I Get This Same Comment All the Time -- Here is My Blanket Advice

Don Boudreaux writes:

This note is to an angry young man who describes Bernie Sanders as his and his girlfriend’s “hero” and as “the only candidate following humane economics.”  Sigh.

Mr. Claudio Morello

Mr. Morello:

Thanks for your e-mail.

You find my arguments against a $15 per hour minimum wage to be “totally uncompelling” because “labor is not a commodity like bread and electronics.”  In your view, “labor should not be subject to the bloodless laws of economics.”

I get this sort of comment all the time about it being wrong, even inhuman, to treat labor as a commodity subject to the laws of supply and demand.  I generally have two responses:

  1. For the guy who was just pushed out of a 10th story window, I am sure a more "humane" law of gravity would see him wafted gently to earth -- but all his wishing for such an alternate reality is not going to have it happen.
  2. Forgetting public policy for a moment, to the extent that you (the commenter) relies on other people hiring you to stay alive in this world, I can think of few things that would improve your well-being more than attempting to develop a basic understanding of why your labor might have more or less value to someone else.  Refusing to do so, or even refusing to acknowledge that your labor has some sort of economic value at all, would be like trying to launch rockets to mars while refusing to acknowledge the rules of celestial mechanics. .  Refusing to even think about why labor (and skills) might or might not have value in different situations seems to be a recipe for pretty low earnings over time.
  • jhertzli

    Teach gravity not to pull people down.

  • kidmugsy

    “labor should not be subject to the bloodless laws of economics": would he prefer it be subject to the bloody laws of Stalin?

  • stan

    But wait, a couple of academics wrote a paper about a single instance in a single state where a minimum wage increase didn't cause job losses. They didn't attempt to explain why or how this single example repealed the laws of supply and demand for unskilled labor, but millions of people believe that their study did. Belief trumps reality.

  • MJ

    I can think of few less humane things government can do than to pass a law that makes the lowest-skilled workers among us virtually unemployable. They already have a harder enough time earning a living without being essentially disqualified from the labor market.

    Regardless of their alleged "humanity", many of Sanders's economic claims have recently been found to be outright falsehoods, or at the very least exceptionally poor policy. As he is finding out, it is not possible to abstract from economic reality, regardless of how noble your intentions are. Tradeoffs are part of the deal and ignoring them will not make them go away.

    Lastly, isn't it a little bit sad that this guy (and his girlfriend!) consider a politician to be their hero? Hero worship among adults is, in itself, more than a little silly. But idolizing a politician just makes you seem gullible.

  • MJ

    That's a pretty extreme example, but most historical attempts to avoid or suspend economic realities have resulted in some sort of famine, hardship, or even bloodshed. A more recent and instructive example is Venezuela, where attempts to institute more "humane" economic systems have led to shortages and widespread social unrest. They are now undergoing some rather painful adjustments to try to reverse the damage caused by "democratic" socialism.

  • Not Sure

    Seem?

  • Matthew Slyfield

    "They already have a harder enough time earning a living without being essentially disqualified from the labor market."

    Not to worry, Sanders will tax the rest of us into the poor house so the government can take care of them.

  • Matthew Slyfield

    No, just ban gravity. Not only will you save everyone who tries to jump off a building, but you will have solved the obesity crisis as well.

  • mikehaseler

    A minimum wage is fine if you are in work and your employer can afford the minimum wage, but it's not so fine when the lowest wage at which you would be employed is below the minimum wage as this daft policy says "YOU CANNOT BE EMPLOYED - unless someone is willing to pay more".

    So, yes the average wage of someone in work goes up - and all the left wing idealogs in their tenured university posts celebrate - but it doesn't mean the average wage goes up, as many who might have had a job will not get one.

  • joe

    I presume that you are referring to the 1991 (?) Kreuger study which dealt with fast food stores in the NJ with the comparison to Philly.

    That study suffered from two errors,
    1) it did not assess whether the stores were understaffed or overstaffed before or after the change in minimum wage
    2) The study had data collection errors.
    Even with those errors, the study found that while employment rates went up by approx 7% (good) after the minimum wage increase, the overall hours worked went down - proving the basic law of supply and demand remains valid. (Kontrary to Krugman's constant assertion that labor demand is inelastistic.

    More importantly - A subsequent study using actual payroll data vs estimated from phone survey's showed the employment rates actual went down along with hours worked going down.
    In other words, the Krueger study has been discredited even though liberals, krugman included, Kontinue to cite the study.

  • magilson

    But honestly, you understand why your argument won't convince anyone whom philosophically disagrees with you. I bet you could even get this person to agree with you if you asked them if they felt your points were true *if they accept your premise* (your premise being that capitalism most efficiently and effectively allocated scarce goods for the most well being). This person does not accept this and so your points will always be ineffective. You can defend Supply/Demand curves and AS/AD until you're blue in the face. This kind of person believes that these "laws" are the conclusion of a social construct.

    To be effective, if I may suggest something to someone much more well versed such as yourself, you need to start with a 50,000 foot view coming from the philosophical aspects of trade, scarce resources, innovation, etc. To you, supply/demand IS the 50,000 foot view. But your are literally not floating above the same planet, so to speak. That is not to denigrate this person as being alien or stupid. It suggests that both of your are talking past each other.

  • Jason Calley

    There may actually be one thing that government could do that would encourage employers to pay higher wages to entry and low level workers. How about this? "Effective immediately, any person or company may hire or fire at will any employees being paid less than $15 per hour. All federal or state paperwork, withholding and regulations for such employees will be no longer required."

    Simple. If the gummint would just stop screwing with the market for labor it would fix itself. Once employers were no longer paying for excessive regulatory overhead they might be able to pass a little of that savings on to their workers.

  • mlhouse

    Minimum wage is a politcal issue not an economic one. The economic case against it makes it a joke.

    However, people believe that minimum wage laws are required to "protect" the lower income people from mean employers. So, trying to do away with it is a political mistake. In 2007 Bush should have indexed the minumum wage to do away with it politically.

    What I believe should be done is this.

    For employees under the age of 20 and working less than 20 hours per week, make the minimum wage $5.00/hour.

    Further, for employees earning under $10.10/hour eliminate the FICA taxes on their earnings, both employer and "employee" share.

    What this will do is make lower income workers more competitive in the market place and will probably create significant employment opportunities for young people in jobs that do not exist with higher minimum wages. This gives young people valuable experience as well as some money in their pockets.

  • http://onthenorthriver.wordpress.com John the River

    I'll jot this down and add it to my wall of simple but elegant solutions. Easy to understand and very workable. But kind of twentieth century, isn't it? This is the 21st Century and no flying cars but there is no doubt in my mind that before I shuffle off this mortal coil that the State will be coming for my retirement money as the final expression of 'humane economics'.

    As a old PolySci major I ignored the recent primary reporting in the People's Republic (MA) and watched the raw numbers; for all the hoopla about Trump's 50% 'victory', I noted that Bernie Sanders received more raw votes while losing to Hillary than the combined votes the GOP candidates including Trump received. There are plenty of 'citizens' willing for the redistribution of the wealth to pay for their 'entitlements'.

    This will not be fixed at the ballot box.

  • Dmon

    So, the law of supply and demand works for labor too. Meanwhile, Coyote keeps supporting uncontrolled immigration...

  • jhertzli

    So, the law of supply and demand works for agriculture too. Meanwhile, Coyote keeps supporting uncontrolled farming...

  • ErikTheRed

    Sigh.

    The law of supply and demand refers to areas where markets are allowed to function. Markets rely on a flow of information about supply and demand, in the form of prices, to tell producers whether to make more or less of something, whether they should enter or exit a market, etc. When legal prohibitions are imposed supply and demand do not go away (any more than gravity would if you passed a law against it). What does happen is that some or all of the market will "go black" with all sorts of negative consequences. One of the biggest consequences is a lack of transparent pricing. Because the activity is no longer legal, people no longer openly discuss pricing and its causes (high / low inventory relative to purchasers). Immigrants then just have a vague notion of what jobs are available, how much they can make, how much their costs will be, etc., and lots of people (especially in bad situations) will chase vague notions (no matter how insane) if they think it will significantly improve their circumstances. Just look at every Presidential election for more proof of that notion.

    So, from an economic perspective, it's the *very act* of restricting immigration that causes uncontrolled immigration. Without that prohibition, the number of jobs and how much they pay send very clear signals to potential immigrants and employers. It becomes a straightforward process.

    Or people can keep burying their heads in the sand, build a giant wall, and hope that Mexicans never discover those ultra-high-tech concepts like ladders and tunnels.

  • Dmon

    So, from a sociological perspective, it's the very act of having laws that causes crime. Maybe when Mexicans discover high tech concepts, they can use them to create a functioning economy that creates jobs in Mexico.
    I don't know what's so hard about the concept that increasing the supply of labor acts to keep down wages. Cesar Chavez and the UFW certainly grasped the idea when they accused the grape growers of importing illegal aliens in order to bust their union (and incidentally, subjected any illegal aliens they could find to involuntary deportation with extreme prejudice).

  • ErikTheRed

    "So, from a sociological perspective, it's the very act of having laws that causes crime."

    I realize you're being sarcastic, but you unintentionally hit the nail on the head. Crime is an expense (both socially and fiscally), so why not weigh the costs and benefits of it? Especially in situations where it's flat-out impossible to enforce. I suspect you're one of those people who lives in the fantasyland of "we pass a law and it changes everything." People break laws all the time. It's been estimated that the average person commits an average of three felonies a day, either because they don't know about the laws or don't care about them. People speed, people lie about their weight on their driver's license, people throw out junk mail that's misdelivered to them, people cheat on their taxes, people don't come to a full and complete stop at a stop sign at empty intersections at 2 AM, underage drinking, pot, office football pools, etc., etc., etc. Try running a small business without breaking some laws - it's impossible to even know what 5% of them are. So yes, we're all criminals because we're downing in stupid and overreaching laws advocated for and passed by people who think that creating laws dictates human behavior. And we're paying absolutely absurd costs for it - estimated at 85% of our capacity to produce wealth and value in this country.

    Also, why are falling wages a bad thing? For every wage that falls the buying power of consumers is increased disproportionately more (see: Bastiat). Perhaps you're suggesting we'd be better off in a world where the labor cost of producing food was so high that people regularly went hungry - as opposed to our current "problem" of food being so cheap that about a third of it is wasted in this country and people still wind up being fat-asses? This is not a rhetorical question - that situation existed for nearly all of human history. Feel free to want to go back there, but I'll take the inexpensive and plentiful food that we have today, thank you very much.

  • Dmon

    "I suspect you're one of those people who lives in the fantasyland of "we pass a law and it changes everything." You suspect wrong. I like the old fashioned idea that laws should be few in number, written clearly, known in advance and enforced objectively. Oddly enough, existing immigration laws happen to substantially meet the first three criteria. We just choose not to enforce them against certain groups of people. I would suspect that you are one of those people who is fine with having a Leviathan surveillance state monitoring every interaction of every person all the time, rather than perhaps just disallowing entry to certain groups of non-citizens who account for a grossly disproportionate share of non-civic minded activity.
    Perhaps you're arguing that immigration laws are just "flat out impossible to enforce". The experience of Israel and Hungary, not to mention the history of the United States from 1924-1965 would seem to offer strong evidence to the contrary.
    You're right that food is cheap in America. It's cheap primarily because of technology. The labor cost of picking lettuce is around 10% of the total of the head in the retail outlet. You could double the wages of the pickers, and the price would go up by 10%. That's irrelevant however, since if the cost of the indentured servants went up too much, they would just use machinery (like they do for most crops where slave labor is not quite as conveniently available). Of course, all of your beloved guest peasants would respond to the clear economic signal available through transparent pricing, and just self deport back to their country of origin. None of them would stick around to collect welfare through their anchor baby citizens, or invite cousin Juan to come on up and help himself to the free school breakfast courtesy of "family reunification".
    Why are falling wages a bad thing? Why don't you voluntarily take a 50% pay cut and get back to us? Better still, quit your job altogether. This will result in a significant cost savings to someone, and I'm sure that on the average, the amount of labor cost saved will more than offset your drop in income, so-bingo, net gain to the economy. Of course, if we are going to have a safety net, we'll have to keep feeding and housing you anyway, so maybe it's not that much of a net gain. And if we're not going to have a safety net, then there's no problem. People are fungible, labor's fungible. Just move to a third world country where your labor is worth it's cost to your employer. Not enough infrastructure there to support anything beyond a subsistence standard of living? Oh well, at least the food's cheap because of the low labor costs. Wait - the food there is more expensive than it is in America? No problem - come on up and sneak into America. You can help lower the labor cost until it's equal to the third world country you just left because you were starving. It's the Great Circle of Life.

  • marque2

    Well he isn't supporting Mexican landlords forcefully farming US land - your example is a poor parry.

  • stan

    My point is that even if the study had not been discredited, it should have any bearing on the issue. It's a single instance in a single place. It could not possibly repeal our understanding of supply and demand for unskilled labor. That would require a massive amount of data from an enormous number of instances around the nation along with a coherent explanation of the factors that make unskilled labor unresponsive to the laws of supply and demand.