Archive for Economics
This morning, on NPR, they were interviewing a “Republican Millionaire”, who was arguing for a minimum wage of $12.00 an hour in California. His reasoning was that people will be willing to take a job for $12.00 an hour that they wouldn’t take at a lower wage rate, and that by taking the job, these people will move off the welfare rolls, thus saving taxpayers money! Great idea! Except for the fact that it’s moronic!
First of all, taxpayers are consumers, too, so an increase in the price of goods and services to cover the government-mandated increase in wage rates is a form of tax–on the same group of people that the “Republican Millionaire” claims his proposal would benefit.
Second of all, basic economics tells us that raising the price of some good or service lowers the demand for that good or service. The “Republican Millionaire” made the oft-argued statement that “studies” (what studies? when were they conducted? were the conclusions really what minimum-wage proponents claim?) have shown that raising the minimum wage doesn’t really decrease the available number of jobs. He states that California raised the minimum wage by 35¢ and that the unemployment rate actually went down. I think he said this was in 1995. Since he didn’t qualify that statement, I infer that he is arguing that the price for labor and the demand for labor move in tandem, rather than being inversely related, as is commonly thought. To reiterate, he implies (or, at least, allows the listener to infer) that if the price of labor rises, then the demand for labor also rises, and that if the price for labor falls, the demand for labor falls. He is, of course, incorrect. He admitted during the interview that he has not ever taken an economics course, so maybe he can be excused for being ignorant of the relationships among price, demand, and supply.
I have no reason to doubt (and I have little incentive to research the question) that California did raise the minimum wage, and that subsequently the unemployment rate fell. So, why would this situation occur if the price and demand of labor is inversely related? The most likely answer is that the minimum wage hike did not push the wage above the market rate. That is, if the “general market rate” for labor were higher than the minimum wage, all other things being equal, then one would not expect to see the unemployement rate affected. I put “general market rate” in quotes because, in the end, not all labor is the same. You can’t fire your accountant and hire a burger flipper to do your taxes and expect to get the same quality labor. So, a hike in the minimum wage would not affect all types of labor equally.
What it would do is price certain low-skilled laborers out of the market. If an employer is considering hiring a non-skilled worker and a skilled worker, and he must pay the same regardless of which he hires, then he has little incentive to hire the non-skilled worker. The government has effectively denied the non-skilled worker the use of his competitive advantage–underbidding his skilled rival for the job. In addition, one could expect that skilled workers would be willing to bid for a lower-stress job that pays the same or just a little less than his current job.
Another thing of which the “Republican Millionaire” seems to be ignorant is that there are players at the margin. He talked at some length about how Wal-Mart would only need to raise its prices by 1% to cover the minimum wage hike he proposes. However, he does not speak of (and may not even have thought of) the smaller firms that would not be able to absorb the wage hike. The firms, like the low-skilled worker, must often compete by charging lower prices for their goods or services. In order to charge lower prices, they must maintain lower costs. An increase in the cost of labor will likely push the firms operating with thin profit margins into bankruptcy. It will also induce the owners of some firms that remain profitable to close shop, if the owners feel they could make better use of their time and resources. The point is that competition will decrease, and when competition decreases, prices rise and the quality of goods and services fall. A minimum wage is actually a boon to the larger firms, since it eliminates the competition provided by smaller firms.
Now, I am aware that President Obama is urging Congress to increase the minimum wage, while he also is promising to use an Executive Order to compel firms that bid on government contracts to pay a minimum wage of $10.10. A national minimum wage would have the same effect, of course; just on a national scale.
In the end, a minimum wage is a bad idea. It is an unwarranted interference in the lives of people, because it prevents them from making arrangements that they feel is in their best interests. It misallocates resources by incentivizing firms and individuals to allocate labor to less productive uses. It is a boon to larger firms because it eliminates competition. It is anti-humanity, because it pushes people out of the workforce and makes them dependent on government largesse. It increases the cost of goods and services, even if the increase may seem negligible. It is a bad idea.
Ultimately, Rand’s egoism is irreconcilable with both Christianity and capitalism. In fact, since the system fails to have any true explanatory value, it’s difficult to find any reason to adopt Objectivism at all. Fortunately, we don’t have to buy into Rand’s philosophical errors in order to appreciate her fiction. We just have to keep in mind that instead of reading a “novel of ideas”, we are reading a work of fantasy.
I voted for “Open Borders”. I know that a lot of people might be shocked at that, but anyone who has read more than a few posts of this blog should not be surprised.
What are the arguments against illegal immigration?
#1 would certainly be something along the lines of “they’re stealing our jobs.” Well, a job is not a tangible item that one can own. You can’t take your job to the marketplace and sell it. A job is actually a contract where one person sells his labor to another for a specified amount. If someone comes and offers a lower price, or higher quality labor for the same price (as in, someone with prior experience or specialised education), then the contract with the first person may be ended and a new contract made with the second person. Illegal immigrants have an unfair advantage in the labor marketplace, because they are willing and able to offer their labor for a lower price than U.S. Citizens are willing or able to. This advantage is due to Federal intervention in the labor market, but instead of people trying to roll back Federal regulation, they urge even more regulatory power be given to their oppressor (for example, fines for businesses that hire illegals, even if they were tricked by false papers and such). The expense of these new regulations will make it less likely that entrepreneurs will enter the marketplace, and will cause those firms that are just barely making a profit to fail, which will result in fewer opportunites to sell one’s labor (i.e. “jobs”).
The #2 argument against immigration would be related to the differing cultures of the native peoples and the immigrants. Well, the Latino culture already permeates American society, and has since the nation’s early years, so I’m not sure what one should be afraid of. Political differences? The answer to that is to enter the marketplace of ideas, and seek to persuade and teach others the value of limited government and expanded individual liberty. It takes longer to see success through this method, but the effects are longer-lasting.
Most people do not value liberty, however. They do not understand, and therefore fear, the Free Market, even (sometimes especially) self-described political conservatives. Even those who support Free Trade may seek a sort of “labor protectionism”. Those who claim to be very concerned with illegal immigration are, in truth, unserious about the problem. Why do I say this? Because they seek government to redress the problem. They fail to see that the problems with which they are concerned are wholly created by the same Federal Government that they petition to “fix” the problem. I’m sorry, but expecting the FedGov to solve the “illegal immigration problem” is a little like expecting Elmer Fudd to catch you a rabbit.
If conservatives (or liberals who find immigration disturbing) were truly serious about solving illegal immigration, then they should put their money where their mouth is. They should start a fund to finance the purchase of all the land on the north bank of the Rio Grande, and turn the area into a giant Pit Bull and Rottweiler puppy farm/reserve. But why would someone spend his own money, when he can use the political process to force others to finance whatever anti-illegal-immigration scheme he thinks will succeed?
George Gilder, in one of his books (either Wealth and Poverty or The Spirit of Enterprise, I don’t remember which, so you should read both of them), talks about the Cuban refugees who fled to Miami when Castro (may his beard be forever infested with lice) took over that island nation. They didn’t speak English, they had no real skills, and yet they turned that sleepy Southern town into an economic powerhouse. Wealth, in reality, does not reside in material goods, but in human knowledge, skills and abilities. Castro (may his flatulence ever cause embarrassment and offense) thought he had seized the wealth of Cuba when he stole the houses and valuables of the Cuban people who escaped from his oppression; in reality, he had chased Cuba’s wealth to the USA. To put it another way, suppose that we found out that Mexico was secretly transporting large quantities of gold, silver, light sweet crude oil, and technologically advanced capital equipment to the U.S., and placing it in some unprotected place where anyone could go and take it. Would people be angrily demanding that Mexico retrieve all those valuables and take it back to Mexico? I hope not. But in the same way, Mexico is “exporting” to us another, more valuable, sort of wealth when Mexicans immigrate to the U.S.
An objection (and one that I once used) is that with the current welfare state in the U.S., the immigrants are actually stealing wealth from native citizens by living on the dole. Not hardly. If Bill steals your t.v., and Jose accepts an invitation from Bill to watch the superbowl on your televsion, why are you mad at Jose instead of Bill? You need to deal with Bill’s thieving ways, and then the “problem” with Jose goes away. Besides, even if illegal immigrants get a check from the government, they are spending it somewhere, likely in the U.S. marketplace. Better the money go to Taco Hut (oh, I am so racist! What I meant to say, was Burger Hut) than to some government-financed study of the sexual indiscretions of the warbled slug, says I.
There are other arguments concerning terrorism and such, but I’m out of time at the moment, and will try to address these arguments in the near future.