Laissez Faire Today on February 15, 2013]
There are certain sounds that tend to make people crazy. Think of nails on a chalkboard. An infant screaming nonstop on a long flight. A piercing whistle that won’t go away.
Now we need to add another: a U.S. president who thinks he can legislate high wages into law. For anyone who knows the basics of economics — not distorted by a bogus central-planning mentality — hearing this is like torture. It’s painful. It makes you crazier and crazier until you finally want to yell, “Make it stop!”
A wage floor of any sort traps people in the basement. The higher the floor, the larger the basement.
This is how I felt when President Obama said the following:
“Let’s declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. This single step would raise the incomes of millions of working families.”
Why stop there? Let’s also declare that everyone should make $9,000 or $9 million per hour. If all that stands between us and total riches is the word of a president and an action by Congress, let’s get on with it!
Does Obama really not get what’s wrong with this approach? I’ve long disagreed with him, but I’ve never really thought he was ignorant. But even from the earliest interviews I’ve read, he does seem to have a tin ear on economic topics. He doesn’t seem to get where wealth comes from. He doesn’t seem to understand how prices work. And now we can be certain that if he understands how wages work, he isn’t willing to let on.
Of course, he could also be lying. It wouldn’t be the first time a politician did that.
Much of the current problem with youth unemployment is due to the high minimum wage increases we’ve seen over the last five years. When the crisis hit in 2008, the minimum wage was $5.85. Lots of jobs got shaken up. Low-wage workers hit the road. When things settled down again, they went knocking on doors. The next year, they found that it was illegal to accept a wage less than $7.25. And we wonder why so many people are unemployed? It’s not a mystery. The huge increase in the wage floor is not the whole reason, but it is a contributing factor.
A wage floor of any sort traps people in the basement. The higher the floor, the larger the basement. Today, millions are rattling around down there, unable to find their way out. And now the U.S. president, in the name of creating jobs, wants to make more of the unemployed more permanently unemployed.
I feel a particular frustration with this issue, and it’s not because of the economics texts I’ve read alone.
My first real job was working maintenance at a department store. I was 15 (yes, I lied about my age; you could do that back then). My job was to clean toilets, crush boxes, pick pins out of the dressing room closets, wax the floors in the china shop, vacuum the place, and shine the glass.
It was a great job. I mean, truly great. I loved it because it was a hugely important job. If I didn’t clean the bathrooms well and replenish the toilet paper and towels, customers the next day might be grossed out and never come back. I played a big role in ensuring the profitability of this store.
I especially loved my co-worker. His name was Tad. The department store would close, leaving just the two of us to have so much fun doing all this wonderful work. We would sing together, thrill to the danger of the wax machine, gross out at the mucky bathrooms, and just have that wonderful feeling that comes with having a real work partner.
You see, Tad was not a normal kid. He had some physical deformities. His face was oddly shaped and had what looked like a large stain on half of it. He couldn’t move around that well, really. I had to help him and assign tasks carefully. He was also mentally retarded. He spoke in a muffled way, and you had to be very clear about instructions.
But I tell you what, when he was happy, it made me happy. To see that big smile come across his face when I would praise the way he shined up a counter just gave me a huge lift.
One day, a poster appeared in the workroom. It was from the Department of Labor. The minimum wage was going up by 50 cents. Tad pointed the sign out to me. He said, “Look, we are getting a raise!” I was a bit suspicious. I was pretty sure that the boss was the one who set the wage, not some weird distant government thing. I didn’t quite believe it was true. Still, I was happy that he was happy.
The next day, I showed up at the usual time after school. I was getting the mop ready, running hot water in the pail and prepared to do the thing. Tad wasn’t there. I asked the boss, “Where’s Tad today?”
Well, he explained that he had hired Tad only because he was a boy he knew from church. He needed work. He knew that he would require a lot of help, which was one reason he was excited that I was able to work with him. In the end, he said, this was charity, because he knew that I could do the job by myself. It worked for us to be together so long as he could afford it, but this new minimum wage changed things. The store’s profit margins were very thin, and he had to make a hard decision.
The long and short of it: Tad had to be let go.
I was devastated. I stared at the Department of Labor sign again. Cursed thing! That sign just ruined a kid’s life. It stopped a great act of charity. And look what it did to me. I now had to work alone.
Management left, the lights dimmed, and I heard the familiar click of the doors leading to the outside. I would have to clean alone today. I did all the tasks I had to. But there was no more music, no more laughter, no more clowning around, and no more beautiful smiles. Tad was somewhere else, probably at home, confused and sad.
He died a few years later.
This is what the minimum wage means to me. So you can say that I have a vendetta. When the president announces that he is raising wages to make everyone better off, I can’t help but think of the millions of Tads that will lose that opportunity to do wonderful things in this world and with their lives.
for The Daily Reckoning
Ed. Note: Jeffrey’s take on the minimum wage is just one example of his musings on everything from free markets to taxation to personal liberty. And it’s his writings that, in part, fuel the entire Laissez Faire Today newsletter – a free service for liberty-seeking individuals who understand the dangers of government intervention. Sign up for FREE, right here, and start learning how to live a freer, happier and healthier life than you ever thought possible.
Original article posted on Laissez-Faire Today
Politicians and bureaucrats are notorious for manufacturing euphemisms - clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Apparently, some courageous government officials can't bring themselves to say "tax hike." Lawrence Reed continues...
I'm executive editor of Laissez Faire Books and the proprietor of the Laissez Faire Club. I'm the author of two books in the field of economics and one on early music. My main professional work between 1985 and 2011 was with the MIses Institute but I've also worked with the Acton Institute and Mackinac Institute, as well as written thousands of published articles. My personal twitter account @jeffreyatucker FB is @jeffrey.albert.tucker Plain old email is firstname.lastname@example.org
The laws of supply and demand will work even if wages are raised artificially. Increasing wages will cause inflation and increase liquidity, especially for the poor. (I.e., it will fix a lot of short term “cash flow problems” among people living from paycheck to paycheck, which will do a lot to smooth out the functioning of the economy. The relative unpredictability of their expenditures makes planning and investment more difficult)
Also, this represents an inflationary transfer of wealth. It is better that the government captures the wealth and distributes it to Americans than letting the inflationary pressure leach wealth to China and our other major bond holders. The policy makes sense given the Administration’s goals and America’s long term demographic circumstances.
If anything, this policy is bad because it is protectionist, and our demographic problems are /our/ problems, not the world’s.
Then as the article says, why not increase the minimum wage to say $100 per hour?
The accomplishment of minimum wage laws is to increase unemployment.
If someone like you that bothers to read the Daily Reckoning can not understand this simple fact then this country is in big trouble.
Screw you Mr Tucker. If you think that $9.00 hour 40 hrs/wk are high wages, I condemn you to get only that for the rest of your life!
There is a big difference between the BS they teach you in an economics class and what happens in the real world. I know because I have an econ degree from one of the top ten universities in the country. The world didn’t collapse when GWB raised the minimum wage from $5 something an hour to $7.25/hour. Look at the historical inflation rates, and you will see that they didn’t increase outside of a statistical range of confidence during the period when GWB raised minimum wage.
You forgot to mention that by “solving” the “minimum wage” problem, the government inadvertently (?) creates a new “problem” — rising unemployment, which of course must be “solved” by new programs — staffed of course, by the well-connected and contracting firms — this is how our goverment works. You need to brush up on “Cynicism 101″, perhaps read some old (1970s-1990s) Harry Browne and Gary North.
…and look at unemployment, my friend.
Uh, you really don’t get it. Ever wonder why we pump our own gas now and many stores have gone to self-checkout? Think about it.
Big unions support a high minimum wage. Makes it such that only “connected” people can enter an apprentice program (e.g.,welding) and learn the trade. Keeps rates up for the union.
Big unions supply BIG money to politicians and deliver the vote. This is where the President returns the favor.
Raising the minimum wage is a feeble attempt to restore some purchasing power to the consumer base after 30 years of devastation due to outsourcing production to places that have low or no labor, human rights, or environmental standards/laws, or that choose not to enforce them seriously. It is too little, too late, and ineffective in the face of continued exposure to that kind of “race to the bottom” competition. Thanks in part to this labor/environmental arbitrage, as well as favorable tax policies, US corporations accumulate $1.7 trillion in cash sitting on their balance sheets while consumers resort to indebtedness or otherwise struggle. The result of this extreme, mostly one way, upward income distribution is the current skewed and stagnant economy reminiscent of the late 19th century Guilded Age (Robber Baron era).
Teenage kids in Australia make $17/ hour working for an American giant starting with Mc.
Why do you think this is so?
Is it because Mc wants to pay that much or that they are required to?
They are still hugely profitable, they still need swarms of kids to dish out their Mcrubbish.
I suspect that the $17/hour goes about as far as $9/hour does here in the US. They are probably not much better off. How much does a value meal cost in Australia anyway?
Why have a minimum wage at all then? I’m guessing Tucker would advise we get rid of it completely. We could then have lots and lots of people working at really low wages, which is how it was before the first minimum wage was established. I’m not an economist, but I don’t think there is a perfect answer to satisfy free market people and people who want to earn a decent living. Dialogue and compromise are key with these kinds of issues.
I get what Tucker’s saying, but his anecdotal (and emotional) evidence needs to be fleshed out with some figures.
Thanks again Jeffery. I knew before I read the story that I could count on you. Thanks too, about the story of the bus.
It doesn’t need anything. It stands as a fine example of destruction caused by the State. I too started working, for as little as 50 cents an hour, at age 10. It was mostly charity then too, but it thankfully taught me how to work and it’s a great feeling to contribute. You would be surprised at the amount of capitalists who simply want nothing more than to contribute, in any way they can, to society. And, they do it in such a way that forces no resources from their fellow man, but they use resources given willingly. Kids need to learn to work, and the child labor laws are another, barely touched by this story, destruction perpetrated by the State.
When real unemployment for the youngest working class is officially over 20%, when even that schewed statistic is high, we can blame it directly on the State.
You’ve been at the welfare school system for far too long.
LOL – I think it’s pretty obvious that you do have an economics degree from a top ten university, thanks for making Mr. Tucker’s point for him. I’m sure you specialized in Austrian economics right? LOL
No in reality you were taught a bunch of economic half truths and gobblygook called Keynesian economics. It was already proven to be an ineffective economic strategy in the 1970’s and then again in 2008 and well shortly in the future it will be proven to be pure rubbish as an economic strategy again.
Any economic school of thought that disregards morality and favors war as an economic driver is pure evil as far as I am concerned. I hope you didn’t spend too much for your “education” you could have just read Murray Rothbard, Von Mises and Hayek and been far better off and much smarter as to how the real world works.
Um, well you seem to be missing one key ingredient… The inflationary policies of the cental banking system. Without inflation causing our money to become a little more worthless every year, then there would be no “need” for the government to raise the minimum wage to keep up with the loss of our purchasing power. Just another example of a government policy creating a problem that of course must be solved by the very same people that created the problem.
“They create the problems, then offer up solutions…
to get the sheep to follow their dastardly delusions.”
And I don’t think that the “robber barons” were half as bad as the socialists like Lenin, Mao and Hitler that killed millions. People love to make villians out of the robber barons, but who the f*&k do you think built this country?
Oh and the robber barons would not have been able to create their monopolies without help from their government cronies. Just another reason to eliminate the STATE altogether.
Um no – absolutely it is not better that the government “captures” the wealth and distributes it. It is NEVER a good idea to give the money to the STATE first and let them distribute it. Why? Because they are middlemen and will take as much as they want before they “redistribute it. Also, however the government handles the redistribution will be inefficient, because there is no incentive for the government to be efficient. Profit is the only reason to create efficiencies. And the government gets paid regardless of whether or not they make a profit. You know, like the post office.
You are failing to realize that it is the printing of money that causes inflation not the raising of the minimum wage. The raising of the minimum wage is a direct result of the inflation caused by the printing of money by the Federal Reserve central banking system, you have it completely backwards.
Please educate yourself and read Murray Rothbard and Ludwig Von Mises for starters if you truly want to understand the real world implications of economics.
Saying that this policy is bad is because it is protectionist makes no sense to me either, your entire premise is flawed.
Um, please tell me example how they are hugely profitable. You can’t just throw a blanket statement out there and expect me to accept it as truth. Are they profitable in Austrialian dollars or US dollars? Have you looked at McDonald’s financial statements and found the Australian division and then determined that particular division was “hugely profitable” or are you just stating McDonald’s throughout the world is “hugely profitable”?
You say 17$ an hour, but doesn’t Australia have their own currency? Or do they just pay everyone in dollars over there? It’s actually called the Australian dollar, however it is not the same as an actual dollar, so you would have to do the conversion of Autralian dollars to US dollars in order to know if when you say 17 dollars an hour it is comparable to 17 US dollars or not.
Also you are not addressing the point that if someone is getting paid more than they are worth, then the company cannot afford to hire someone else, which I’m pretty sure was the point of the article.
Yes Tucker is an anarcho capitalist, which means he does not believe in having a STATE at all, so yes he and other Austrian economists would advocate not having a minimum wage at all. Again, you are ALL missing the fact that without the inflationary policies of the past century, there would be no need to keep increasing the minimum wage as all pricing would remain stable.
As an example in the USA before the invention of the Federal Reserve, we had steady prices and wages throughout the 1800’s. We also had no minimum wage, people got paid whatever they negotiated and were worth. Coincidentally, it was also a time of great prosperity throughout the USA. Imagine that.
I don’t understand how you can come onto a site like the Daily Reckoning and make these ignorant arguments. Please understand ALL OF YOU that I have responded to that you have been conditioned through your government education and through the mainstream media beating into your heads year after year that a minimum wage is necessary and that not to have one is somehow “mean” to poor people. Which is more “mean”, to have a job and the ability to prove yourself and then get a raise and or promotion over time or just experience so that you can move on to a better job in time, or to have no job at all, no money and no chance to gain experience and have to rely on the government?
UNDESTAND the government would be VERY VERY happy if EVERYONE were dependent on them for EVERYTHING, food, water, sex, etc. That is what they want, that is the government’s goal is to get as many people dependent on them as possible. Why? They want to control you. They want to control all of us.
They implement policies like a minimum wage knowing full well what the consequences will be(enslavement) and then use their corporate owned media to tell you over and over again how important a minimum wage is. It’s all LIES, everything the government tells you is a LIE. War is peace, right?
Clueless, absolutely clueless. Let me guess you have an economy degree from a top ten university. Go worship Krugman, you hack.
Oh and one more point JMR, the reason Mr. Tucker doesn’t make 9$ an hour is because he is worth more than that? Why? Because he has educated himself and by doing so has made his services valuable.
Let’s take a minute to think about someone who is making minimum wage. In most cases this person is going to be young, either at their first job, probably still living at home. If this is not the case then we need to ask why this person is only eligible to make such a low wage. Did this person study hard in school? Did this person make good grades? Or did this person just scr$w off in school, not give a $%@^, and drop out of high school? Why do all the feel good liberals have to stand up for people THAT MAKE BAD CHOICES IN LIFE and then have to pay the consequences.
I mean, that is how life works, if you don’t take life seriously, then you will be seriously screwed. I’m sorry, but I just don’t see why I am supposed to be so worried about people who obviousy don’t worry about themselves.
Is nine dollars an hour a lot? No, it’s not, but minimum wage jobs are starting points not careers.
I wish people would stop using expressions like “um”; it is very obnoxious. I would argue that the inflationary policies in this case are in large part a symptom of the more serious issue, the undermining of the consumer base through the outsourcing of production/jobs etc., which is contributing to a reduction in the widespread circulation of money and economic activity. The authorities resort to inflation as a sort of taxation by stealth to finance concomitant increased demands for social services, and economic “stimulus”; not to mention in addition to the usual expensive imperial militaristic ventures, crony political pork barrel projects, corporate welfare payouts (ie. to reckless Wall Street bankrupts) etc. Jurisdictional tax shopping by multinationals and individuals, which undercuts public revenues, only exacerbates this.
Regarding your admiration of the robber barons… rapacious monopolists are somewhat productive up to a point (until competition is eliminated) and then they become counterproductive and anti-competitive. Moreover, monopoly facilitates political corruption (cronyism), as you acknowledge, and can thereby become even more extreme and entrenched etc. In the late 19th century the robber barons became so counterproductive that even Teddy Roosevelt, who was not exactly a socialist, felt compelled to introduce meaningful reforms and regulations to restrict and curb their excesses. And his main impetus was not even fear of revolution by the “proletariat” but rather complaints from major capitalists that the monopolistic gouging from the upper tier capitalists (robber barons) such as Rockefeller and Carnegie, had become so egregious that it went against their interests and the broader national interest.
Who do I think built this country? Countless workers and risk taking entrepreneurs of all sizes. Incidentally, compared to Mao and Hitler most scoundrels would look good. Also, Lenin did not kill millions (although Stalin did). Actually, he probably directly saved millions by withdrawing Russia from WW1, and indirectly by likely provoking the German authorities to agree to an armistice over concern that its starving war weary increasingly restless population become inspired to revolt as well. This was probably a bigger consideration than the American entry into the war.
I am not sure how you can eliminate the state short of decay and implosion a la the Roman Empire (and we may actually be following suit). It might be more realistic to try to make government and various institutions work for the people. Ideally, an enlightened and politically engaged populace should act as a counter to the corrupting influence of various vested interests. Getting money out of politics via a constitutional amendment on political donations might help. Applying existing anti-trust legislation to break up the high concentration in media ownership would also be a good start. I would also suggest applying taxes to most types of entertainment that are distracting and dumbing down the population. Etc.
With a minimum wage, business starts with a level playing field, it’s not a race to the bottom. Your labor can’t be worth less than a comfortable life costs or someone is failing badly, and it is rarely the worker who should shoulder that blame.
You’re probably right. Can’t help you on the value meal. My point is though that a minimum wage stops the most extreme exploitation. It would be interesting to compare how many live on the minimum wage (for 40hrs work) or below across countries. That is if it was enforced equally well in each place. I believe your biggest private sector employer flaunts your minimum wage law. Saw a documentary just the other night.
I wonder how it is possible for the average worker to get raises over time, but if the minimum wage is increased those workers get laid off – at least in stories like Tucker’s? Oh I forgot, Tucker didn’t get laid off! Hmmm. How is that possible?
“Much of the current problem with youth unemployment is due to the high minimum wage increases we’ve seen over the last five years.”
Well…no. Much of the problem with youth unemployment stems from massive and endless immigration which is stealing their job opportunities and depressing their wages. you can’t be against a minimum wage and for open borders unless you are a member of the slave owning class who think they have every right to hire people to work for 7 days a week and the temporary permission to sleep in a cardboard shack out under the shade trees in the back field.
I hear this arguement over and over in that if you raise the minimum wage this will happen , that will happen , it is bad bad bad. However study after study shows that when wages are raised very good things happen. It gets money back into the economy, families DO live better. The deficits come down. In fact it has been argued that if real wages had kept pace with inflation the minimum wage would be near $20.00 hr and the US would not be so debt heavy. Why is it so much better for one person to make $15000 an hour than to have a whole bunch of people making a better wage. Lets argue profit margins instead. When you argue the marketplace should dictate wages then politicians have encouraged corporations to go offshore and take the jobs that would be done here with them. This is a fairness issue and the deck is stacked against those who work by those with deep pockets and those who make the laws.
So what if union members make good money? Not a member? Either join one or make one. How can you you bash union wages when CEO’ make thousands a week? Do you really think the rich got that way by working from the bottom up. That is a myth. Most got that way by being born into it . They were born to more money, better education, better contacts etc. The rich have bought the politicians to make laws that make it prohibitive for mom and pop to compete.
This is a myth and not supported by any evidence. Several studies show that states that raised minimum wages reported slightly greater job gains than the national average. Most low wage workers are working for large corporations that can easily afford to raise wages. Another myth is that the minimum wage is used for teen employement when the reality is that 90% of those earning minimum wage are in their twenties.
Made bad choices? How ignorant and condecending can you get? This guy was born into better surroundings and benefitted as such. He is successful because of that not in spite of it. The biggest myth that needs to be exposed is this idea that the rich and successful somehow picked themselves up by their bootstraps and made all the right decisions. B/S plain and simple
He isn’t clueless you are. Even a game of Monopoly has to end and start over. Right now the game doesn’t end. When you leave the game your family assumes your spot and keeps the money. When those without property leave the game they give their spot to their family and can’t get access to those with the property. It wasn’t always this way. The guy on the floor was able to make a decent wage and educate his family in hopes of rising to a higher level . That doesn’t exist today. Never in the history of the US have so few held so much. Fact!
Erm. I see a lot of posts by you here with a lot of empty claims, sadly ignorant stereotypes, and no supporting evidence or even argument.
Minimum wage is the elephant in the living room. It’s standing on your glass coffee table staring you in the face. The same face you see when you buy anything in retail almost. The same face you see when you get gas. What we have in this ‘great’ society is a form of financial feudalism. Paying people to do all the work and yet receive as little as possible so their ‘betters’ can receive all the benefits of said work. It’s the, “I made the investment so I receive all the profits.” theology. And I do say theology because capitalism in this country has been taken from being a form of economic science, to a religion. Indeed, they worship at the altar of profits, and spout the good praises in the church of money. That’s exactly what all the louts and fools posting on this comment section can’t comprehend. We have a society…where minimum wage workers do the vast majority of all the work for businesses in certain sectors such as retail, but make the least. The aforementioned fools love to talk economics and spew forth praises for the person who is ‘worth’ more because they are better educated. They also love to talk about replacing these people who do all the base level work for society with machines that will do it “better” (read that: cheaper). So the unethical majority can finally eat their profits and their cake too. The economist is the modern preacher, rabbi, priest, cleric whatever. They speak of the faith and spread the good word, but are utterly useless and do no ‘real’ work. Eventually economists will be replaced. After all, they’ve failed miserably in the past 50 years in the U.S and in most capitalistic countries. That’s why we have a 17.2 trillion dollar deficit. And all the economists can do is blame the poor people and say ‘spend less.’ Maybe time to go back to bartering since these guys are out of better ideas.
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