Available Now! (click cover)

America's Counter-Revolution
The Constitution Revisited

From the back cover:

This book challenges the assumption that the Constitution was a landmark in the struggle for liberty. Instead, Sheldon Richman argues, it was the product of a counter-revolution, a setback for the radicalism represented by America’s break with the British empire. Drawing on careful, credible historical scholarship and contemporary political analysis, Richman suggests that this counter-revolution was the work of conservatives who sought a nation of “power, consequence, and grandeur.” America’s Counter-Revolution makes a persuasive case that the Constitution was a victory not for liberty but for the agendas and interests of a militaristic, aristocratic, privilege-seeking ruling class.

Friday, July 21, 2006

A Failure to Communicate:
The Case of the Minimum Wage

Many of us have been trying to teach the public that the laws of economics operate no matter what anyone thinks of them. They grow out of the nature of human action. But the message hasn’t gotten through. Around the country people are enthusiastically voting in referendums to raise their state's minimum wage above the federal $5.15 level. Petition campaigns to put the question on state ballots never fail, says the Ballot Initiative Strategy Center. As NPR's Mara Liasson reported on "Morning Edition" recently, "It's not hard to get people to sign."

What's going on?

. . . Our work is cut out for us advocates of the free market. Since the educational strategy we have pursued until now has failed with large numbers of lay people, I suggest a modified strategy: It is essential that principled opponents of the minimum wage not appear insensitive to the plight of low-income workers. Some people of course are responsible for their economic plight, but many others are put at a disadvantage by the mercantilist, mixed economy we live in. (Let's not forget, it's not laissez faire out there.)
Read of rest of my latest TGIF column at the Foundation for Economic Education website.

Cross-posted at Liberty & Power.


Larry Ruane said...

I've noticed that many advocates of the minimum wage have a particular mental model about the economy, and we should tailor our arguments to this model. The model is this: The overall U.S. economy is essentially being run by the federal government, but in a loose way. Individual companies are like arms-length subsidiaries of USA, Inc. They have quite a bit of autonomy, but the parent company (the government) can dictate certain things, such as the pay scales for certain types of work.

This is why you hear a lot of advocates complain that Congress has just given itself a raise, yet they won't raise the minimum wage. That makes sense in this model, and also to gripe about the pay scales of CEOs, because everyone in the country, in a way, works for the same giant enterprise.

I think we need arguments that acknowledge that parent companies do have power over their subsidiaries, and there's nothing wrong with that, but that the analogy is flawed. One obvious problem with it is that, unlike a parent company, the government can't force its "subsidiaries" to employ a certain number of people, since it's an arms-length arrangement. This won't satisfy a socialist, who will say the solution is for the government to simply control the economy more tightly. But, as you said in your article, most advocates consider themselves pro-free market.

It might also help to ask, Why would a parent company raise the pay scale for a particular type of job? It would have to be in order to increase the number of workers. (I think this is why we occasionally hear claims that increasing the minimum wage actually increases employment.) Here we can point out that the parent company is luring workers away from other companies, with the expectation of increasing the overall output of the company. But when the government raises the minimum wage, there is nowhere to lure from (at least in the case of the federal government, except immigration), and there is no expectation of increased productivity.

As you can see, I don't have many good answers here, but I think it's important to address this model. Thanks for your excellent article.

Sheldon Richman said...

Larry, the model you have described is a helpful way of thinking about these things. We really need to take a fresh look because we are definitely not getting through.