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I’m sure that the following, brief point must have been made before; perhaps I myself have made it (although, if the latter, I’ve forgotten).  Nevertheless, it’s worthwhile to make once more this particular point about the relation between minimum-wage legislation and monopsony power.  I make the point below the fold.

[continue reading…]

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… is from Treasury secretary Albert Gallatin‘s December 18th, 1807, letter to President Thomas Jefferson warning Jefferson of the likely ill consequences that would be unleashed by Jefferson’s embargo on Americans’ foreign trade; this quotation is found on page 102 of Douglas Irwin’s remarkable new (2017) history of the United States’s trade policy, Clashing Over Commerce:

Government prohibitions do always more mischief than had been calculated and it is not without much hesitation that a statesman should hazard to regulate the concerns of individuals as if he could do it better than themselves.

DBx: In his book, Irwin makes clear that both Jefferson and Madison talked much better about trade than they, as government officials, behaved regarding trade.  Jefferson, regrettably, did not heed Gallatin’s wise advice to go lightly with the embargo.  (By the way, Irwin also makes clear that the standard portrait of Alexander Hamilton as a strong advocate of protectionism is somewhat cartoonish.)

In my most recent column in the Pittsburgh Tribune-Review – a column inspired by Doug’s book – I recount that even as great a man as Thomas Jefferson acted and sounded like a banana-republic strongman when he pressed ever-harder to make his embargo ‘work.’

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Here’s a letter to the Wall Street Journal:

San Francisco City Supervisor Jane Kim swings and misses at Michael Saltsman’s argument against the minimum wage (Letters, Dec. 6).  First, she notes that San Francisco’s overall unemployment rate is lower than the national average.  Irrelevant.  The argument against the minimum wage is not that it destroys jobs generally but, instead, that it destroys jobs for workers with no or only limited skills.  Fortunately, such workers are a small portion of both the nation’s and of San Francisco’s workforce.  Yet this fact means that their joblessness often makes no discernible impact on the overall unemployment rate.  A much more relevant statistic – one that Ms. Kim does not mention – is the unemployment rate of teenagers and other low-skilled workers in San Francisco.

Next, Ms. Kim boasts that S.F.’s leisure and hospitality industry recently added nearly 17,000 jobs.  Also irrelevant.  The core argument against the minimum wage is not that it destroys jobs in particular sectors but, rather, that it destroys jobs for particular workers.  Increased consumer demand can cause an economic sector – even one that employs many low-skilled workers – to boom even as the minimum wage prevents that sector and others from employing all the low-skilled workers who would be employed without the minimum wage.

Ms. Kim then observes that “even at $15 an hour, many jobs go unfilled.”  Again irrelevant.  The minimum wage makes certain workers unemployable, not certain jobs unfillable.  Ms. Kim follows her observation by pivoting to describe Mr. Saltsman’s organization, the Employment Policies Institute, as “funded by conservative special interests and devoted to opposing the minimum wage.”  An ad hominem argument, such as this one, is a fallacious argument.

Finally, when Ms. Kim writes that “The minimum wage isn’t a pathway to the middle class; it is a safety net to prevent destitution,” she reveals that she doesn’t understand the key problem with the minimum wage – namely, that it causes some workers’ earnings to fall to $0.  However economically precarious one’s life might be when paid a positive market wage of less than $15 or less than $7.25 per hour, that life is far more precarious when paid $0 per hour.

Minimum-wage legislation isn’t a safety net; it’s a knife that shreds the safety net of employment opportunities in the market.

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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… is from page 253 of the 1991 Robert Schalkenbach Foundation edition of Henry George‘s 1886 volume, Protection or Free Trade:

Take, for instance, the question of the effects of machinery.  The opinion that finds most influential expression is that labor-saving invention, although it may sometimes cause temporary inconvenience or even hardship to a few, is ultimately beneficial to all.  On the other hand, there is among working-men a wide-spread belief that labor-saving machinery is injurious to them, although, since the belief does not enlist those powerful special interests that are concerned in the advocacy of protection, it has not been wrought into an elaborate system and does not get anything like the same representation in the organs of public opinion.

DBx: Corporate executives and lobbyists very often assert that concern for the well-being of their workers is among the reasons they seek tariffs punitive taxes on fellow citizens who choose to purchase products from foreign competitors.  How many of these executives and lobbyists are as eager to demand that government prevent them from saving labor by preventing them from using labor-saving technology as they are to demand that government prevent consumers from saving labor by preventing consumers from buying imports?  Answer: not many.

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The following record of my stream-of-consciousness thoughts was inspired by the wedding-cake case being heard today by the United States Supreme Court and by a stimulating conversation that I had with some of my GMU Econ colleagues, especially Virgil Storr.

…….

Jim Buchanan starts one of his papers (I don’t now recall which) by noting that an important distinction between markets and government is that exit is much easier in markets than it is in governments.  The right to say “no” – “the right not to contract” (to steal a term that I once heard Randy Barnett use) – is indeed an essential part of markets.

Normally, this right to say, and the ease of saying, “no” – the right to exit and the ease of exiting –  are normally thought of as protecting consumers.  Because McDonald’s cannot force you to buy its hamburgers, it has an incentive to offer to you a good burger at a low price.  But even if McDonald’s refuses to improve its burgers, it can’t harm you.  Because you can easily choose to dine at any number of other restaurants, or at home, if you don’t like McDonald’s offerings, McDonald’s has no power over you no matter how many billions of dollars Ronald McDonald has stuffed into his McBank account.

But if buyers have – and should have – the right to say “no,” shouldn’t sellers have the same right?  Shouldn’t there be symmetry?  After all, those whom we conventionally classify as “sellers” are also – and in the same transactions – buyers.  Sellers buy the money – sellers buy the purchasing power – of those whom we conventionally classify as “buyers.”  Similarly, buyers also are sellers of the money – buyers also are sellers of the purchasing power – that is sought and bought by those whom we conventionally classify as “sellers.”

And so if the right and ability to say “no” is important for the functioning of markets, why is this right and ability not more widely understood as belonging to merchants, manufacturers, and other sellers no less than it belongs to people in their role as consumers?

If, say, Baker offers cakes that are judged by consumer Jones as being of poor quality, Jones is not damaged because Jones is not forced to buy Baker’s cakes.  But suppose that, while Jones has the right to refuse to trade with Baker, Baker has no right to refuse to trade with Jones.  Doesn’t Jones then have the power to inflict harm on Baker – harm that is analogous to the harm that Baker would inflict on Jones if Jones had no right to refuse to trade with Baker?

Asked differently: if we understand that Baker would be irresponsible and a source of harm to consumers if consumers could not refuse to trade with Baker, shouldn’t we understand also that consumers would become irresponsible and a source of harm to Baker if Baker could not refuse to trade with consumers?  If the right and ability to say “no” is important to discipline market participants to serve each other’s best interest, shouldn’t this right and ability be possessed by Baker no less than it is possessed by Jones and other consumers?

Despite my firm conviction that the ultimate goal of economic activity is to promote consumption rather than to promote production, all of my priors prompt me to believe that the right to say “no” – the right not to contract – should be possessed equally by all market participants, on the selling as well as the buying side.

I understand that money is a far more homogenous good than is even the most commodified good or service sold by manufacturers or merchants.  I understand also that the number of people who possess and are willing to spend money is much larger than is the number of people who possess and are willing to sell any of the other particular goods or services exchanged on markets.  Is this reality sufficient to explain why many people believe that while no consumer should be forced to trade with, say, a baker, no baker should have the right to refuse to trade with a consumer?

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… is from page 164 of Richard McKenzie’s excellent 1985 book, Competing Visions:

To suggest, in the words of political scientist Chalmers Johnson that “the United States is in danger of ending the 20th century as the leading producer of ICBMs and soybeans, while the Japanese monopolize everything else” is tantamount to saying that the Japanese are so stupid that they will, through their exports, sell off practically everything they have without getting anything concrete in return just to achieve “monopolies,” a contradiction of immense proportions.  How could a country smart enough to monopolize world markets be stupid enough never to demand payment in something real and tangible – not just in dollars, which are just so much paper (or blips on a bank’s computer tape) if they are never spent?

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Bryan Riley and Patrick Tyrrell report that freedom to trade is associated with greater prosperity, a cleaner environment, and more freedom generally.

Here’s the abstract of Tobias Renkin’s, Claire Montialoux’s, and Michael Siegenthaler’s recent empirical study of the effects of minimum-wage legislation on the prices of groceries in the United States:

We study the impact of increases in local minimum wages on the dynamics of prices in local grocery stores in the US during the 2001-2012 period. We find a significant impact of increasing minimum wages on prices in grocery stores. Our baseline estimate of the minimum wage elasticity of grocery prices is 0.02. This magnitude is consistent with a full pass-through of cost increases into prices. We show that price adjustments occur mostly in the months following the passage of minimum wage legislation rather than at the actual implementation of higher minimum wages. This forward-looking pattern of price adjustments is qualitatively consistent with pricing models that feature nominal rigidities. We find no differential price effect for products consumed by poorer and richer households, and no evidence for demand effects. Our results suggest that consumers rather than firms bear the cost of minimum wage increases. Moreover, poor households are most negatively affected by the price response. Price increases in grocery stores alone offset at least 10% of the nominal income gains of the poorest households.

(And don’t forget that higher prices of groceries mean a lower quantity of groceries demanded by consumers – which, in turn, means fewer jobs in grocery stores – which, in turn, means that some workers will lose their jobs – which, in turn, means that some workers will have, not income gains, but income losses.)  (HT Tyler Cowen)  As a commenter at Marginal Revolution correctly said about these findings: tanstaafl.

Also on the tanstaafl front: In a letter (scroll down here) in the New York Times, Frayda Levy explains some of the onerous consequences of New York City’s diktats.

Dilly Dilly.

Phil Magness writes insightfully about school vouchers.

Russ Roberts ponders the differences between private and government enforcement of ethical standards.

Also from Russ is this new EconTalk with Rachel Laudan on food waste.

My intrepid Mercatus Center colleague Veronique de Rugy is no fan of the GOP caving to pressure to settle for a corporate tax rate higher than 20 percent.

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Here’s a letter to the Wall Street Journal:

Commerce Secretary Wilbur Ross boasts that the Trump administration will escalate what you describe as its “fight against ‘dumped’ goods” (“The Coming Aluminum War,” Dec. 4).  Well.  Forget that the bureaucratic process for determining if imports are “dumped” in America is notoriously biased in favor of a finding of “dumping.”  Instead note two features of this Trumpian battle.

First, because imported goods are inanimate and come to America only because Americans choose to buy them, the administration’s fight is not against these goods but, rather, against the flesh-and-blood Americans who voluntarily purchase these goods.  As is true of all trade restrictions, this one at root is a restriction on the freedom of domestic citizens to maximize the values of their incomes.

Second, this Trumpian fight against “dumping” reveals the ignorance and inconsistency of Ross and others in Trump’s troupe of economic nationalists.  If the Chinese really are selling aluminum to us Americans at excessively low prices, then the Chinese are voluntarily redistributing wealth from themselves to us.  They’re giving us gifts!  Therefore, a lieutenant of someone who famously wants to “make America great again” and who worries that American wealth is draining into China and other foreign countries should applaud Chinese “dumping”; that person should agitate not to end dumping but to increase it.  And yet Ross does just the opposite – a fact that implies that he is either hopelessly ignorant or dangerously disingenuous.

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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… is from page 91 of Frank Knight‘s 1956 collection, On the History and Method of Economics; specifically, it is from Knight’s 1928 essay “Historical and Theoretical Issues in the Problem of Modern Capitalism” (citation excluded; emphasis added):

It is not at all to the point to say, as [Werner] Sombart and the Germans regularly do, that no one could be so stupid as not to know the difference between money and wealth, that the ancient fable of Midas is enough to dispel this illusion from any mind.  Certainly the mercantilists did not identify the two explicitly (though they came close enough to that at many points), but it is just as unquestionable that only on the basis of such a premise can any sort of sense be made out of the great bulk of mercantilistic utterances or policies.  And why should it be otherwise?  Conditions are no different today in most of the civilized capitalistic world.  The man from Mars reading the typical pronouncement of our best financial writers or statesmen could hardly avoid the conclusion that a nation’s prosperity depends upon getting rid of the greatest possible amount of goods and avoiding the receipt of anything tangible in payment for them.