Quote of the Day: The Ethics of Minimum Wage

The biggest problem I have with the standard analysis of the minimum wage–on either side of the ideological divide–is that it shows a certain lack of imagination. It presumes that market forces work only on quantity and price. So that when legislation artificially raises price, the debate is over the impact on quantity–how many jobs will be lost (or gained if you’re on the other side.)

But price and quantity are not the only way market forces work. And they are certainly not the only attributes of a job. There is how hard you have to work, how many breaks you get, how much training or mentoring or kindness. What amenities are in the workplace–snack bar, vending machine, nicely decorated walls and so on. When the government requires that wages be higher than what they would otherwise be, that creates an increase in the number of people who would like to work and reduces the number of opportunities available.

Ironically, the minimum wage creates a reserve army of the unemployed. That in turn allows employers to be less thoughtful, helpful, and kind. It destroys the civilizing effect of competition by muting it. That encourages exploitation. It reduces the cost to employers of racism or cruelty. Before the increase, being obnoxious or racist made it much harder to find employees. A minimum wage makes it easier to indulge in bad behavior. The costs are lower. Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves.

This is from Standard University research fellow, author and blogger Russ Roberts at the Café Hayek.

Mr. Roberts captures the largely unseen human dimension in the impact, not just of minimum wages, but of the stereotyped debate on myriad regulations: the excessive focus on price and quantity via mathematical formalism or "scientism" which plagues mainstream analysis.

Quote of the Day: Big Government Destroys Systems of Interaction and Help

I want collective action that is voluntary not coerced. I want people to have the incentive to come together and help others. Government takes my money and gives it to other people. Sometimes it’s good people. But sometimes it’s not. So it doesn’t just replicate what I would have done already. It distorts it. But more importantly it discourages the deeply human ways we help one another as friends and family. I don’t want to romanticize private charity or the way families work. They’re both deeply flawed and imperfect. But big government destroys those systems of interaction and help. Big government makes it cheaper to be on our own. It makes it cheaper to avoid helping others because the government is doing it already.

This is from Professor Russ Roberts at the Café Hayek, discussing a comment  skeptical of the Road to Serfdom.

Quote of the Day: Pollsters Find Comfort in a Crowd

Pollsters don’t like being very different from their competitors so they often fudge the turnout numbers so they don’t go out on a limb. Going out on a limb is great if you’re right. If you’re wrong, you look like an idiot. If you want to have an ongoing business, you don’t want to go out on a limb too often. So what looks like a consensus–an average of independent results, can actually represent, groupthink But that’s true of the national results, too.

This is from Professor Russ Roberts at the Cafe Hayek. This serves as another reason to look at surveys or polling trends with a skeptical eye.

The Revivalism of Friedrich Hayek's Ideas

Great stuff by Professor Russ Roberts at the Wall Street Journal on "Why Friedrich Hayek Is Making a Comeback"

(all bold highlights mine)

He championed four important ideas worth thinking about in these troubled times.

First, he and fellow Austrian School economists such as Ludwig Von Mises argued that the economy is more complicated than the simple Keynesian story. Boosting aggregate demand by keeping school teachers employed will do little to help the construction workers and manufacturing workers who have borne the brunt of the current downturn. If those school teachers aren't buying more houses, construction workers are still going to take a while to find work. Keynesians like to claim that even digging holes and filling them is better than doing nothing because it gets money into the economy. But the main effect can be to raise the wages of ditch-diggers with limited effects outside that sector.

Second, Hayek highlighted the Fed's role in the business cycle. Former Fed Chairman Alan Greenspan's artificially low rates of 2002-2004 played a crucial role in inflating the housing bubble and distorting other investment decisions. Current monetary policy postpones the adjustments needed to heal the housing market.

Third, as Hayek contended in "The Road to Serfdom," political freedom and economic freedom are inextricably intertwined. In a centrally planned economy, the state inevitably infringes on what we do, what we enjoy, and where we live. When the state has the final say on the economy, the political opposition needs the permission of the state to act, speak and write. Economic control becomes political control.

Even when the state tries to steer only part of the economy in the name of the "public good," the power of the state corrupts those who wield that power. Hayek pointed out that powerful bureaucracies don't attract angels—they attract people who enjoy running the lives of others. They tend to take care of their friends before taking care of others. And they find increasing that power attractive. Crony capitalism shouldn't be confused with the real thing.

The fourth timely idea of Hayek's is that order can emerge not just from the top down but from the bottom up. The American people are suffering from top-down fatigue. President Obama has expanded federal control of health care. He'd like to do the same with the energy market. Through Fannie and Freddie, the government is running the mortgage market. It now also owns shares in flagship American companies. The president flouts the rule of law by extracting promises from BP rather than letting the courts do their job. By increasing the size of government, he has left fewer resources for the rest of us to direct through our own decisions.

Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful—when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit—in our work and in our play—is the road to true and lasting prosperity. Hayek gave us that map.

Despite the caricatures of his critics, Hayek never said that totalitarianism was the inevitable result of expanding government's role in the economy. He simply warned us of the possibility and the costs of heading in that direction. We should heed his warning. I don't know if we're on the road to serfdom, but wherever we're headed, Hayek would certainly counsel us to turn around.