Walter Block on Economic Warfare

Political arguments in mainstream media have been predominantly framed with reference to some sort of "economic warfare" meant to demean certain agents.

In the following article, Austrian economist and professor Walter Block exposes on such misrepresentations (via Building Blocks for Liberty p 354-356/Mises.org)

Pundits are accustomed to utilizing the language of war and strife to depict economic relationships. This is confusing, irrational and misleading. For the dismal science addresses mutual benefit, or positive-sum games. All participants gain whenever a trade, a purchase, sale, rental agreement, job, etc., gets consummated; necessarily so in the ex ante sense, and in the overwhelming majority of cases ex post.

For example, if I purchase a newspaper for $1, it is an apodictic undeniable truth that at that moment, I ranked the periodical more highly than the money I had to pay for it. Why else, for goodness sakes, would I have been willing to engage in this commercial transaction was this not so? I anticipated that I would benefit from this trade. Even in the ex post sense, from the vantage points of afterward, in virtually all such cases I and everyone else in this position gains. Rare is the case where I, or anyone else for that matter, regrets the purchase of a paper on the ground that there was no good news in it after all, and that was what the buyer was seeking and expecting.

Consider in this regard, then, concepts such as "price war," or "hostile takeover." Here, it would appear, there is not mutual benefit occurring in the market, but rather an antagonistic relationship. Nothing could be further from the truth.

Take the latter first. This charge is fueled by the spectre of corporate raiders who swoop down on a helpless firm, engage in a "hostile takeover," sell off its assets, and fire all the employees. There are numerous fallacies here. First of all, unemployment is created by artificially boosting wages above workers' productivity. If the minimum wage law, or a union, insists that an employee be paid $10 per hour, but he is only worth $7 in terms of productivity, he will be unemployed, period. This has nothing to do with so-called hostile takeovers. Yes, people are fired, but unemployment is no higher in industries that witness such activities than in any other.

But do not corporate raiders sometimes dismember firms for their assets? Indeed, they do. However, they only earn a profit when these selfsame assets are actually worth more in other areas of endeavor than where they were first deployed. This means that if jobs are lost in one corporation, they will be created in others, to the places where the assets are now more productively employed, thus raising wages.

Another socially beneficial effect of the corporate raider concerns salaries of chief executive officers. Many commentators complain that CEO salaries have hit the stratosphere, and constitute an unconscionable exploitation of the workingman. Suppose that the capital value of a firm would have been $100 million if the CEO salary was "moderate," but, because of a stupendous compensation package, it is now worth only $10 million. Such a firm would be ripe for the pickings of a corporate raider. He would purchase this business for, say, $11 million, fire the parasitical CEO, watch the firm's value rise to its "proper" $100 million, and pocket a hefty $89 million in profit. The corporate raider is to outrageous CEO salaries what the canary is to coal mine safety; only he does the bird one better: not only does he warn of a problem, he solves it in one fell swoop. Yet, government, in jailing people like Michael Milken, has obliterated this beneficial market mechanism. And now they have the audacity to complain of out-of-control CEO pay.

As for "hostility" there is no such thing between the buyer and seller of stock. The only "hostile" person is the CEO who was ripping off the firm. But when we say that in the market there is only peaceful cooperation, we mean on the part of those who engage in any specific transaction; e.g., the newspaper buyer and seller. Third parties, of course, can always be hostile. A Marxist, for example, might have his nose put out of joint by all commerce. He is "hostile" to all of them. So what?

What of price war? This, too, is a linguistic contortion. When grocers, or filling stations, for example, lower their prices in an attempt to attract customers, they are very far from having a "war" with those who buy from them. Very much the opposite is the case. As far as the relation of these vendors with each other, the supposed participants in this "war," they are in the same position as the too-high-salaried CEO and the corporate "raider." They are third parties to all these transactions, and, as such, have no standing in any of them. They cannot reveal or demonstrate (Rothbard 1997) their hostility. That is, when customer A purchases groceries or gasoline from seller a, seller b might not like it, but he is not part of this transaction.

In the world of politics “us against them” (false choices) has been a very attractive way to win votes, if not to attain social desirability bias

Walter Block on Why the Minimum Wage Law is a Stab on the Back of the Poor

Austrian economist Walter Block’s take on the baneful invisible effects of the minimum wage law (sourced from lewrockwell.com, with permission of Professor Block) [bold mine, italics Professor Block]

The minimum wage on its face is an unemployment law, not an employment law. It does not compel anyone to hire anyone else. It only stipulates who CANNOT legally be employed: no one may be hired for less than the amount stipulated by law. If the minimum wage law is set at $10 per hour, the law does not require any employer to hire any employee at that wage level. It only FORBIDS employment contracts set at $9.99 or below. This is not a matter of empirical evidence, not that there can be any such thing in proper, e.g., Austrian economics; this conclusion is a matter of pure logic. We repeat: the minimum wage on its face is an unemployment law, not an employment law.

What about empirical studies (economic history, for praxeological economists)? Here, economists disagree. Some say there will be no unemployment effects whatsoever. That is, a person with a productivity level of $6 per hour will still be hired and paid $10 per hour, even though any such firm that does so will lose $4 per hour. Such “economists” are in a distinct minority. Other dismal scientists opine there will be very slight unemployment effect; some few unskilled workers will lose their jobs or not attain them in the first place; but a large number will retain their jobs and be paid more. Then there is a third or majority view: most economists conclude that this law will boost unemployment for those with low productivity, and will only raise wages for them temporarily, until employers can substitute away from the factor of production (unskilled labor) now priced out of the market.

What is the Austrian take on all of this? The praxeological view is that the minimum wage law will raise unemployment higher than it would otherwise be, in the absence of this law, other things equal, provided only that it is set above the level of productivity of at least one worker. This is an apodictic claim, not subject to refutation, falsification or testing. This claim is necessarily true, and yields knowledge about real world effects. Austrian economics is causal – realist, unlike the economics of the mainstream logical positivists, who recognize no economic law, only hypotheses to be tested, and if not falsified, then provisionally accepted.

Some economists who have recently signed this open letter in support of the minimum wage law have published introductory and intermediate economics textbooks. In those publications, they take the usual position that minimum wage legislation unemploys laborers with low skills. Thus, their textbooks blatantly contradict the open letter they signed.  I take great joy in listening to and reading their responses to this charge that they are contradicting themselves. Talk about talking without saying anything.

What of the ethics of the matter? Here, again, there can be no controversy. The minimum wage law violates people’s rights to engage in consenting adult behavior. An employer and an employee agree to a wage contract of, say, $5 per hour. Both are considered criminals under this pernicious legislation. But it is a victimless “crime” to pay someone $5 per hour for his labor services, and/or to receive such an amount of money for working. Both parties agreed to this contract! Our society is now in the process of legalizing other victimless crimes, such as those concerning prostitution, drugs, gambling, etc. Many people favor “choice” when it comes to adult behavior without victims. The minimum wage law is a step backwards from these moves in a moral direction.  And, yet, paradoxically, it is to a great degree precisely those people who advocate the legalization of these victimless crimes who are the staunchest supporters of the minimum wage law.

Posit that the “moderate” economists were right. A few people will lose their jobs, but the overwhelming majority would either find or keep their employment slots, at higher compensation rates. Suppose I were to go to the inner city (which contains a disproportionate number of the unskilled), and did the following. I went to one in every 20 people I met, and, at the point of a gun, I relieved them of, oh, $10,000 (40 hours per week time 50 weeks multiplied by $5 per hour). Whereupon I turned to the other 19 out of 20 people and dispersed these stolen funds amongst them. If I did so, I would be promoting the precise effects that the moderate members of the economics profession who are supporters of minimum wage claim will occur. Namely, this law, they contend, they concede, will hurt very few but benefit the many. But how would my excursion into the inner city, and my wealth transfer, be considered by law? Of course, I would be considered a criminal, and very properly so.

For reasons we need not discuss right now, the productivity of whites is higher than that of blacks. It is for this reason that the unemployment of the latter is higher than that of the former, actually, as an empirical finding, about twice as high. For reasons we need not discuss right now, the productivity of middle aged workers is higher than that of young employees, who are just starting out. . It is for this reason that the unemployment of the latter is higher than that of the former, actually, as an empirical finding, about twice as high. It is for this reason that the unemployment rate of black teens is roughly quadruple that of whites of mature years. All this stems from the minimum wage law serving as a barrier to entry, a hurdle, and not a floor raising wages. Supporters of the minimum wage, who just LOVE statistics, tend to shy away from this revealing data.

Who are the beneficiaries of the minimum wage law?  Quo bono?  This will come as a shock to some people, but the people who gain the most from this legislation are skilled workers, typically organized into labor unions. When they demand a boost in their own wages, the immediate response of the employer is to want to substitute away from this suddenly more expensive factor of production, skilled labor, and into a substitute for it; that is unskilled labor. There is more than one way to skin the cat. The same number of widgets might be able to be produced with 100 skilled and 100 unskilled workers, as with, for example, 50 of the former and 200 of the latter.  If there is any such thing as fixed proportions in manufacturing and production, it must be a great rarity. How best to fight such an eventuality from the point of the labor union? One way to do so is to castigate as scabs” (why this is not an example of “hate speech” similar to the use of the “N” or “K” word is beyond me; well, not really) the unskilled laborers hired in response to the union’s demand for higher wages. But there are problems here. For one thing, these newly hired employees would be disproportionately minority group members. It really looks bad for liberals, “progressives,” to be fighting this particular demographic. For another, these people can fight back. If you slash their tires, and hit them over the head with a baseball bat, they can reciprocate. No; this will not do. Organized labor has come up with an ingenious counterattack. Are you ready for this? Please take a seat, for you are now in danger of keeling right over. Yes: the minimum wage law; that is the solution to this quandary for organized labor. There is perhaps no better way to eliminate competition than to price it out of the market. (Hint, to burger providers; if you want to adopt crony capitalism, try to get a law passed compelling the prices of competitive products such as pizza, hot dogs, to be raised ten-fold. You can claim it is for health reasons.)

Who else benefits from the minimum wage law? This is like asking, who gains from high unemployment rates of young people, and unskilled workers? When looked at in this manner, several candidates immediately come to mind, given that unemployment breeds boredom and criminality: social workers, psychologists, psychologists, prison guards, policemen, etc. I don’t say that all of these people favor the minimum wage law because it will feather their nests. I only say their financial situation improves from its passage, and therefore empirical research into this possibility might be fruitful.

Why do we have this law on the books if it is so evil, so pernicious? One reason, already discussed, is that there are beneficiaries: organized labor, and our friends on the left who support them. Another is of course monumental economic illiteracy. Obdurate economic illiteracy. I teach freshman economics at Loyola University, and I usually take a survey of my students on opening day. Typically, a large majority favors the minimum wage law, and they do so not out of malevolence. Rather, they really think that this law will raise wages and help the poor. My students think this law is like a floor rising, and thus raising everyone with it. They do not realize that a better metaphor is a hurdle, or high jump bar: the higher the level stipulated by the minimum wage law, the harder is it to “jump” into employment. This law eliminates the lowest rungs of the employment ladder, where especially young people can gain valuable on-the-job training, which will help raise their productivity. If this legislation were of such great help to the poor, I ask my students, why are we so niggardly about it? Why limit the raise to $10, or $12 or even $15, as some radicals favor? Why not really help the poor, and raise the minimum wage level to $100 per hour, or $1000 per hour, or maybe $10,000 per hour. At this point they can see that virtually the entire population would be unemployed, because it is a rare person who has such high productivity. But, then, hopefully, then can begin to see that a minimum wage of a mere $7 per hour is an insuperable barrier to employment for someone whose productivity is $4 per hour.

When the minimum wage was raised from $.40 to $.70 cents per hour (the largest percentage increase so far) we went from manually operated elevators to automatic ones, helping high skilled engineers at the expense of the unskilled manual operators. This transition took a few years, but that was the cause. Initially, before anyone could be fired, wages did indeed rise. If the present minimum wage goes from $7.25 to, horrors!, $15.00, people who ask if you want “fries with” that will be supplanted by self serves and automatic machinery which will then be competitive with labor, but cannot now compete with low skilled people. Those jobs will go the same place, namely, booted out of existence, as the ones that used to exist at gas filling stations.

What should be done? We should not raise the present national minimum wage from its present $7.25. Nor should we maintain it at that level. Nor should we decrease it (some politicians advocate a lower minimum wage, for example, $4 per hour, just for the summer and only for high school kids to help them get jobs; but to counsel such a course of action is to admit that the law is a hurdle which must be jumped over, not a floor supporting rises). We should instead eliminate it entirely, and sow salt where once it stood. More than that. We should criminalize passage of this law. That is, we should throw in jail, or deal with these miscreants as we would other criminals, all those responsible for the passage of this law and for its implementation, such as the legislators who passed such a law, the police who enforced it and the judges who gave it their seal of approval. After all, is this not the way we would treat a person who unemployed other people at the point of a gun? Suppose there were a law that explicitly did consign people to involuntary unemployment, not implicitly and indirectly as does the minimum wage law, but direcetly. That is, an enactment such as this: It shall be illegal to employ black people. It shall be illegal to employ white people. It shall be illegal to employ young people. It shall be illegal to employ old people. It shall be illegal to employ Jews. It shall be illegal to employ Christians. It shall be illegal to employ gays.  It shall be illegal to employ heterosexuals. It shall be illegal to employ men. It shall be illegal to employ women. How would we treat all those responsible for the passage of such laws and for their implementation such as the legislators who passed such a law, the police who enforced it, the judges who gave it their seal of approval? Precisely, we would throw the book at them. We would penalize them to the fullest extent of the law.  Why should we do any less for those responsible for the minimum wage law?

I may add that the recent trends in globalization particularly outsourcing [as this 2010 yahoo article points out “The United States has one of the highest rates for minimum wage. In fact, there are some countries that do not set minimum wage rates. As of 2008, minimum wage in China was $ .60 (US Dollars), while in India it was $2.15 (US Dollars), and it was $2.46 (US Dollars) in Mexico.* Besides higher minimum wage in the United States, companies must contribute to Social Security, Medicare, FICA and unemployment insurance. These payments do not have to be made for foreign employees, and therefore the American companies save on payroll and costs for payroll.”]…as well as China’s export boom via “cheap labor” may partly have been one of the unseen consequences of the US minimum wage law.

Walter Block: Why 'Social Justice' Should Not Be Thought in Schools

[update: I changed the title of this post]

I have communicated with the great Austrian economist Walter Block, I offered to publish some of his works here to help spread Austrian economics and libertarianism.

So I will start with Mr. Block’s take on academia's promotion of Social Justice. The following article is from Mr. Block’s Building Blocks for Liberty p. 235-237 (Thanks Professor Block)

On many university campuses, there is a push on to promote Social Justice. There are two ways to define "Social Justice."

First, this concept may be defined substantively. Here, it is typically associated with left wing or socialist analyses, policies and prescriptions. For example, poverty is caused by unbridled capitalism; the solution is to heavily regulate markets, or ban them outright. Racism and sexism account for the relative plight of racial minorities and women; laws should be passed prohibiting their exercise. Greater reliance on government is required as the solution of all sorts of social problems. The planet is in great danger from environmental despoliation, due to an unjustified reliance on private property rights. Taxes are too low; they should be raised. Charity is an insult to the poor, who must obtain more revenues by right, not condescension. Diversity is the sine qua non of the fair society. Discrimination is one of the greatest evils to have ever beset mankind. Use of terminology such as "mankind" is sexist, and constitutes hate speech.

Secondly, Social Justice may be seen not as a particular viewpoint on such issues, but rather as a concern with studying them with no preconceived notions. In this perspective, no particular stance is taken on issues of poverty, capitalism, socialism, discrimination, government regulation of the economy, free enterprise, environmentalism, taxation, charity, diversity, etc. Rather, the only claim is that such topics are important for a liberal arts education, and that any institution of higher learning that ignores them does so at peril to its own mission.

So that we may be crystal clear on this distinction, a Social Justice advocate of the first variety might claim that businesses are per se improper, while one who pursued this undertaking in the second sense would content himself by merely asserting that the status of business is an important one to study.

Should a University dedicate itself to the promotion of Social Justice? It would be a disaster to do so in the first sense of this term, and it is unnecessary in the second. Let us consider each option in turn.

Should an institution of higher learning demand of its faculty that they support Social Justice in the substantive left wing sense, it would at one fell swoop lose all academic credibility. For it would in effect be demanding that its professors espouse socialism. But this is totally incompatible with academic freedom: the right to pursue knowledge with an open mind, and to come to conclusions based on research, empirical evidence, logic, etc., instead of working with blinders, being obligated to arrive only at one point of view on all such issues.

This would mean, for example, in economics, the area with which I am most familiar, to be constrained to conclude that the minimum wage law is the last best hope for the unskilled, and that continually raising it is both just and expeditious; that free trade is pernicious and exploitative. It is more than passing curious that those in the university community who are most heavily addicted to diversity cannot tolerate it when it comes to divergence of opinions, conclusions, public policy prescriptions, etc.

What about promoting Social Justice in the second sense; not to enforce conclusions on researchers but merely to urge that questions of this sort be studied?

This is either misguided, or unnecessary.

It is misguided in disciplines such as mathematics, physics, chemistry, music, accounting, statistics, etc., since these callings do not typically address issues related to Social Justice. There is no "just" or "unjust" way to deal with a "T" account, a quadratic equation or an econometric regression; there are only correct and incorrect ways to go about these enterprises. To ask, let alone to demand, that professors in these fields concern themselves with poverty, economic development, wage gaps or air pollution is to take them far out of their areas of expertise. It is just as silly as asking a philosopher to teach music, or vice versa.

And it is totally unnecessary, particularly in the social sciences but also in the humanities. For if members of these disciplines are not already conducting studies on issues germane to Social Justice (and, of course, to other things as well) then they are simply derelict in their duty. If historians, sociologists, anthropologists, economists, philosophers are ignoring poverty, unemployment, war, environmentalism, etc., no exhortations to the contrary are likely to improve matters.

Colleges and universities therefore ought cease and desist forthwith from labeling themselves in this manner, and from promoting all extant programs to this end. It is unseemly to foist upon its faculty and students any one point of view on these highly contentious issues. It would be just as improper to do so from a free enterprise, limited government private property rights perspective as it is from its present stance in the opposite direction. For additional material critical of these initiatives, see Michael Novak and Walter Williams.

Of course, social justice may be defined in yet a third manner: as favoring justice in the "social" arena, as opposed to other venues. Here, all intellectual combatants would favor the promotion of this value; the only difference is that leftists, for example, mean by this some version of egalitarianism, while for libertarians justice consists of the upholding of private property rights. For a college to uphold social justice in this sense would be highly problematic, in that two very different things would be connoted by this phrase.