Friday, June 24, 2016

What the World Looks Like to Someone Who Doesn’t Understand Economics

By Don Boudreaux

EconLog commenter Jon (who is not Jon Murphy) read with disapproval this comment by EconLog commenter John hare:
Minimum wage is an attempt to extract by force that which one is unable to earn by right.
Jon responded; his response is reproduced below in full:
Exactly! We have an underclass of people who, left on their own, would be very unlikely to earn a living wage by right (and, of course, the current minimum wage is not a living wage). So what do you suggest we do with these people?
Jon’s defense of the minimum wage is strong evidence that the world does indeed include people who really do believe that government-officials’ stated intentions determine the outcomes of government actions.  Jon writes as though minimum-wage legislation really does improve the lives of the (as he describes them) “underclass of people who, left on their own, would be very unlikely to earn a living wage.”  Judging from this comment (and from some of his other comments at EconLog), Jon doesn’t even bother to consider the possibility that the minimum wage might not raise incomes in the way that he supposes that it does and that its proponents claim it will.
Another error is revealed by Jon’s question, “So what do you suggest we do with these people?”  Even if it were true that the United States has lots of people who “left on their own … would be very unlikely to earn a living wage” – and if it were also true that John hare and every other opponent of the minimum wage can offer no good ‘solution’ for how to improve the economic well-being of such people – it does not follow that the minimum wage is, therefore, a policy that will help to improve the economic well-being of such people.  If Smith advises Jones not to drink a gallon of gasoline by pointing out to 65-year-old Jones that drinking gasoline will, contrary to Jones’s stated belief, not only not turn Jones again into a 25-year-old man but will instead kill him, Jones would be mad – and illogical – to respond by asking rhetorically: ‘So what do you suggest I do to turn myself again into a 25-year-old man?’  Not all problems have solutions, and certainly the failure to offer a solution to a problem does not imply that the proposed solution currently under consideration will work or should be tried.
Jon’s response to John hare also suggests that Jon believes that prices and wages are rather arbitrary numbers the only function of which is to determine  how a fixed-sized economic pie is sliced.  Raising the minimum wage will (apparently in Jon’s view) cut bigger slices for low-skilled workers by cutting smaller slices for business owners and others.  There is in Jon’s comment no evidence whatsoever that he is even aware of (much less that he has a response to) the concern that the minimum wage prices out of jobs the very workers that Jon understandably seeks to help.
Finally, this unawareness on Jon’s part (which, I do not doubt, he shares with the vast majority of minimum-wage supporters) makes it fair to ask Jon the following question: What line of reasoning leads you, Jon, to believe that people who are so unskilled and inept that when “left on their own” they are incapable of earning a “living wage” will continue to be attractive to employers when the government prohibits these unfortunate workers from offering to work at hourly wages below the wages that are currently paid to more skilled and competent workers?
The above originally appeared at Cafe Hayek.


  1. Replies
    1. I was wondering how soon it would be before you went full Godwin on us, TPOP.

  2. ─ "Exactly! We have an underclass of people who, left on their own, would be very unlikely to earn a living wage by right" ─

    Leaving aside the consistent penchant of socialists to think in collectivist terms and their complete lack of respect for people's dignity by assuming they're imbeciles incapable of producing value; what continues to amaze me is the total lack of respect for the reader's intelligence by continuously committing these question-begging assertions which become more tiresome by the minute.

    ─ Jon writes as though minimum-wage legislation really does improve the lives of the[...] "underclass of people who, left on their own, would be very unlikely to earn a living wage." ─

    Whenever I discuss the effects of a minimum wage in libertarian FB pages which are visited by clueless trolls like The Peak Oil Poet, I use this example which, while crude, serves to illustrate the point of how even for this "underclass" of people a minimum wage ends up being disastrous:

    Let's assume that we have beautiful prostitutes and we have the homely prostitutes. Because of demand, the beautiful prostitutes command a much higher price (let's call it 'wage') than the homely prostitutes as customers would want to be 'serviced' by the most beautiful prostitutes than the homelier prostitutes. This means only a set of customers will be able to afford the beautiful prostitutes. But that doesn't mean the homelier prostitutes do not have an income; it only means they will not receive the higher 'wage' a more beautiful prostitute can obtain but as long as they can serve a number of 'Johns' they can still make a living.

    Let's assume the government imposes a price floor for prostitute services. Let's call that a Minimum Service Fee, akin to a Minimum Wage. The well-intentioned among us would say that this MSF is justified because, on their own, the homelier prostitutes would not be able to obtain a 'living' income. What ends up happening, if you haven't figured out already, is that Johns will merely stop buying 'services' from the homelier prostitutes and save their money for the better-looking ones because their Opportunity Costs just went up and the homelier prostitutes find themselves out of a job. The effect is exactly the reverse of what these well-intentioned folks wanted. The same happens when you impose a price floor on labor.