Worlds & Time

Sunday, October 23, 2016

The Libertarian's Minimum Wage

I was letting YouTube run for background noise and this started playing:

It's Sam Seder debating a Libertarian Professor Walter Block.  Even if this link is down, you can probably find it with a search of YouTube.

I got about half way through before I got so angry that I had to stop it.  For a professor (of Economics?  I have trouble believing that) he seems to have a really limited understanding of basic economics.

The Professor's argument is that a minimum wage of $7 per hour interferes with a free market of a boss hiring a worker paid at $6 per hour to work productively because the boss would be losing $1 per hour on the transaction.  When Sam countered that real world data doesn't demonstrate that, Professor Block makes an argument that there is a disconnect between the regulation and the eventual effect, his example is the automatic elevator taking over for the human elevator operator taking many years after the raise of the minimum wage from $0.40 to $0.70.

There's a massive glaring flaw in that argument that should have been obvious to absolutely any thinking person.  A boss wouldn't ever hire a worker at $6 per hour to generate $6 dollars of productivity.  It would be, for the boss, actually a loss, because there are external costs to the hiring of a person: insurance, infrastructure, utilities, rent, blah, blah, blah.  If those costs come up to $1 per hour, then the boss would need to hire that worker and pay them $6 per hour for $7 per hour of productivity to break even.

Again, that generally wouldn't happen because any real boss is trying to make money for the company and himself.  So a boss would go out and hire a worker for $6 dollars an hour, pay $1 for their external costs, and then try to get the greatest amount of productivity out of that worker because that gap between costs and productivity is where the profit comes from.

The Professor is also ignoring the more salient fact about wages and productivity that came up when I went to hear Eric Schmidt talk.  Wages and productivity are not necessarily related.  Since 1973, productivity has increased 73% while inflation-adjusted hourly wages have basically stagnated.  Schmidt also ignored that disconnect, although he later revised his statement to be specific to technical workers.

The current model of the economy isn't to pay someone $6 per hour, $1 per hour of costs, and make $1 of corporate profit.  It's to pay someone $6 per hour, $1 per hour of costs, and then make $4 per hour of corporate profit.

When the government raises the minimum wage by a dollar, to $7 an hour, the equation for the boss isn't becoming negative, it's thinning the margin of profit from $4 per hour to $3 dollars per hour, even if they don't pass those cost on to the consumer, which sometimes they do.

Also, aside from the Professor's evident ignorance of those clear facts, he's just a terrible, terrible communicator.  His inability to stick to the point, his whining about being interrupted, and his soliloquies for every answer are grating.  I doubt I could talk to him for very long just based on those issues. 


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