Open Letter to U.S. Labor Secretary Thomas Perez

by Don Boudreaux on November 10, 2013

in Hubris and humility, Man of System, Prices, Reality Is Not Optional, Work

Mr. Thomas Perez, Secretary of Labor
United States Government
Washington, DC

Dear Mr. Perez:

The Huffington Post reports that, in expressing support for a 39 percent hike in the minimum wage, you proclaimed “Here’s the bottom line: No one who works a full time job should have to live in poverty” (“Obama’s $10.10 Minimum Wage Would Fundamentally Change America,” Nov. 8).

You speak as if prices (here, the price of labor) can be dictated by government without unintended ill-consequences.

Assuming that your theory of wage and price determination is correct, why not, instead of commanding all employers to raise by 39 percent the wages paid to their low-skilled employees, command all firms to reduce by 39 percent the prices charged for the products they sell to consumers?  By increasing by 39 percent the purchasing power of the current minimum wage of $7.25, this across-the board price-reduction policy would – like a higher minimum wage – achieve your goal of raising all low-skilled full-time workers out of poverty.  At the same time, though, it would raise the living standards also of middle-class Americans (who, we’re told, have stagnated economically for the past three decades).

Think of the enormous benefits that government would create for all Americans by ordering supermarkets to cut their prices by 39 percent - so that, for example, the per-pound price of apples would fall from $2.50 to $1.53, the price of a gallon of milk from $3.00 to $1.83, and the price of a dozen eggs from $1.79 to $1.09.  Americans will also cheer government-mandated 39 percent cuts in the prices of everything else – from clothing, housing, gasoline, medicines, and automobiles to music downloads, tall lattes, holiday decorations, mani-pedis, and tattooing services.

If government can indeed make people wealthier merely by commanding prices to change, your proposal to raise the minimum wage is unethically too modest.  Government’s god-like power over prices should be exerted much more ambitiously.

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

Cafe patrons will note that conditions of Perfect Competition prevail in no real-world output markets.  Theory tells us, therefore, that the monopolistically competitive conditions that do prevail in most of these markets mean that output prices can be forced down by dictate with the result being, not reductions in the amounts bought and sold, but increases in the amounts bought and sold.

(I thank Michael Creswell for the pointer to the HuffPo piece.)

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