poverty is an institutionally applied condition, and that it is the responsibility of society, not the individual, to alter that condition.

Dr. Carson went on to destroy the notion of the progressive income tax, arguing that "God has given us a system" that would work. He argued that because God requires tithing regardless of outcome:

There must be something inherently fair in proportionality. If you make ten billion dollars, you put in one billion. If you make ten dollars, you put in one. Of course you gotta get rid of the loopholes. [Laughter] But, now some people say, "Well that's not fair, because it doesn't hurt the guy who made ten billion dollars as much as the guy who made ten." Where does it say you have to hurt the guy? He just put a billion dollars in the pot!

Is it possible to say anything more contrary to Barack Obama's insistence on the moral imperative to take disproportionately more from the wealthy to redistribute among the collective?

And this is where the contrast between the two men becomes most apparent. Barack Obama rejects the notion of fairness presented by God, because his devotion to God, if it was ever a driving motivation in his life, has become supplanted by his devotion to the government administration of fairness. That much is abundantly clear. Consider that Dr. Carson carries himself with a pious humility, crediting God and family for giving him the strength of will to succeed. President Obama, whose name would rarely collide with humility in a sentence, insists that the government is responsible for people's success.

The revelation here is not that Barack Obama is a PC thug who intends to transform the fabric of America, or that he makes victims of women rather than empowering them, or that he subscribes to a Marxist's notion of fairness by coercion, or that his healthcare solution is a muddled, hopeless mess sold on Utopian dreams. We already knew all that.

No, the real revelation is that at this year's prayer breakfast, so often only a pious ritual, his exact opposite stood and spoke in sharp contrast to our president. And Dr. Ben Carson owns a legacy as an innovative pioneer of his field and philanthropist whose life and work have personally touched, and even saved, countless others. Barack Obama, on the other hand, despite all his celebrity, owns a legacy that amounts to little more than stirring fear and outrage on the premise that others are not doing enough to help people.

Which ideology has produced the more effective, positive outcome?