…a comment on Quora….

Lots of people react negatively to Economics. It has been called the Dismal Science because (a) calling it a science is stretching things, and (b) it keeps telling people true things which they don’t want to hear. However, merely disliking a statement is not sufficient evidence that it is false. Concocting far-fetched theories of second and third order effects that will rescue minimum wage laws from their perverse consequences is not science at all, it is motivated reasoning and confirmation bias.

Matthew Park Moore, Quora, answering the question: “My teacher claims that if restaurant owners raise food prices when the minimum wage increases, they’re doing it because they’re greedy, not because of the minimum wage increasing. Is he right or wrong?”

I too am amused when people concoct bizarre defenses of minimum wage legislation. It is obvious that they like the policy because it makes them feel good. They dislike economics because it undermines their cheap method of feeling good.

This was a subject I studied 40 years ago. I was initially a bit surprised to learn that there existed economists who denied that the legislation generally benefited the poor. So I studied it. What interests me about people who get defensive is that they do not appear to be earnestly trying to better the poor, but to defend their position. I earnestly studied wage theory; they reflexively try to “debunk” a critique.

And as for “far-fetched theories of second and third order effects” — well, that is what economics looks like to non-economists. They see only what the words direct them to see — “minimum wage law” — and they think that is what the regulation does, increase wages. I mean, come on! It’s in the name!!! Are you an idiot!!!!!

But what we have to remind them of is TWO things, not ONE.

First, minimum wage legislation does not raise anyone’s wage. It is a prohibition to hire anyone below a certain rate of remuneration. It is actually, in its very transactional nature, a prohibition of wages, not a raising of wages.

THEN we go second- and third-order effects to show what the results of the prohibition are. The actual results. This gets into incentives and competition for scarce resources and equilibrium and much more. This can be done well or badly. Done well, it shows that the general effect of minimum wage legislation is to disemploy some low-skilled workers now or in the future, depending on the rate.

Further, it is worth noting that a regulation of this order — an intervention by force into the market for higher-order economic goods — can have two effects: decrease production, or nothing.

That “nothing,” as Bastiat explained, is there because often regulations of market rates establish a rate that does not actually apply. And, indeed, in the case of minimum wage regulation, it affects a surprisingly small number of workers in America. Most people get paid higher. But there is a sad truth lurking here: it would affect more but the people it would affect are not even counted as in the labor market any longer.

A friend of mine had a very clever defense of legislated wage minima: a person no longer able to find a job at the value of his marginal product would be encouraged to increase his skills, perhaps by extending his education. The problem here is worth thinking about:

  1. The prime way of increasing one’s marginal product by skill acquisition is by working.
  2. For most people at the bottom of the “economic ladder,” the most important skills are punctiliousness, cleanliness, reliability, courtesy, and skills of such a basic nature that we usually call them virtues. The chief reason many people are unemployable is that they lack one or more of those skills. The absolute best way to increase these skills is by practice, not by schooling, and sending young people out into public schools and colleges to acquire them is absurd. These are the very things most schools are incapable of teaching these days.
  3. The second reason for low employability is that the putative workers have low IQs. Schooling in adulthood can do little to push that string. The best thing for these people is to be employed at very easy jobs with low productivity. So minimum wage floors are too high for them and they remain unemployed and unemployable.
  4. The most obvious thing that happens to the unemployable is they go on assistance, where they strain tax budgets and charitable toleration. This makes of them suckers upon society, not contributors — parasites not hosts — and paying someone to do nothing is a deal that many people are more than willing to milk for all its worth. (I think we should reserve tax or charity aid for those who simply cannot ever, in any circumstances, work and be productive.)
  5. The general effect of minimum wage legislation then is to take low-skilled people out of the market and run them through the welfare state, either in direct aid or government schooling. As such, this becomes one of its chief attractions for the regulation’s advocates: they like the State and taking from some and giving to others, and profoundly distrust “business” and “bosses” and see them as exploitative.

And here we get to the main thrust of progressivism: replacing market interaction with government subsidy, coercion and credentialism. The people who support progressive regulations the most are moderately bright people who pass tests well. They like schools. They do well. They thus become teachers and bureaucrats, and their world is insulated from market rigors. So of course they promote self-defeating legislation, because it settles them in their class interests.