So when I say that no one is charge of deciding how many bakeries there are in a great city, I don’t mean to suggest that there is nothing government does that affects that decision for good or for ill. Or that there is some inevitability to the number of bakeries in a city regardless of what policy rules are in place. Or that the number of bakeries in Cleveland, say, is some pure free market outcome. Of course it isn’t. But what I do mean is that when you walk by an empty store front near your house or apartment and wonder whether it will end up as a bakery or a bike shop or an Italian restaurant or an office or a florist, there is no one coordinating the desires of bread lovers and bikers. Yet in most cities, it works out pretty well.
The owner of a parcel of land is surely in charge of getting that property ready for sale. And the purchaser or renter of that property is surely in charge of figuring out to do with it. If it’s a bakery, the baker is in charge of figuring out what kinds of bread to offer for sale and how that bread should be producer — what kinds of ovens, the number of employees and so on.
Frank Fear concludes that Mencken got it right . (HT Walter Grinder)
The economic phenomenon that people who call for higher minimum wages ignore is that when the price of anything rises, people seek substitutes. We see it with anything. When the price of oil rose, people sought ways to use less of it through purchasing more insulation for their homes and fuel-efficient cars. When the price of beef rose, people sought cheaper substitutes such as pork and chicken. The substitution effect of price changes is omnipresent, but do-gooders and politicians seem to suggest that labor markets are an exception. It’s bad enough when do-gooders and politicians have that vision, but it is utterly disgusting and inexcusable for a trained economist to buy into that zero-elasticity vision.
It’s not just Krugman. On the eve of the 2007 minimum wage increase, 650 of my fellow economists, including a couple of Nobel laureates, signed a petition that read, “We believe that a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed.” At the time, I wrote that I felt professional embarrassment for them; however, I felt proud that not a single member of our distinguished George Mason University economic faculty signed the petition.
Convincing people of how the world really works in hopes of promoting more humane policies requires examination and falsification of false visions and premises. That’s a tough job with little prospect for completion.