On Why Not To Raise The Minimum Wage ( Part II )

On Why Not To Raise The Minumum Wage 

by Casey Bresnick

Higher Wages or Bust 

Everybody wants more money. This is one assumption capitalists and commercial liberals share with Leftists, Keynesians, Socialists, and redistributionists. Where each side differs is on what “more money” means and how it should be obtained.

Capitalists and commercial liberals (liberal in the classical sense) are primarily concerned with “real” money, whose value is inflation-adjusted. The other group is concerned primarily with nominal money, which is the just the reported face value.

But the difference is more than just this. Because it takes into consideration inflation, real money is a measure of purchasing power, and what “more money” really means is having greater purchasing power. To the Left, having more dollar bills in your wallet is having greater purchasing power. But remember, money is the measure of purchasing power, not purchasing power itself. Greater purchasing power is reflected, or obtained, only by the increase in the ratio of goods and services purchasable with one unit of money – that is, look to prices for an indication of purchasing power, not the sum of what is in your wallet.

Those who push legislation to mandate higher and higher wages, and make it illegal to pay people for what their labor is actually worth, assume that by having more people earn more, the economy is better off. Not so, for an economy grows and imparts greater happiness among its participants if and only if productivity increases. Productivity increases with new technological breakthroughs, scientific discoveries, better management styles, more efficient production systems, more education, or simply more intensive labor. Placing burdens on businesses by forcing them to pay more for labor than its objectively determined worth hinders productivity gains by siphoning money away from investing in them, thereby hurting the economy.

Leftist do-gooders think that just because someone is paid more and can, at least for a short while, spend more, this helps the economy. Consumption, they believe, is the key. Actually, consumption simply maintains an economy, whereas productivity gains increases it, strengthens it, and adds to national wealth.

Another fact Leftists do not acknowledge is that every dollar is spent or saved, and savings are technically spent in the form of investment. Thus, for every dollar diverted to paying too much for one thing (expensive low-level labor), less is available to pay for something more productive (for example, research and development).

These mistaken ideas are heavily grounded in the fallacy presented in the Parable of the Broken Window. Originally conceived by political economist Frederic Bastiat in 1850, it describes the belief that breaking windows, by necessitating the employment of the glazier to replace it, is a boon for the economy. Bastiat shows, without complex equations or charts, that there is actually a net loss, even if the window is replaced (or if, extending the metaphor, labor is paid at an inappropriate level). With X dollars spent on replacing the window, that X is not spent elsewhere (net sum is zero); however, if the window had not been broken, not only would X have been spent elsewhere, the national economy would still have retained the window (net sum is X plus the asset value of the window).

By paying too much for labor, the national economy loses out on that X spent elsewhere.

Studies Show… 

Only true economists can really delve into the finer tunings of the numerous scholarly studies on the effects of minimum wage increases. Yet a common flaw among most of the highly-championed studies advocating raising the minimum wage is the conflation of correlation and causation. These studies rarely give a concrete cause-and-effect explanation of the mechanism by which, supposedly, artificially high wages reduce poverty. They are purely statistical or probabilistic.

The major problem conservatives and libertarians face in their messaging is the complexity of the argument against the existence of or the raising of the minimum wage. The media loves numbers and percentages that corroborate their own liberal bias. They, and the lazy and time-pressed public, are reluctant to grasp and demonstrate more complicated graphs and logic of sound economics and of successfully conducting business.

By advocating the status quo, politicians win votes, academics win awards, celebrities win followers, and ordinary people win friends and social acceptance. This is because reality is a harder sell than fantasy. The hard work and thinking necessary for productivity gains is not as salient as receiving or voting to mandate nominally bigger paychecks. But there is another line of argument that most pundits and writers have left relatively untouched: the morality and ethics of mandated minimum wages.

The Greatest Suffering for the Greatest Number

In February the Congressional Budget Office forecasted that if the federally-mandated minimum wage increased from its current $7.25 per hour to the desired $10.10 per hour, 16.5 million jobs will experience these pay increases while 500,000 jobs will be cut by 2016.

It is morally repugnant for anyone to use these findings to justify the proposed minimum wage increase. The major point in these findings is that half a million wage earners, many of whom are below, at, or near the poverty level, will experience a 100% wage decrease and enter complete destitution.

Since when is it the government’s role to be forcing people out of work in order to win political clout? Sine when it is the government’s role to choose winners and losers in the labor market or any other market?

Usually, the Left’s call to arms is demanding the redistribution of wealth from rich to poor. Their initiative now is to redistribute wealth among the poor, and which groups among the poor they help and hurt are completely arbitrary.

Moreover, would supporters of this interventionist measure support a law that sacrificed a million jobs to employ 33 million at an even higher wage? Two million unemployed to raise the economic lots of 66 million? They would decry such measures as going too far and hurting too many, even though this is the same proportion of jobs killed to jobs improved of the currently proposed wage increase. The difference is only a matter of scale, but each uses the same absurd logic.

Only in a collectivist, utilitarian paradigm is it acceptable to sacrifice one group for the sake of another. Those disinterested in the sanctity of the individual human life believe laws or executive orders are justified when they “help” more than they hurt. Even worse, those they hurt have done nothing wrong. This detrimental idea, the hallmark of a great deal of fallacious economic thinking, is best captured in the words of Mao Zedong: “It is better to let half of the people die so that the other half can eat their fill.”

The most inane aspect of this utilitarian mentality is the belief that in advocating these measures one is being philanthropic. This philanthropy, however, is no more than a perversion of the law, which should only act as a protector of fundamental rights (of which a guaranteed wage level is not one). It uses the power of the state to make it illegal to spend money the way you or a business best sees fit.

Thus minimum wage laws hurt minimum wage earners, business owners, consumers, investors, and aid only politicians and high-wage false philanthropists desiring to feel better about them selves.

What Actually Increases Wages (And Employment, Too)

This last point will be brief, as previous sections have already delineated it but not all together. Wages only increase when the economy grows in real terms (otherwise, where does the new or extra money to pay the wages come from?). The economy only grows when productivity increases. Raising the minimum wage slows productivity gains, thereby slowing economic growth and rising unemployment. Thus, the government should act in the interest of maintaining a fair, sparsely but effectively rule-bound free labor market because free markets find the best ways to increase productivity. Increased productivity causes increases in wealth, and this wealth is passed down to employees in the form of higher real wages and new hiring.

Let not government but economic freedom be the guiding path and guiding force towards greater prosperity.

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