The Wages of Protectionism

by Don Boudreaux on May 7, 2018

in Crony Capitalism, History, Seen and Unseen, Trade, Work

Here’s a letter to the Wall Street Journal:

The Trump administration wants to protect U.S. automakers and workers from the competition of Mexican producers who have access to lower-wage workers (“U.S. Pushes Nafta Partners to Accept a Wage Floor in Auto Sector,” May 7). In essential and ugly ways, this episode is a replay of the raw interest-group politics that gave birth to the federal minimum wage.

In the 1920s and 1930s, textile mills located in the American south ate increasingly into the market shares of textile mills located in the northeast, especially Massachusetts. This development displeased owners of these mills and their relatively highly paid workers – owners and workers who had a great deal of influence in Washington. In part because the U.S. Constitution ensures that the United States remains a free-trade zone, Congress was unable directly to obstruct Americans’ purchases of southern textiles by punitively taxing those purchases.

So Congress and FDR in 1938 ‘solved’ this ‘problem’ instead with the Fair Labor Standards Act, which imposed a nationwide minimum wage. The intent of this legislation was not to help low-paid workers but, instead, to protect the markets of wealthy northeastern factory owners and their employees by artificially burdening their southern rivals with excessive costs. As bluntly stated by Massachusetts’ governor Charles Hurley, a national minimum wage would ensure that high-wage Massachusetts would “have equal competition with other sections of the country, thus affording labor and industry of Massachusetts some degree of assurance that our present industries will not move out of the state.”

Protectionism comes in many guises, all masking hideous and destructive cronyism.

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

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