Sunday, December 15, 2013

Economic Reality and the Minimum Wage

By Steve Chapman

If you offer people something that is too good to be true, you will always find takers. Ask Bernie Madoff. Or ask Barack Obama. He recently proposed an increase in the minimum wage -- an idea that suits the natural predilections of many people enough to distract them from the unsentimental and unwelcome logic of economics.

One poll found that 63 percent of Americans favor raising the federal floor from the current $7.25 to $10.10, as the president recommends doing over two years. The reasons are obvious. Wages have stagnated, low-income Americans are getting a smaller share of national income and many working people are stuck in poverty despite their best efforts. A higher minimum wage is the obvious solution.

Obvious, but wrong. The proposal rests on the assumption that the government can decree the price of a commodity -- in this case, labor -- in defiance of the dictates of the market, without ill effects. But that view requires a heroic suspension of disbelief.

When stores want to move slow-selling merchandise, they cut prices. When customers clamor for more of an item than sellers can provide, they raise prices. Lower prices result in higher demand, and higher prices do the opposite.

This is not exotic free-market dogma but elementary economics. Any CEO who proposed to boost sales by jacking up prices would see the company's stock price plummet in response to this lunacy.

Read the rest here.


  1. US Government Pays Contractors Twice as Much as Civil Servants for the Same Work

    Fortunately, the budget deal just worked out between the White House and Capitol Hill will prevent a government shutdown and all of its attendant global financial inconveniences. But it does nothing to curtail wasteful spending on companies that are among the nation’s richest and most powerful – from Booz Allen Hamilton, the $6 billion-a-year management-consulting firm, to Boeing, the defense contractor boasting $82 billion in worldwide sales.

    In theory, these contractors are supposed to save taxpayer money, as efficient, bottom-line-oriented corporate behemoths. In reality, they end up costing twice as much as civil servants, according to research by Professor Paul C. Light of New York University and others has shown. Defense contractors like Boeing and Northrop Grumman cost almost three times as much.

  2. The day that i will take Steve Chapman seriously, a man whom even by Reason's standards is a FAUXbertarian if he even calls himself a libertarian, is the day hell freezes over.

    This is a man who basically said: "Stop thinking about nullification; it has bad connotations. Just obey government because federal courts have determined you should."
    This is a man who "made a case for Janet Yellen for FED chair".