The Minimum Wage: economist Milton Friedman vs. Elizabeth Warren

Didn’t have a chance to see this until last night, but it’s so groan-worthy that economics 101I’m compelled to address it.

Newly elected Senator Elizabeth “Me-A-Heap-Big-Injun” Warren decided to pontificate on the Minimum Wage.

From National Review:

In a hearing of the Senate Committee on Health, Education, Labor and Pensions last week on “indexing the minimum wage,” Massachusetts senator Elizabeth Warren inquired of University of Massachusetts professor economics Arindrajit Dube: 

“If we started in 1960, and we said that, as productivity goes up — that is, as workers are producing more — then the minimum wage is going to go up the same. And, if that were the case, the minimum wage today would be about $22 an hour.

So, my question, Mr. Dube, is what happened to the other $14.75?” 

From the woman who coined the phrase “You didn’t build that“, illogic such as this is expected. I’m feeling charitable today, so I’ll at least grant her points for being consistently obtuse here.

Wages and wealth do rise as productivity increases in a growing economy, as does the average standard of living. That why the “poor” in our country are far, far better off than the “poor” in other countries. But trying to correlate the minimum wage to such increases is wrong-headed from the start. It’s not merely comparing apples and oranges: it’s more akin to comparing insecticide to mosquitoes.

The word ‘minimum’ indicates an artificial, arbitrary rate for the least skilled of activities. Whenever we raise that number, rather than allowing wages to be determined by market forces, we are skewing the market to its detriment. We’re in effect pricing out/eliminating jobs which aren’t worth their new cost to employers.

Shocked dollar

Think of it this way: let’s say you’re busy but you still want a nicely manicured lawn. You own a mower, but it would be much more convenient if someone could do this for you. So, you decide to hire a neighborhood kid to mow/edge/rake your lawn for, say, $20 per week. It’s a win-win: the kid gets $20 for a couple hours of labor, and you get a nice looking lawn.

Cool, right?

Now, let’s say that the Government comes in and says lawn mowing is now mandated to be worth $25/hour. Whoa: you suddenly have to pay the neighbor kid $50/week for the same job. What do you do? You mow it yourself, and the kid loses his gig. He also loses most if not all of the OTHER lawns he was mowing at the previously agreed upon price point.

This is because the low-skilled activity is no longer worth to the market what the market is now forced to pay.

Or, as the famous economist Milton Friedman said:

“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” 

There’s another side to this. When the professional landscapers find out that simple lawn mowing is now worth $25/hour, they bump their rates up to $70/hour, since what they do is worth a heck of a lot more than just mowing.

In the real world, the professional landscapers are comparable to Unions, who peg their pay scales to a percentage above minimum wage (in addition to other factors) during negotiations. When the minimum wage is increased, so does  their relative pay scale, which results in higher costs for all associated goods, which ultimately means the worker’s dollar is suddenly worth less.

Friedman spoke and wrote about this many times during his lifetime:

Why many Liberals don’t understand this is beyond me: economics doesn’t occur in a vacuum. Just because something sounds “fair” doesn’t mean it makes sense, and this is the perfect example.

Friedman also mentioned in that clip that, at the time, the teen unemployment rate was twice as high as the average unemployment rate. Now, over 30 years and many minimum wage increases later, what’s teen unemployment? Over THREE times as high, sitting currently at 25.1 percent as compared to 7.7 percent overall. This is simple stuff, but the Progressives refuse to acknowledge it. It’s almost as if they are Math-o-phobic.

Minimum wage

Without a Minimum Wage law, we’d increase employment almost overnight. Some wages would go down, sure, but only as commensurate with what their actual worth is to employers. And as someone’s skill level increased, so would their pay. Most of us have had minimum wage jobs, so ask yourself: how long did you stay at minimum wage? Only as long as it took you to acquire more skills, increase your worth as an employee and get a raise.

Economics-for-DummiesLiberals love top-down control, and Minimum Wage is one of their favorites. Just like many other laws cloaked in “fairness” rhetoric, it appeals to emotion rather than logic. It’s popular only because of the general economic illiteracy in our country, stemming from the schools not teaching it, or (worse) teaching it improperly like Professor Pocahontas. 

We can fix this only by educating ourselves and our children, since it’s practically impossible to teach a Government. Actually, Friedman himself put it best:

“Governments never learn. Only people learn.”

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11 responses to “The Minimum Wage: economist Milton Friedman vs. Elizabeth Warren

  1. LivinRightinPGH

    Amazing how even the most inane arguments make sense to the uneducated, which seems to be an ever-growing percentage of the population. Just weave “victim”, “fair”, and “greedy capitalist pig” into the argument, and you’re a winner for sure.

    Having owned several small businesses, I can tell you that a minimum wage increase would have serious impact. There’s a certain price at which you can market your goods and services, which dictates profit margin. You have an allowable percentage of your gross profits to put towards salaries, etc. Increase minimum wages, ala Senator Warren’s wishes, and I GUARANTEE:

    1. You WON’T hire additional staff.
    2. You’ll likely REDUCE existing staff and either:
    A. Do it yourself, or
    B. Pay someone less-than-minimum wage (off the books) to do the job.

    But, THAT is just because I’m GREEDY, and actually wanted a return on the hundreds of thousands I invested in my business. If I had actually known that I WAS NOT supposed to make a profit for myself, I might have reconsidered even STARTING a small business.

    • Profit? PROFIT??
      Don’t you know that you have a moral obligation to start a business and employ people, even if you have to operate it at a loss, in order to be “fair”?

      Economic policy should make you “feel good”. Its actual result is secondary. And I know that’s true, ’cause Nancy Pelosi told me so.

      😉

      • Sadly, my brother, you have accurately portrayed the attitude toward business with which the Left has brainwashed the masses. It’s every foul term I can think of that would describe how that makes me feel. Without the knowledge of how the economics of business works, WHY would anyone want to go out and start their own small business? WHO wants to be labeled as “one of THOSE” greedy SOB’s?

        Reality vs Fantasy…..and the Left lives in a fantasy world.

  2. Check out the article I linked in “Dewey Refutes Dewey” to see how we can turn it around.

  3. No problem…should have done it myself.

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