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Maximum Illogic

Posted By Don Boudreaux On April 16, 2013 @ 5:01 pm In Prices,Reality Is Not Optional,Regulation,Seen and Unseen,Work | Comments Disabled

Here’s a letter to the Wall Street Journal:

Ralph Nader suggests that the only argument that minimum-wage opponents muster against that policy is that it harms small businesses (“America’s Miserly Minimum Wage Needs an Upgrade [1],” April 16).  He’s wrong.  Overwhelmingly, the chief argument against the minimum wage is that it reduces low-skilled workers’ employment opportunities.  Mr. Nader’s ignorance of the contours of this policy debate alone disqualifies him to comment on the matter.

But to support his case for raising the minimum wage by 47 percent Mr. Nader also serves up several doozies of economic illiteracy.  None is doozier than his assertion that when government forces employers to pay higher wages, worker spending will rise by enough to make profitable the employment at the higher minimum wage of all low-skilled workers seeking jobs.

From where comes the money to pay the higher wages that low-skilled workers will then spend?  Mr. Nader apparently assumes that it materializes out of thin air, for he doesn’t even mention the possibility that firms that are obliged to spend more on wages will spend less on inventory, factory expansion, and other activities.

If creating economic growth were as easy as Ralph Nader assumes it to be, then he should also support a “minimum clothing price.”  Suppose government forced Wal-Mart, Target, and other retailers to raise the prices of all clothing items by 47 percent.  On Mr. Nader’s reasoning, these firms would then have more money to spend.  That spending would raise the demand for clothing sufficiently to make it profitable for firms to sell as much clothing as they like at those higher prices.

That Mr. Nader would likely – and rightly – oppose a “minimum clothing price” shows that he’s not thought seriously about his argument in support of a minimum wage.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Looking to Ralph Nader for insights on economics is like looking to Kim Kardashian for insights on string theory.

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