Thoughts on minimum wages and equality

View 767 Tuesday, March 19, 2013

I have most of my teeth, one of the great benefits of living in this modern age – when I was young almost no one kept their own teeth beyond the age of 70. Social Security was designed in a time when life expectancy at birth was fairly low due to infant mortality, but if you lived to age 65 you could expect another ten to twelve years if male and a couple of years longer if female; on the other hand, medical care for the elderly didn’t cost so much because there wasn’t a lot anyone could do to keep people going. There was plenty you could do for yourself, but that’s a different story. I see I am rambling again.

I have had a partial upper plate – what dentists call a flipper – since for more than fifty years, but a couple of months ago I managed to fall flat on my face on the sidewalk at dusk, and while I was able to catch my fall, sort of, I knocked out a front tooth, so another had to be added to my flipper – and Monday at lunch the glue or whatever they had used to attach it to gave way. I’m scheduled to do a video interview with Leo Laporte tomorrow at 3, so we scrambled to get to the dentist, resulting in my having an 0800 appointment today. For the last forty years I haven’t undertaken to be either civil or coherent before ten in the morning, but there was nothing for it. Fortunately I live in a village, and my dentist is in the next village so I had no problem.

All of which is a long tale on why I may be even more incoherent then usual today. I should be in form by tomorrow afternoon. No idea what we will talk about.

I am also trying to work up the energy to get back to doing silly things so you don’t have to. In anticipation of that we have built two rather amazing machines, both in handsome Thermaltake cases; one is Windows 7, and one is Windows 8. I am trying very hard to like Windows 8, but I haven’t really managed to make myself do it. Meanwhile it’s time to replace a couple of my aging main systems, but it’s also tax time: I’m not about to change horses in the middle of that stream. There’s still a lot going on out there in computer land and it’s all getting cheaper. The world of publishing has turned upside down – if you are contemplating getting into my racket writing books, the first thing to understand is that if your work has any legs at all, the eBook rights are likely to be worth a lot more than the print rights, so signing away the electronic rights for an unlimited period may be a terrible idea. I say this because a number of reputable publishing houses have opened new imprints to attract new writers, and the boiler plate language in their contracts is plain horrible. One demands electronic rights “for the life of the copyright”. Others actually accomplish the same thing without quite saying so.

Be careful out there.

I don’t do breaking news and I am trying to stay away from narrow political issues, but some issues illustrate political or economic issues of some importance.

In particular, Senator Elizabeth Warren is saying

"If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour," she said, speaking to Dr. Arindrajit Dube, a University of Massachusetts Amherst professor who has studied the economic impacts of minimum wage. "So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn’t go to the worker."

http://www.huffingtonpost.com/2013/03/18/elizabeth-warren-minimum-wage_n_2900984.html

I am sure that the prospect of a $22/hour minimum wage excites a number of voters making considerably less than that. Of course any law that raised the minimum wage to that rate would also have to forbid employers from simply firing workers who don’t produce that much return on investment, which would also require a law forbidding them to go bankrupt; possibly a law requiring the firm’s customers to continue to do business with firms that raised their prices because of the minimum wage law? I realize that seems silly and beyond reason – but I will remind you that as the Roman Empire began its collapse, one desperate attempt to keep the economy going required that each man follow in the profession of his father; which had considerable effect on the economic collapse. Other desperate measures were attempted, most equally as flawed.

Also in the current news was the attempt by the government of Cyprus to bail out its banks by seizing 5 to 10% of all monies deposited in them (accompanied, of course, by a compulsory freeze on withdrawals from the banks). As I write this the Cyprus parliament has refused to give this power to government, and the government is looking for some other means to prevent the coming collapse of the banks. The government has gotten so far into debt that this radical move seemed like a good idea. I haven’t heard any proposals that the United States follow suit, but we have had compulsory bank holidays to prevent runs on the banks, and there certainly have been proposals to finance the US debt by taxing the savings of “the rich” including retirement savings. Some of those proposals have been from people usually taken seriously.

The notion of a “fair” wage is central to many socialist views of proper government. They are usually coupled with schemes to rationalize the economy: why should there be twenty brands of tooth paste? It is a wasteful practice. A rationally planned economy would prevent a great deal of effort wasted in competitive practices, thus leaving more to be paid to the workers. After all, the workers produce the goods: they have a right to a fair share, which should at least include a living wage.

The problem is that often a job cannot possibly produce enough return to warrant a “fair” wage. When the production doesn’t at least equal the cost, there isn’t a job to be had. Many ‘jobs’ are discretionary. You will pay someone to do something so that you don’t have to do it yourself, but if the cost is too high, you will just do it yourself, or go without that service entirely. Clearly there are things I would like to have done for me that I don’t think I can afford. Raising the minimum wage simply moves more jobs from the “I can afford that” to the “Can’t afford it” column. That is, it does in the real world. In Senator Warren’s world, her intentions are what matter: she means well. If her proposal ends up costing a number of people their jobs, that wasn’t her intent, so it doesn’t matter: we’ll just give them more benefits to make up for their loss.

I wish that were a parody, but it is not.

Milton Friedman once said that every economist knows that minimum wages either have no effect or create unemployment, and that this was not an observation, it was a definition. It should also be self evident.

The Huffington Post article on Senator Warren’s views on minimum wage went on to say

It didn’t appear that Warren was actually trying to make the case for a $22 an hour minimum wage, but rather highlighting the results of a recent study that showed flat minimum wage growth over the past 40-plus years coinciding with surging inequality across a number of economic indicators.

Warren went on to argue that raising the federal minimum wage to over $10 an hour in incremental steps over the next two years — a cause championed by President Barack Obama in his State of the Union address and since taken up in the Senate — would not be as damaging for businesses as some critics have argued.

I have not seen any rational argument for $10/hour as opposed to $22/hour other than the obvious statement that $10/hour doesn’t do as much harm as $22/hour would. But if the notion is a fair wage is a living wage, why not determine just what is “needed” by the worker and set the wage to that?

If the goal is to reduce inequality, then we should discuss ways to reduce inequality, including “disributist” schemes in which confiscated property is divided and given out equally to all, or by a lottery, or perhaps to those “deserving” more (to be determined by appointed or elected boards of equalization); but that does not seem to be what is proposed. Yet.

It’s lunch time, and I need to get back to the taxes.

 

So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn’t go to the worker

——————

My answer? It went for taxes, compliance with regulation, paying bunny inspectors and keeping obsolete military bases open. It went to Red China to service debt.

Ad nauseum?

B

 

 

 

Jerry,

Most of the "missing" $14.75 of that productivity-adjusted $22 an hour has gone into lower prices, of course. All manner of things cost far less in constant dollars these days than in 1960, due precisely to those vast improvements in productivity. And this cornucopia of cheap goods benefit most – wait for it – the people making $7.25 an hour. Most of whom Warren’s prescription would both put out of work and price out of much of the modest lifestyle they currently can afford.

Porkypine

We can all come up with places where the money went. The planned economy can always absorb more; there is never a shortage of people in need. Longer discussion in an upcoming mailbag.

“The president looks more and more like a king that the Constitution was designed to replace.”

<http://www.mcclatchydc.com/2013/03/19/186309/obama-turning-to-executive-power.html>

Roland Dobbins

The advantage of monarchy is that often the King is able to study his job rather than spend his life learning how to get the job.  Of course heredity isn’t terribly reliable, so over time we learned to limit the power of kings. Empire doesn’t need kings, and in fact introducing nepotism into imperial selection of officers and advisors usually produces terrible results even form a good emperor; Marcus Aurelius demonstrated that quite well.

It does appear that Mr. Obama favors the liberal interpretation of events: that he should be judged by his intentions not for prudentially predictable results.