Here’s a letter to a correspondent who is “sick” of me asking people to put, whenever possible, their money where their mouths are:
Mr. Aaron the Aaron
Dear Mr. the Aaron:
You’re “sick” of me calling on those who assert that monopsony power is real and rampant in reality to put their money where their mouths are by starting their own businesses in order to profit by hiring underpaid workers away from employers who allegedly are today underpaying their workers. You accuse me of “unrealistically demanding academics do what they don’t specialize in.”
It’s true that academics – such as Alan Manning, who you explicitly mention for his “wisdom” on this matter – don’t specialize in creating and managing businesses. But academics who propose to unleash state coercion that will have harmful consequences if their beliefs about reality are mistaken should not be allowed to risk the livelihoods of innocent strangers if these academics refuse to risk their own livelihoods by taking actions that their very own beliefs imply can be profitable. No one should get to experiment for free with the lives of others, especially if the experimenter’s own beliefs imply that private actions can be taken to test those beliefs and that such actions can be profitable if those beliefs are correct.
If monopsony power is real, and if, as a result, minimum-wage legislation would raise the incomes of low-wage workers without destroying any jobs – two huge ifs – then profits are available to owners of firms who move into monopsonized areas and hire low-skilled workers. That is, if monopsony power is real and relevant, then profits will be earned by anyone who acts with reasonable competence on his knowledge of the existence of such monopsony power.
I agree that academics (such as Prof. Manning and myself) are generally too inept to perform genuinely productive activities such as starting and operating businesses. But such ineptness on the part of any academic does not excuse his or her failure to voluntarily act on beliefs that he or she insists that others be forced to act on. Arrogance does not compensate for ineptness. Instead, such revealed arrogance combined with such confessed ineptness should serve as a warning to be especially skeptical of that academic’s policy recommendations.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030