Monthly Archives: January 2007

Risking economic liberty…

This by far one of the best arguments against the minimum wage I’ve seen. Please note that when you see the word “liberal” in this article, it’s referring to classical liberalism:

Passage by the House of Representatives of the Fair Minimum Wage Act of 2007, as part of the Democrats’ first 100-hour agenda for “A New Direction for America,” was a step in the wrong direction. It leads our nation further astray from the limited government, market-liberal order envisioned by the Founding Fathers. It appears the Senate is about to make the same mistake.

Many in Congress seem to have forgotten that their powers are enumerated and thus limited by Article 1, Section 8 of what George Washington in his first inaugural address in 1789 called “the great constitutional charter” designed to preserve “the sacred fire of liberty” and the “republican model of government.”


In a free society, employers should have the right to hire and fire workers and to pay them wages that are mutually agreed upon, and workers should have the right to freely compete for jobs and, thus, to accept employment at mutually beneficial wage rates. A worker’s minimum acceptable hourly wage, of course, will depend on his or her next best alternative employment opportunity and, hence, on the value of his or her productivity in the marketplace.

Arbitrarily increasing the legal minimum wage simply increases the price of labor without changing a worker’s skill level or other conditions that lead to low wages. Congress cannot repeal the law of demand by a stroke of the legislative pen. When the real (inflation-adjusted) minimum wage rises above the prevailing market wage for unskilled workers, employers will cut back on hours, reduce benefits, and introduce labor-saving methods of production. This is common sense.


Big businesses such as Wal-Mart can weather a 20 percent increase in the federal minimum wage, but small businesses, especially in low-wage states, will suffer. In a recent study in the Cato Journal, Thomas Garrett and Howard Wall, economists at the Federal Reserve Bank of St. Louis, find that “in the relatively poor states the federal minimum wage results in fewer entrepreneurs and fewer of the benefits that entrepreneurship can bring.”

Government interventions such as the minimum wage destroy opportunities for the least skilled members of society. The government promises low-skilled workers higher wage rates, but their incomes will be zero if they lose their jobs. Contrary to popular opinion, a minimum wage law is not “progressive” legislation. Rather, it prevents progress by limiting the options of poor people.


If Congress passes and President Bush signs a new federal minimum wage law there will be a further drift away from the liberal principles that have made America the land of opportunity. Alternatively, doing nothing or abolishing the federal minimum wage would create new job opportunities for low-skilled workers, spur development in poorer states, and, ironically, help lift people out of poverty as they gain experience.

A new direction for America should not be a false progressivism but a swing back toward true liberalism, or what Thomas Jefferson called “a wise and frugal government, which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry and improvement.”

Today the Senate invoked cloture on the minimum wage legislation, only ten Senators voted against it. A tip of the hat to my Senators, Isakson and Chambliss for voting against it, even thought it includes the tax cuts that the Bush Administration wanted.

Last week, Senator Wayne Allard (R-CO) filed an amendment that would have allowed the States the ability to determine their own minimum wage, free from federal interference…you know, how the Constitution says these types of issues should be handled per the Tenth Amendment. But it was rejected. Admittedly, I was surprised with how many Senators voted for the amendment, Isakson and Chambliss voted in the affirmative.

An op-ed in the Gainesville Times drives it home:

Mandating an increase in the minimum wage means one of three options for employers: they accept a smaller profit margin, they cut expenses to maintain existing profit margins or they increase the cost of their product or services.

For many small businesses, reducing profit margins is not a realistic option. Small-business owners frequently walk a tightrope between being viable and being out of business, where one unexpected expense of any magnitude can mean closing the doors for good.

If businesses opt to maintain profits by reducing expenses, they most likely will do so by cutting employee costs, which may well mean the elimination of the very jobs most likely to be affected by a minimum wage increase. A dramatic rise in the mandatory minimum wage may mean the local ice cream shop employs two minimum wage employs at $7.25 an hour rather than three at $5.15 an hour, which is a boon for the two who remain employed, but means job loss for the third.

I’ve seen polls that support an increase in the minimum wage, I’ve seen people say that these people “deserve” a raise, that’s fine that you feel that way, but an economic cost will be paid and that is reality. And let’s not forget that 53% of the people that make minimum wage are 24 years old and younger [Source: BLS – Characteristics of Minimum Wage Workers: 2005].

Why risk economic liberty for 2.5% of the workforce, a quarter of these workers are under 19, another quarter are between the age of 20 and 24, all to increase their “purchasing power” by $80 a week. I don’t think it’s worth it.

Freelance Hookers Rebuffed In Oz

There are few times one can talk about the economics and politics of cartels and licensing requirements, and still make it this fun:

Brothel owners accuse backpackers of selling sex in Australia

Foreign backpackers funding their Australian travels through illegal sex work are robbing the legitimate industry of profits and threatening clients’ health, a brothel lobbyist has warned.

Many young tourists to sun-soaked northeastern Queensland state were making a quick buck as black market prostitutes, undermining registered operators’ attempts to uphold health and safety standards, the Queensland Adult Business Association’s Nick Inskip claimed.

“Especially when you go up to northern Queensland, it’s not unusual for them to be working in the illegal escort industry,” Inskip said.

Having fewer overheads, they could often undercut the legal sex industry on price, making it harder for the state’s 23 legal brothels to make a profit, he said.

It sounds absurd when you hear it this way. But here in this country, pundits regularly rail against the “illegal invaders from the south taking our jobs”, and it seems perfectly acceptable to require that workers such as beauticians should be required to seek a state license.

I support relatively free immigration, and fight against government trade licensing requirements. For that reason, in the interest of ideological consistency, I also support (although don’t patronize) the rights of freelance hookers.

The Quest for Security of Privilege

I’m rereading F.A Hayek’s “The Road To Serfdom“. In Chapter 9, where I currently find myself, Hayek is discussing security and freedom. This seems timely, considering the conversation occuring on Doug’s post The Right Direction on Health Insurance Reform.

In this chapter of Hayek’s classic work, he discusses the quest for security and how it impacts the freedom of the individual. Beyond that, he shows that as we increase security for one segment of the population, the insecurity of the other segments necessarily increases. This applies whether we are discussing securing certain levels of income, specific jobs, or social benefits like healthcare. The basis of this is very simple. As one group has their jobs, for example, secured by society, then other groups are left to compete in a smaller market for jobs. Further, those people are going to be more significantly impacted during economic cycles than they would be if a larger pool of jobs and employees were in the free market. The more security you provide, the larger the group that has that security, the more insecure will the unprivileged groups become.

You can read the chapter yourself (here’s an online version of the book) if you like. The bottom line is that the only way to avoid this problem AND provide security of position or income or privilege is to provide perfect security to everyone. To do this requires taking away all liberty. I leave it to the reader to follow the logic on this. So, your option, if you wish to provide security, is to remove liberty.

Hayek has this very insightful thing to say about the quest for economic security (as well, it applies to security of position and privilege) on page 143 (of the 50th anniversary edition):

Thus, the more we try to provide full security by interfering with the market system, the greater the insecurity becomes; and what is worse, the greater becomes the contrast between the security of those to whom it is granted as a privilege and the ever increasing insecurity of the underprivileged.

This is precisely what has happened with healthcare in this country. As I pointed out in my post Specific Healthcare Changes, our supposedly free market healthcare system is massively regulated and subsidized. The effect of the tax subsidies, regulations requiring specific health insurance minimum standards, healthcare welfare and so forth is to create security and privilege for a subset of the population. This has, necessarily, increased the insecurity of those that do not have that security through the action of the government. If you wish to provide the most security to the most people, you have to stop providing privileged security to a subset of the whole. Or become a serf.

When the government controls all of your decisions about, and ability to get, healthcare, you have lost your freedom. You may retain the illusion of freedom by being allowed to vote in elections, or choose which doctor you will see, but you have no true freedom. Are you truly willing to sell your freedom for the illusion of security? Because even that security is an illusion. It is only secure so long as someone other than you decides it should be.

Milton Friedman vs. The Philosopher Kings

Arnold Kling has a piece at TCS Daily about the two different approaches that exist to dealing with problems that arise in the world:

One solution, that might be traced to the expression “philosopher-king” associated with Plato, is to hand the reins of government to the best and the brightest. Since the late 19th-century, the Progressive Movement in American politics has championed this approach. The Progressive vision, which DeLong embraces, is to channel brains and technical know-how through government in order to improve people’s lives. One hundred years ago, they sought to prohibit alcohol. Today, they are going after trans fats. One hundred years ago, they favored eugenics, based on the then-new science of evolution. Today, they embrace anti-growth economic policies, based on the contemporary science of happiness. Indeed, we get headlines like ‘Tories promise to make happiness a priority‘.

The other way to avoid having our lives run by idiots is to limit the power that others have over us. This is the approach that was embedded in our Constitution, before it was eviscerated by the Progressives. It is the approach for which Milton Friedman was a passionate advocate.

Friedman’s insight is that a market limits the power that others have over us; conversely, limiting the power that others have over us allows us to have markets. Friedman argued that no matter how wise the officials of government may be, market competition does a better job of protecting us from idiots.

It scarcely matters which side of the politcal aisle you look at. Today, both Republicans and Democrats both clearly identify more with the idea of the philospher-king than they do with the idea that the market, made up as it is of the choices of millions of people acting in their own self-interest does a far better job of allocating resources and reaching the best result possible than any philosopher king could ever hope to do.

Related Posts:

Milton Friedman: An Appreciation
Milton Friedman: The Power Of Choice

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