Pointing out the economic elephant in the room. by Van Bryant, II
(libertarian)
Wednesday, December 14, 2011
This will be a continuation of dialogue between fellow Nolan contributor Bill Gee and myself concerning San Francisco's "living wage" experiment, and the concept of minimum wage. It is interesting that we both come to similar conclusions, yet differ wildly on approaching and identifying the underlying problem. Mr. Gee opines that my approach is reactive, and overly-favorable towards business; I feel this contributor has grossly underestimated the impact of government in his analysis.
To start, though Mr. Gee and me both feel that the minimum wage hikes are boondoggles, we differ on the usefulness of minimum wage in general.
...If our desire is to limit poverty among the working poor, then the role of the minimum wage is to counter some of the determinants of wage demand, and decelerate the widening gap between the extremely wealthy and the extremely poor.
Several paragraphs prior to this statement, Bill gives an example of a job's labor that is market-valued at $5/hour compared to a minimum wage of $10/hour. Mr. Gee misses a very important concept in his example: that of "market value."
No one holds a gun to the prospective worker's head, forcing him or her to work as a dishwasher for $2, 3, 4, 10 an hour. The prospective worker chooses to accept the offered pay freely. If no one in the immediate area is willing to work the job at $2/hour, the employer is left with the following choices: offer higher wages, don't offer the job at all, or move to an area with more free laborers who would accept the wage. The interactions between prospective employees and prospective employers are no different from the interactions between producers and consumers in the market. Put simply: demand is a function of determining both prices and wages. The state's coercions distort both of these. With a $10 minimum wage, the $5/hour job will not be offered, no matter the amount of idle labor available in the market. The prospective employee is left fewer options for entry-level work, as well as fewer opportunities to rise in rank. Thus, minimum wage creates poverty; not only that, it distorts wage demand, and fails to decelerate a gap between wealthy and poor.
In the long-run, increasing the minimum wage is a zero-sum-game. That is, for every increase in wages for the working poor, inflation is likely to either keep pace or out-pace any increase in compensation.
I agree with this. Minimum wage cannot effectively combat inflation, and in fact encourages it. Laborers who find themselves out of work collect unemployment and welfare. Employers who cannot adapt and profit go bankrupt. Bank loans are left unpaid. The government eats all of these, and passes it along through the printing press. I would argue that not just the working poor, but everyone is left fighting an uphill battle due to the artificial barriers created by government.
Finally, I agree with Mr. Gee that fiat money is a major factor in creating our economic problems. However, the true solution would require more than simply removing the phoney money. Remove government protection from banking altogether, forcing the industry to be honest with their promises or face runs, insolvency, or worse. Remove government's monopoly of money, allowing a free market to fluidly answer the specific demands of a diverse public. Remove government involvement from employers, labor, consumers, producers, charity, everything. Government doesn't create goods and services, it wastes them. To not recognize the deterimental effect of the state on an economy in any analysis is to put the cart before the horse.
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The views expressed
in this article are those of Van Bryant, II only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Van Bryant, II is solely responsible for the contents
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