Murray Rothbard vs. Paul Krugman on $9 Minimum Wage
Submitted by MarcMadness on Mon, 02/18/2013 - 13:15One of the big progressive talking points coming out of the President’s recent “State of The Union” address is his proposal of once again raising the Federal minimum wage, this time to $9. The minimum wage is one of many political proposes designed specifically to make anyone that opposes it look like greedy and heartless. Why, who can argue that people should be able to make enough money to meet their needs? Why surely $9 is a reasonable amount of money to pay someone, the argument goes, and if you oppose that, well then you just must be a heartless soul who doesn’t understand the plight of the “working man”!
In defense of policies such as these, liberals will often trot out their favorite Nobel Prize Winning Economist, Paul Krugman, so they can point to him and say “Hey, Stupid! This guy won a NOBEL PRIZE! You’re just some libertarian blogger, how you gonna argue with THAT!”. And right on cue, there is a post from Paul Krugman’s blog “Conscience of a Liberal” currently being spread around the social media that deals with the minimum wage issue.
From the top Krugman takes the wrong approach, attempting to disprove simple logic through empirical studies:
So what should you know? First, as John Schmitt (pdf) documents at length, there just isn’t any evidence that raising the minimum wage near current levels would reduce employment. And this is a really solid result, because there have been a *lot* of studies. We can argue about exactly why the simple Econ 101 story doesn’t seem to work, but it clearly doesn’t — which means that the supposed cost in terms of employment from seeking to raise low-wage workers’ earnings is a myth.
As Bob Wenzel recently explained on his blog Economic Policy Journal, it is fallacious to attempt to use empirical studies to prove or disprove something that is based on irrefutable logic. Wenzel sums it up in his typical hard-hitting no-nonsense fashion:
The simple fact is that if you force people to pay more for something, they will buy less of it.
There are no empirical studies that can refute this. It is pure logic. And no empirical studies are needed to prove the argument. They can’t.
Anyone using empirical data to try and prove or disprove logic is a quack.
Not to let Wenzel take away the spotlight from the real star of this weekly feature, here is Murray Rothbard on the minimum wage from his book, Making Economic Sense:
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I don't think that it is the
I don't think that it is the role of government to control wages however I believe the poor would be better off if they earned more money. I also don't believe that 18-20 year olds are all worthless like some of the commenters. Lets face it, for jobs that require physical strength and endurance they can do more than an old person. If the mimimum wage is raised a little at a time I think it will not have a significant effect on unemployment.It might force prices up some but that is what the government wants, to inflate away the debt. Using the same type of logic as Rothbard you could conduct a poll and ask employers if they would reduce their workforce if the minimum wage was raised from 7.25 to 7.26 per hour. If they all said they would keep all their workers that could be offered as proof that raising the mimimum wage would have no effect on unemployment. The government may be overstepping its role but raising the mimimum wage a little is not such an evil act. There are far more evil things we can fight against than that. We dont need to alienate millions of poor voters and chase them over to the democratic party.
price floor
The minimum wage is a price floor where a worker has to charge the employer at least $9 for their labor.
Who will the employer hire in this situation? The worker who is worth the nine bucks. The ones who are not worth it, will not get hired.
$9 hr X 2 people X 50 weeks = $37,440
This is more money than what half the people in West Virginia make.
Requiring businesses to pay $9 hr minimum wage plus comp, Soc. Sec. X2, unemployment, Fed taxes, state taxes, county taxes, township taxes, city taxes, and now the cost of Obamacare will just cripple West Virginia, Mississippi and a number of other states.
In my experience, NONE of the American 18 to 22 year olds are worth $9 per hour to start.
They have 2 years of Spanish but can't speak Spanish. They don't know how to put air in a tire, plunge a toilet or put oil in an engine. They can't spell, write, or communicate, problem solving is out of the question and they have no character whatsoever.
They should pay me $90 per hour to show them how to become self propelled.
The gamers can go scratch.
"Timid men prefer the calm of despotism to the tempestuous sea of liberty" TJ
Instead of giving people more
Instead of giving people more dollars, why not quit letting the Federal Reserve print so much more $, there by prevent current dollars from growing weaker.....
*Wisconsin Constitution* Article I, Section 25 "The people have the right to keep and bear arms for security,defense,hunting,recreation or any other law-abiding purpose"
Because it's better for them to appease the sheep or better yet
Lambs.. Sheep just get sheered for the most part.. Lambs get slaughtered.. so it's Lambs because it's happening more and more.
So anyway.. the Lambs are appeased while the farmers keep going ahead with their plans as usual. Meanwhile the dumb Lambs are all smiles over the extra feed they've been given but little do the dumb bastards know.. They will pay the ultimate price in the end.
Patriot Cell #345,168
I don't respond to emails or pm's.
http://www.youtube.com/watch?NR=1&feature=endscreen&v=qo8CmO...
Those who make peaceful revolution impossible will make violent revolution, inevitable.
If they keep raising minimum wage
employers will soon be forced to pay skilled workers the same wage as burger flippers. Which in turn will discourage anyone from going to the trouble of acquiring any job skills. Just another effective method to decimate the economy.
Raise the minimum wage... then hire millions...
Raise the minimum wage then hire millions of government workers to affect the outcome! 'Voilà! We raised the minimum wage... therefore there are now more employed!'
Big government always presupposes creating jobs... and big government always presupposes deficit financing with fiat, as in counterfeit money. In fact it bases it's very existence upon the theft of wealth, transferring another's God given value into their fiat counterfeit money!
The creation of money through hidden transfer of value to fiat money, always forms the basis, though a diminishing basis, of their outcome based fraud.
They could not exist as 'big government' if force fed a constitutional diet!
Like a Cat Chasing its Tail
If the government wants to "fix" wages, why not "fix" the dollar?
What's the use of increasing hourly wages when the government simultaneously devalues a minimum-wage worker's earning through inflation?
If you want to "fix wages, "fix" the dollar by linking it to gold and silver.
Anything less amounts to a cat chasing its tail.
Of course, but then the government is without a job.
.
Price fixing
Minimum wage laws are price fixing plain and simple. Liberals don't operate logically nor do most comprehend free market economics. I've had liberals flat ou say during arguments that they don't mix politics and economics! That's impossible! They are one in the same.
http://lionsofliberty.com
here is more detail
wenzel is over simplifying.
The latest research suggests that a carefully imposed minimum wage (and I would consider Britain's carefully imposed, and one indexed to inflation carelessly imposed) can raise incomes at the bottom of the wage spectrum without much reducing employment. But a higher minimum wage is neither a sufficient or a particularly germane response to labour-market polarisation and capital's rising income share. The problem is simply that the supply of people and robots available to do routine work is exploding. A proper response to this dynamic must either be a big change in relative skill supplies or relative productivities, or a move toward wage subsidies that are far larger and broader than have been considered in the past.
http://www.economist.com/blogs/freeexchange/2013/02/labour-m...
Wenzel nor Rothbard are oversimplifying
Minimum wage laws must disemploy anyone whose marginal revenue product to the firm is lower than the minimum wage.
Saying it doesn't is indeed like arguing against gravity, actually it's even more ludicrous, it's arguing against math.
Also insomuch as automation is a factor, arbitrarily increasing the cost of labor promotes that very thing. Pushbutton elevators being the famous example. Button operated elevators had been around before they were economically viable. What made them viable was minimum wage laws. Within a few years of minimum wage laws being enacted elevator operators went from being wherever elevators were, to being a boutique affectation of affluence. Now almost nowhere to be seen. Minimum wage laws made it cheaper to buy more expensive pushbutton elevators than hire operators.
Minimum wage laws just cut off the bottom rungs of the ladder.
Further: If minimum wage laws do not cause unemployment it is because there is a government intervention distorting the labor/employer relationship. In an approximate free market cost will be as low as the employer can get away with while attracting labor from other employers true, but high profits in turn attract competition. Equilibrium is achieved when the profits are not high enough to attract more competition. For profits to remain higher than that means there is something impeding competition, which is of course regulation, tariffs, tax code, licensing, and various other means of statutory monopoly protection.
In that situation the firm which is enjoying monopoly profits at the expense of consumers and employees via government action can sometimes absorb the increase in minimum wage because the MRP of the employee has been held artificially high.
However Over time monopoly profits themselves are eroded since all costs, not just labor, tend to expand to fit the profit and profit margins inevitably decline even if you can manage to hold one cost, labor, low. Monopolies thus become increasingly inefficient over time.
So it's only relatively new monopolies that are in the situation that MRP of employees is sufficiently higher than wages for this to occur.
Now add in inflation
Which will actually gradually lower the real value of the minimum wage . . .
Actually I like your analysis. Anyway, if we consider the near term, minimum wage laws can havea small or no impact on unemployment in certain mixed economies. If you extend the time considerations, yes, there will eventually be a negative impact. But the argument goes that in the longer run so many things change unpredictably that the original prediction is not relevant anymore.
Yes of course, inflation
Yes of course, inflation punishes labor inverting a very important part the natural balance of power between labor and capital. With sound money employees wages have ever increasing purchasing power and employers have to go and request pay reduction of find other ways to increase efficiency.
With inflation employers are continually reducing wages without consent and, due to government controlled media and education, most often without even awareness. Labor is forced to continually beg for scraps.
Re MW, you summarized well. MW can in some cases not cause unemployment in some cases, because it's a mixed economy. This is an instance of the general problem of planning, you create more problems with your previous 'solutions'.
So while the cases of MW not disemploying do exist, they are uncommon and they are ephemeral. Overall unemployment certainly goes up.
Further MW causes other further problems.
For one you create a moral hazard by removing the free market cost of being a bigot. In a free market bigots bid up the cost of labor from their favored race, gender, orientation etc. Less bigoted employers have a labor cost advantage, which over time will have profound positive social effects.
To correct for that you have little option but to further violate liberties with EO statutes. Which impede economic growth at the least, but also incur social tension from people otherwise disinclined to be bigots, but now are because they didn't get a job they were qualified for. As well lower standards cause real inferiority where only perceived inferiority existed before. You can't have different standards without different quality outcomes on aggregate.
I could go on forever with interventions and problems caused. However to call them unintended consequences seems to be ascribing to ignorance where malice is more appropriate. The level of ignorance required for this to always happen is not believable.
Even in your statement
You say 'without much reducing employment'. So right there you admit that it does reduce employment, thereby proving the point.
Saying Wenzel is oversimplifying is like saying Newton was oversimplifying the concept of gravity.
You don't need empirical studies, which are done specifically to try to show direct causation, to prove or disprove logic.
Price controls and gravity both have real, known properties. No "studies" that attempt to prove or disprove either will change anything.
http://lionsofliberty.com/
Over simplification
First - I was quoting the article.
Second, comparing Gravity and the effect of minimum wage is silly - Newton's "LAW" of gravity is completely empirical - there was no theory at all - no reason why gravity occurs, it just did, and it follows this equation.
So, minimum wages have different effects depending on the circumstance you are looking at. It seems reasonable to look at what minimum wages do to the economy.
I agree that morally minimum wages are wrong. But so is government assistance to corporations. If you want to go from here to where we want, you are going to have to understand how the immoral world works, unless you expect the world to just change overnight.
The problem
The problem with the empirical study method is that it you cannot study economics and put it to a test in the way you can a scientific theory. Economics is the study of individual human action, and you cannot compare logical deductions with a physical scientific theory.
In that respect, fair enough - gravity wasn't the best analogy..
http://lionsofliberty.com/
Paul Krugman?
Is that you? I didn't know you read the Daily Paul.
http://lionsofliberty.com
If you took the time
To read the article I posted you would see that it disagrees with Krugman as well.
The
article does not present the exact same argument as Krugman, but it does suggest that the results of empirical studies can uncover solutions that can be applied to the market by force, thus enhancing transactions for the betterment of humanity. This is where I disagree with Krugman, the aritcle, and you.
Of course minimum wage laws have differing imapcts to differnet wage levels. A minimum wage increase set to 1% the median wage would impact significantly less transactions than one set to 5% the median wage. This is not the argument. This is irrelevant. Minimum wage laws outlaw employment set at certain price levels. Not only is this immoral, but it distorts the market and introduces unpredictable untintended consequences. The empiracal studies you reference cannot factor in the entire market response created by fixing prices, because the effects are so vast and not predicable. How do these empirical studies plan on compiling the data of those wage earners forced to accept wages "under the table"? How are their wages impacted? You cannot know, because it's impossible to find the data. How do these empirical studies compile data based on rise in prices created by the cost of labor rising due to minimum wage laws?
You cannot apply empirical studies to economic transactions. Price fixing is price fixing. It doesn't matter if it is in wages, fuel, or money.
http://lionsofliberty.com
Granted
The minimum wage is government force, and thus immoral.
But general economic principles of free markets probably do not work in immoral mixed economies like we have anyway.
So how do we get from here to there without revolution ?
Which immoral use of force do we remove first, given that you can't remove them all peacefully at once ? Wage controls, or taxes, or government implemented monopolies, or restriction of travel.
I don't
think there's an order or a method to remove immoral governement force. As Ron Paul says, the hearts and minds of the people must change first, then the politicians will follow. You can't fool people into rejecting the State's initiation of force. Once the people understand the benefits liberty provides in creating a prosperous society, then they will reject coercive government force. Education is the key, implementation is secondary.
http://lionsofliberty.com
Incrementalism
Towards liberty requires the correct sequence.
Its nice to assume that society will have an epiphany, but that's not realistic - not anytime soon anyway. We have to live in the world we are in, and move it toward liberty the best we can. What's the point in stopping one group from using government force to their advantage while another group goes on freely using force - it gives one group an advantage.
I am
in favor of incrementalism towards liberty. When you talk about rating importance that's tough to do, because so many issues are intertwined. Anything that lessens tyranny I would be in favor. I never mentioned society having a magical epiphany. Simply stating that education, including self education, in the ideals of liberty is of the utmost importance.
I don't see how agreeing with a purely Statist tactic, like price fixing, is somehow going to advance liberty.
http://lionsofliberty.com