Don’t Like Reality? Close Your Eyes and Make It Go Away!

by Don Boudreaux on December 23, 2013

in Budget Issues, Other People's Money, Reality Is Not Optional, Seen and Unseen, Work

Here’s a letter to the New York Times:

Arguing that private businesses pay the full costs of higher minimum wages, Annie Lowrey concludes that “Unlike any other form of wealth redistribution, raising the minimum wage is basically cost-free to Washington” (“Supersize My Wage,” Dec. 18).  Ms. Lowrey’s mistakenly formal notion of “cost” blinds her to reality.

The only difference between redistribution through minimum-wage legislation (and other regulatory diktats) and redistribution through tax-and-spend policies is that the dollar costs of the former, unlike the latter, are not recorded in government’s budget.  This accounting artifact, however, does not make minimum-wage legislation “basically cost-free.”  It makes it only off-budget.

By Ms. Lowrey’s reasoning, all redistribution could be made “basically cost-free” simply by moving it off budget.  For example, order federal agents to rob rich people at gun-point and then transfer the cash directly to poor people.  Because the dollar value of these transfers would appear neither as tax revenues nor as expenses on Uncle Sam’s budget, direct cash grants arranged by government would thus be rendered “cost-free” in exactly the same way that forced transfers of money from business owners to minimum-wage workers are now, by Ms. Lowrey’s reckoning, “cost-free.”  Yet clearly, the true costs of government programs are not eliminated by mere changes in accounting conventions.

One expects better reporting from the New York Times.

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

(I thank Caroline Baum for the pointer to Lowrey’s essay.)

Looked at from another angle, even all on-budget wealth redistribution is “basically cost-free to Washington”: Americans who are net receivers get only what is paid by Americans who are net payers.  To Washington, such redistribution is as “basically cost-free” as is redistribution through minimum-wage diktats and other regulatory commands.

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