The American Question

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In my latest column for AIER, I’m inspired to ask what Deirdre McCloskey calls “the American Question”: If you’re so smart, why ain’t you rich? A slice:

There’s no shortage these days of people who claim to find that employers of low-skilled workers are “monopsonists” – that is, are employers possessing monopoly power in employing low-skilled workers. The conclusion is then drawn that these monopsonist employers underpay their workers and, thus, government can help these workers by mandating that no wages be paid that are below the government-dictated minimum.

Forget here the silliness of the claim that the likes of McDonald’s, Subway, La Quinta Inn, and Aunt Esmerelda’s Pizza Emporium each has monopoly power over its workers and doesn’t have to compete with other employers for labor. Instead, recognize that any professor or pundit who truly believes such “monopsony” power exists could earn a fortune by opening up her own restaurant, motel, or lawn-care service. That entrepreneur would have an easy time bidding workers away – at wages attractive both to her and to workers – from their existing employers.

Yet rather than put her own money where her mouth is, the professor or pundit who glibly shouts “Monopsony, therefore minimum wages!” instead puts the economic livelihoods of many unskilled workers at risk by endorsing a policy that, if her glib shout is mistaken, prices many of these workers out of jobs.

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Not all assertions of the existence of market failure are ones that point to profit opportunities in the private market. (In fact, as I’ll discuss next week at this site, in labor markets government itself often enforces policies that keep the pay of some workers artificially low.) But a surprisingly large number of allegations of market failure do imply the existence of profit opportunities. And so these assertions – assertions such as that women as a group are underpaid – should be dismissed out of hand if (as is almost always the case) those who do the asserting refuse to risk their own time and resources on undertaking private-sector activities that would make these individuals rich as they simultaneously correct the alleged failures. If these individuals aren’t getting rich by acting with their own money on what they assert to be true, then they ain’t so smart after all.

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