It is a paradox of our age that the interventionists think the public is too stupid to consult Angie’s List before hiring a lawyer, and so they need politicians to weed out the really bad ones by requiring law licenses. Yet, who determines whether a person (often a lawyer!) is qualified to become a politician? Why, the same group of citizens who were too stupid to pick their own lawyers.
Legal Minimum Wage positively increases the productivity of the nation’s industry, by ensuring that the surplus of unemployed workmen shall be exclusively the least efficient workmen; or, to put it in another way, by ensuring that all the situations shall be filled by the most efficient operatives who are available.
The intellectual history shows that whole purpose of the minimum wage was to create unemployment among people who the elites did not believe were worthy of holding jobs.
And it gets worse. Webb wrote:
What would be the result of a Legal Minimum Wage on the employer’s persistent desire to use boy labor, girl labor, married women’s labor, the labor of old men, of the feeble-minded, of the decrepit and broken-down invalids and all the other alternatives to the engagement of competent male adult workers at a full Standard Rate? … To put it shortly, all such labor is parasitic on other classes of the community, and is at present employed in this way only because it is parasitic.
On the one hand, there are competent scholars who seem to deny the very existence of problems of institutional design. Their program seems to be a maximum exploitation of governmental power – without any inquiry into its moral sources – for whatever ends seem worthy at a given time. On the other hand, there are those who … resist the suggestion that the solution of the problems requires anything like an economic calculation or an application of the principle of marginal utility. From this entrenched position they are likely to regard those who disagree with them, not merely as being mistaken, but as being unprincipled and immoral.
… is from page 1 of the original printing of James M. Buchanan’s and Richard E. Wagner’s January 1967 monograph, Public Debt in a Democratic Society:
Ordinary common sense suggests, and experience has shown, that the experts can make errors. When these errors seem likely to impose costs on the citizens, the ordinary man is probably wise when he tries to figure out for himself what the talk is all about. Why is the government so different from anything else? If one need not worry about public debt, what does this imply about private debt? Most private debts are also owed to fellow citizens, in one form or another; we also “owe this to ourselves.” Either there must be some mysterious difference between public and private debt or at least some of the experts must be wrong. Too many persons know the consequences of following the private-debt siren to accept unwittingly the fiscal perpetual motion machine that sometimes seems to be offered by public debt.
The title of Paul Krugman’s most-recent column proclaims that nobody understands debt (Feb. 9). Yet the one who doesn’t understand debt is Mr. Krugman. Contrary to his argument, the potential problems caused by a government’s indebtedness do not vanish just because that debt is owed only to that government’s subjects.
Suppose Mr. Krugman borrows $1M from a Princeton colleague to buy a yacht. The Krugman household must repay, with interest, $1M to that colleague. This burden isn’t lightened one iota by the language trick of describing Mr. Krugman as a member of Princeton’s faculty and then declaring that, because his debt is owed to another Princetonian, the net debt burden on Princetonians is zero. Mr. Krugman’s debt burden remains very real. Yet in this case it’s likely a worthwhile burden to bear because Mr. Krugman committed himself to repay this debt with his own money. We must assume that the value to him of having the yacht today is greater than the cost to him of repaying the money he borrowed to buy it.
The problem with public debt is that governments that borrow impose on other people - future taxpayers (many of whom don’t vote in today’s elections!) - the obligation to repay. As a result, governments tend to borrow excessively and to spend the proceeds carelessly. The costs to society of the resulting misuse and misdirection of resources are not in the least reduced by the fact that the debt is held internally.
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
…..
Krugman apparently is unaware of the important work on public debt by the late Jim Buchanan and my colleague Dick Wagner (especially this 1958 book by Jim and this 1977 volume written jointly by Jim and Dick). I make this accusation not because Krugman disagrees with Jim’s and Dick’s analyses and conclusions but, rather, because Krugman consistently writes as if this Nobel-prize winning scholarship simply doesn’t exist.
Just as important as the science beloved by technocrats is the individual’s knowledge of constantly changing details of other people, places, and opportunities. More important than how to build a machine is where and when and for what group of people machine will really pay off, where the “right” answer keeps changing and is known only to those on the scene. The knowledge needed to generate prosperity is not contained in a single mind, it is dispersed among many minds. The free society creates the incentives for each individual to utilize his or own particular bits of knowledge.
This important Hayekian insight (summarized nicely here by Easterly) is one reason why it’s important to severely discount a great deal of policy advice frequently offered by academics and other intellectuals. Intellectuals repeatedly point to this or that alleged ‘flaw’ in real-world markets and then insist that government must forcibly intervene to correct it. Yet often, such ‘flaws,’ were they real or severe enough to warrant correction, could be privately and profitably solved by the very intellectuals who stand idly by merely pointing to such alleged flaws while insisting that they be addressed by government action using only other people’s money and restricting other people’s range of choices. In such circumstances – when the alleged flaws could be but aren’t seized as profit opportunities by the intellectuals themselves, using only their own money and efforts – it is foolish to trust the diagnoses of these intellectuals. They simply (ought to) have no credibility in such situations.
… that America caught its first real sight of the Beatles. (I remember it well. I was only five years old, yet it was such a huge event – the wild music, the ridiculously long hair, the screaming girls, the hoopla – that even a kid in kindergarten understood that they were big.)
Pollin and Wicks-Lim claim that an increased minimum wage will substantially reduce the costs of employee turnover, saving money that can now go to pay higher wages. The two fail to grapple with, much less refute, a devastating response to this idea from no less a liberal than the Nobel-winning economist and New York Times columnist Paul Krugman. In his review of Pollin’s 1998 book The Living Wage, Krugman wrote: “The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily?” (That question goes unaddressed in the current study.) Krugman continues, “But in any case there is a fundamental flaw in the argument: Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage ‘compared with other companies’—and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish.”
NGDP stabilization is the latest of a set of rules that a good number of theorists have claimed could serve as an effective instrument for a central bank to follow in its promotion of macro-level stabilization. This claim is a mirage that is created by inaptly theorizing the relationship between macro-level variables and micro-level interactions. Within that inapt theorization, macro observations are treated as being independent of micro-level interactions. In contrast, we treat the micro-macro relationship as ecological in character. We explain our claim by advancing a systems-theoretic or parts-to-whole framework for capturing interaction between micro-level action and macro-level observations. Within this alternative framework, there is interdependence between macro-level and micro-level theories. Once this interdependence is taken into account, it becomes possible to see how the pursuit of NGDP stabilization can impair micro-level coordination by chasing what is effectively a mirage.
This disposition to rate low the value of personal liberty, and to rate high the interest of a class, is to a certain extent illustrated by the Aliens Immigration Bill, 1904. This measure is on the face of it intended to restrain the settlement in England of foreign paupers, and other undesirable immigrants, whose presence may add to the mass of English poverty. It has been brought before Parliament by the Government, and is supposed, possibly with truth, to be supported by a large body of working-men. No one can deny that arguments worth attention may be produced in favour of the Aliens Bill; but it is impossible for any candid observer to conceal from himself that the Bill harmonises with the wish to restrain any form of competition which may come into conflict with the immediate interest of a body of English wage-earners. However this may be, the Bill assuredly betrays a marked reaction against England’s traditional policy of favouring or inviting the immigration of foreigners, and in some of its provisions shows an indifference to that respect for the personal freedom, even of an alien, which may be called the natural individualism of the common law.
James Surowiecki’s explanation of the alleged stagnation of ordinary Americans’ pay since 2000 is an example of poor economic analysis (“A Fair Day’s Wage,” Feb. 9). On one hand, Surowiecki insists that this stagnation results from a weakening of corporate “norms of fairness and internal equity” - a weakening presumably fueled by greater shareholder and CEO greed. On the other hand, Surowiecki assures readers that if companies were to raise their workers’ pay to levels that are more “fair,” these companies would enjoy greater productivity and, hence, faster growth and higher profits.
Strange, that. Surowiecki never asks why greedy shareholders and CEOs steadfastly forsake the profits that purportedly are the guaranteed fruits of paying higher wages. Such wages, after all, are - according to Surowiecki - the purchase price of better-motivated and, thus, more-productive labor inputs. So do these same companies also forsake profits by stubbornly failing to buy efficiency-enhancing non-labor inputs such as machines and computer software? Do the corporate norms that today supposedly cause firms stupidly to avoid spending money that is certain to make their workers more productive and profitable also cause firms stupidly to avoid spending money that is certain to make their factories, retail spaces, and other facilities more productive and profitable?
Unless Surowiecki offers a compelling theory for why more-productive labor alone is the one input that profit-obsessed firms consistently and against their best interests refuse to purchase, his explanation for the purported stagnation of wages isn’t credible.
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 believe that I’ve put my finger on what ails the American economy! The people who possess the information, insight, wisdom, and vision to identify profit opportunities are people who lack the interest and practical skills necessary to exploit these opportunities, while the people with the interest and skills necessary to exploit profit opportunities are people not only themselves singularly lacking the information, insight, wisdom, and vision to identify profit opportunities, but who are also too stupid to heed the investment and other business tips forever being dispensed to them by the likes of James Surowiecki and other intellectuals who do know where such opportunities are. It’s a damn shame that those who most clearly see profit opportunities either will not or cannot take advantage of them, while those who are eager and able to take advantage of such opportunities remain incurably blind to them. Perhaps business people should spend more time reading the likes of the New Yorker and the New York Times, as well as attending seminars at prestigious universities.
Why the transfer of decisions from those with personal experience and a stake in the outcome to those with neither can be expected to lead to better decisions is a question seldom asked, much less answered.
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