Minimum Wages vs Minimum Employees

Reply to: On Raising the Minimum Wage

**********************************************

If it would be beneficial to increase the minimum wage… then why not also decrease the price of movie tickets, popcorn and sodas? 

If it would be beneficial to increase the minimum wage… then why not also force employers to hire more workers? 

If preventing the exportation of jobs is beneficial… then why not also prevent the exportation of food? 

If preventing the exportation of jobs is beneficial… then why not also prevent the importation of workers? 

If preventing the importation of workers is beneficial… then why not also prevent people from having more than one child? 

If preventing the importation of workers is beneficial… then why not also export the least productive American workers? 

If preventing workers from accepting less than minimum wage is beneficial… then why not also prevent workers from giving their labor away for free? Isn’t “free” less than the minimum wage? Right now we’re giving our labor to Medium for $0.00 dollars an hour. Why not force Medium to pay Americans the minimum wage for their labor? 

See also… Workers: Beggars or Choosers

**********************************************

Anybody watched Madam Secretary on Netflix?  In the episode "Whisper Of The Ax"... Stevie, the 20 year old daughter of the Secretary of State, decides that she'd like to volunteer full time for a good cause... microloans.  The program is desperately understaffed and the only paid employee, Arthur, is very happy to have Stevie help out.  At the end of her first day volunteering, Stevie and Arthur exchange some information...

Arthur: You're still here.

Stevie: Yes.  Why wouldn't I be? 

Arthur: Oh, my God! You think this is a paid internship.

Stevie: No, I don't.

Arthur: Because it so isn't.

Stevie: Yeah, I figured 

Arthur: Okay, good.  On the upside, that means your mother's budget cuts won't affect the position.

Stevie: You know who my mother is? 

Arthur: I do.  And I don't care.  Unlike literally everybody else I've hired, you want to be here.  That works in your favor.

Stevie: Great.

Arthur: Here's some paperwork you'll need to take to your school's career services office.

Stevie: Oh, um, I'm actually not in school, so 

Arthur: Oh, the, uh, internship's only available for college credit.

Stevie: Like you said.  I'm really happy to be here.  I mean, I really like feeling useful 

Arthur: No, we have to do it in conjunction with a university course.  Otherwise asking people to work for no compensation is what the government likes to call slavery.

Stevie: Well can I, can I sign a waiver or something? 

Arthur: No, it's nonnegotiable.  It's part of the program's charter.  I'm sorry.

Benefit is in the eye of the beholder.  If it wasn't, then there wouldn't be any problem with the government determining whether personal relationships are adequately beneficial.  

Consumers Are The Conductors Of Commerce

Reply to: Welfare recipients aren’t taking all your money. Business owners and investors are.

*********************************************************

If Bob, the greedy owner of a bakery, pays the least amount possible to his employees… then it stands to reason that he strives to pay the least amount possible for flour, bowls, ovens and all the other “inputs” he needs to operate his business. Do you know how many different inputs Bob needs to run a bakery? I sure don’t. 

The thing is… flour, bowls, ovens and nearly all the other inputs that Bob needs are produced by other business owners. Yet, despite the fact that Bob endeavors to pay these other business owners the least amount possible, they also manage to rake in the profits. 

So what is it, exactly, that makes Bob’s employees so exceptional? Why do they, unlike everybody else that Bob pays, fail to rake in the profits?

If we dug a little deeper then we’d discover that the businesses who supply Bob’s inputs aren’t equally profitable. So the real question is… why is there a disparity in profitability? 

Let’s take flour for example. The more businesses that supply flour… the higher the competition… and the lower the profits. 

The point of profits is to tell people what to do…

Low flour profits = “Hey people, don’t start a business that supplies flour”
High flour profits = “Hey people, please start a business that supplies flour”

If Bob is paying really high prices for flour… then he’s basically trying to incentivize more people to supply flour. 

But if Bob is able to pay a lot of money for flour… then perhaps it’s because people are paying him a lot of money for his baked goods. 

Consumers are the conductors of commerce. Like the conductor of an orchestra… consumers wave their money around and producers supply the most beautiful music. 

Not everybody is equally good at following the conductor. Yet, here you are arguing that the music will sound even more beautiful if the people who fail to follow the conductor are paid more. 

People who ignore the directions of consumers should be paid more? People who ignore profits should be paid more? 

We need minimum wages because… increasing the supply of unskilled workers is always good for the economy? Just like increasing the supply of flour is always good for the economy? Just like increasing the supply of flutes is always good for the symphony? 

Poverty exists because people, such as yourself, don’t understand the point of market signals. Whose fault is it that you don’t understand the point of market signals? 

Surely it can’t be your fault. It’s got to be my fault. 

Maybe a military metaphor would help? Profits say, “follow me!” and producers reply, “lead the way!”

When I was stationed in Panama I spent a lot of time in the jungle with a compass and a map. Land navigation works better when the compass and map are accurate. 

I kinda stole the compass comparison…

The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. — Ludwig von Mises, Omnipotent Government

When I wasn’t in the jungle, I ran a race across the Bridge of Americas, participated in a few sprint distance triathlons and rode a bike from the Pacific coast to the Atlantic coast. I also had sex. A lot of sex. Even with some white chicks in the Air Force. 

Here’s an excerpt from your most popular blog entry…

Sex isn’t something you do to someone else. It’s something you do together; it’s a dance. Good tango dancing requires the dancing partners to read each other, communicate with each other and play off each other.

Nowadays, “intercourse” is synonymous with “sexual intercourse”. Back-in-the-day, if I had said, “the economy is intercourse with everybody”, then nobody would have jumped to the conclusion that the economy is a massive orgy. 

One of the main characters in the show Heroes is a mind reader. Spoiler alert: he’s really good at sex. 

In real life nobody is a mind reader. Nobody is omniscient. Hence the value of communication. Hence the value of accurate communication. Hence the value of accurate market signals. Hence the problem with inaccurate market signals…

The only alternative to a market price is a controlled or fixed price which always transmits misleading information about relative scarcity. Inappropriate behavior results from a controlled price because false information has been transmitted by an artificial, non-market price. — Mark J. Perry, Why Socialism Failed

Ever had a threesome? Do you think adding another person to the mix makes accurate communication less or equally or more important? 

Even though I really like that song by Stereo Total… I’ve never even spent a single penny on it. 

The free-rider problem is a problem because again, nobody’s a mind reader. How can Stereo Total know whether they should continue, or discontinue, their behavior if I don’t accurately communicate to them how much benefit I derive from their behavior? 

It behooves us to positively reinforce beneficial behavior. And benefit is entirely in the eye of the beholder. 

Right now you’re giving your labor away. Clearly you’re under the impression that people should have the freedom to sell their labor for $0.00 dollars an hour. But you’re also under the impression that people shouldn’t have the freedom to sell their labor for any amount between $0.01/hour and $7.25/hour.

J. S. Mill was one of the best libertarians ever. But he was under the impression that people shouldn’t have the freedom to sell themselves into slavery. I wonder if he was also under the impression that people shouldn’t have the freedom to commit suicide. 

I think it’s very possible to regret selling yourself into slavery. But in theory it shouldn’t be possible to regret committing suicide. Well… unless you go to Hell. 

You and I were both free to enter into the military and, after we completed our contract, we were free to exit from the military. More specifically… you were free to enter into and exit from the Chair Force and I was free to enter into and exit from the Army Infantry. 

The military isn’t for everybody just like the infantry isn’t for everybody. And society works a lot better when people are free to decide for themselves what is, and isn’t, for them. 

Personally, I have a pretty high tolerance for relatively miserable conditions. From the soaking wet jungles of Panama to the frozen slopes of the Andes to the scorched deserts of Afghanistan… I didn’t just survive… I thrived.

Who are you, or anybody else, to prevent me from deciding for myself which conditions/compensations are, or are not, optimal for me at any given point in time? 

You don’t know me like I don’t know you. Nobody can ever know me as well as I know myself. So why are you so willing to impose your own personal standards on me and everybody else? Is it simply because you don’t appreciate the point of accurate market signals? Or does it stem in some part from a failure to adequately appreciate the immense diversity of preferences and circumstances? 

Right now I’m not earning more. I could be earning more… but I’m not. I’m choosing to partially ignore the conductor in order to dance more to the beat of my own drum. Clearly I think sacrificing some comfort is worth taking more of this tricky, terrific and terrifying trip to discover and eliminate the bottleneck in progress. 

See also: Worker/Employer Ratio

Matt Bruenig vs Poverty

A few days ago I mentioned in this entry...Raymond Fisman - Education vs Markets ... that John Quiggin is my second favorite Crooked Timber liberal.  If you'd like to know who my first favorite Crooked Timber liberal is... then you're welcome to read this entry... Is A Procreation License Consistent With Libertarianism?

Yes, Quiggin is still my second favorite Crooked Timber liberal.  It probably doesn't hurt that I have a cognitive bias towards Australians.  I think Australians are so cool for so many reasons!  But I'll avoid the strong temptation to digress any further down that path.

As I was about to start this entry, I wondered whether it's really necessary for me to refer to Quiggin as my second favorite Crooked Timber liberal.  It kind of begs the question of how he ranks among all the liberals in the world.  Doesn't it?  I'm sure the question keeps Quiggin up at night.  So from now on... I'm going to zoom out.  John Quiggin is my second favorite liberal in the world.  The world has a lot of liberals so that's pretty impressive... right?  There's nothing dubious about this distinction!

So who's my third favorite liberal in the world?  Noah Smith!  And my fourth favorite liberal in the world?  Errrr...I don't have one.  :(   That's got to be a problem.  I should have at least 5 favorite liberals or else I'm a huge failure at life.

Quiggin has been kind enough to suggest a candidate... The US government didn’t lose the War on Poverty: it changed sides.  Well... the suggestion was... subtle.  It was actually in the comments section... and somebody else's comment no less.  But Australians work in mysterious (and wonderful) ways!

The candidate is the liberal Matt Bruenig.  Is he going to be my fourth favorite liberal?  Let's find out!

Bruenig and I have at least two very important things in common...

1. We both want to eliminate poverty
2. We both think that the non-aggression principle (NAP) is... not that great

Here's why Bruenig isn't a fan of the NAP... Non-aggression never does any argumentative work at any time.  If you'd like to know why I'm not a fan of the NAP... then evidently you didn't read my entry that I linked to in the beginning of this entry!  For your convenience... here it is again... Is A Procreation License Consistent With Libertarianism?

Even though Bruenig and I both want to eliminate poverty... our policy recommendations are extremely different.  They can both be wrong... but they can't both be right.  Therefore, it would behoove us to poke and prod each other's poverty remedies.

From Bruenig himself...

As regular readers here know, I am a big fan of reducing inequality and combatting poverty by distributing income more evenly. This involves, among other things, increasing taxes on the rich and using the revenue from such taxes to boost the incomes of the poor. It's pretty simple and has been a winner of a policy everywhere it has been tried. - Matt Bruenig, Social Security Pulled 22 Million Out of Poverty in 2012

Most liberals would probably agree with this "solution".  Which is a problem because I'm pretty sure that it's fundamentally flawed.  Let me try and explain why.

Here was the comment on Quiggin's recent entry that he was responsible (more or less) for...

Exactly right John. When people say that the War on Poverty failed they need to be reminder that poverty is a flow not a stock. Matt Bruenig has an excellent article on this:
http://www.demos.org/blog/4/3/14/war-poverty-cut-poverty-12-billion-people-years
- MPAVictoria

Unless somebody wants to argue that MPAVictoria was lying, it seems pretty reasonable to assume that she values Bruenig's article.  The question is... how much does she value his article?  Does she value it at a penny?  A dime?  A dollar?  Ten dollars?

Let's go ahead and also assume that MPAVictoria isn't a free-rider.  Each year she donates $100 a year to Demos.  Even if this is true, it still wouldn't tell us how much she values the article in question.  Unless we want to assume that she values every single Demos article equally.  Do we want to assume this?  I sure don't.

It should be clear that MPAVictoria has her valuation of Bruenig's article locked away in her heart of hearts.    If Bruenig was only missing one person's valuation of one of his articles... then, unless she really valued the article, it would just be a small problem.  But if you add up enough small problems... then you can end up with a huge problem.  There are millions and millions of liberals in the world.... so you do the math!

Valuation information is fundamentally important.  We really can't make informed decisions without it.  So when we make important decisions in the absence of valuation information... it's very likely that we will misallocate our resources.

Paying somebody for something has two purposes... compensate and communicate.  The first is "seen" and the second is "unseen".  Liberals grasp the first but not the second.  As a result, they see no problem arbitrarily increasing compensation.  Changing the accuracy of what's communicated results in the proliferation of misinformation.  Spreading lies puts people into poverty.  And then Matt Bruenig endeavors to "save" them by adding fuel to the misinformation forest fire.  It's a vicious and violent cycle.

The efficient allocation of resources depends on accurate information.   Here's just some of the missing information...

• Bruenig doesn't know how much MPAVictoria, or any liberal, values any of his articles
• The government doesn't know how much Bruenig, or anybody else, values any public good
• Poor people and students don't know how much any business owner values unskilled labor
• Teachers don't know how much parents value their services

In this veritable valuation vacuum, it's a given that far too many people are going to end up being majorly misallocated.  This misallocation is impossible to miss when people are in poverty.  But it's a case of "really missing the point" to assume that poor people are the only victims of this valuation vacuum.  Perhaps if, at an earlier stage in life, some millionaire had known exactly how much society valued his writing, then he would have pursued his passion rather than settle for a lucrative but joyless career.  Humanity will never be able to benefit from the valuable volumes that the millionaire would have produced if his path had been properly illuminated by everybody's valuations.

So how do we unlock the mountain of valuation information that's hidden away in everybody's heart of hearts?  All that's required is to facilitate payments (communication).  The proliferation of accurate information will greatly increase the chances that we will choose the most valuable paths in life.  It will greatly decrease the chances that we'll spend our lives barking up the wrong trees, or tilting at windmills, or going on wild goose chases.

Specifically...

1. We have to acknowledge that movies, shows, books, blogs, music and the rest really aren't private goods.  They are public goods that are subject to the free-rider (valuation vacuum) problems.  As such, there should be mechanisms that require minimum contributions but also allow for maximum choice regarding how contributions are allocated.  This would unlock the mountain of valuation information regarding these types of goods.  For more info... The Satt.

2. We should eliminate minimum wages.  This would unlock the mountain of valuation information regarding any given area's demand for unskilled labor.  Nobody's better off when poor people misallocate themselves to areas that have a major surplus of unskilled labor.

3. Parents should be allowed to choose which teachers they give their money to.  This would unlock the mountain of valuation information regarding education.  For more info... Raymond Fisman - Education vs Markets

4. People should be free to shop for themselves in the public sector.  This would unlock the mountain of valuation information regarding public goods.  For more info... FAQ.


Can Bruenig effectively poke and prod all of this?  He would have to make a convincing argument that it's beneficial, rather than detrimental, when the supply of goods and services fails to reflect what people aren't given the opportunity to communicate.  In other words, he'd have to make a solid case that the efficient allocation of resources doesn't really depend on accurate valuation information.

Have I effectively poked and prodded Bruenig's argument?

So yes, as a matter of undeniable fact, handing out money does pull people out of poverty. It is astonishing to me that saying something like that is met with such gobsmacked skepticism. It is nearly the most obvious thing in the world that giving people more income makes them less poor. - Matt Bruenig, Social Security Pulled 22 Million Out of Poverty in 2012

If this astonishes Bruenig, then he really needs to familiarize himself with Quiggin's Implied Rule of Economics... The Inadequacy Of The Opportunity Cost Concept.

So is Bruenig going to be my fourth favorite liberal?  The position is his if he truly wants it.  All he has to do is reply to this. If his reply is substantial enough... then there's even a chance that he might steal Noah Smith's ranking!  It would have to be fairly substantial though because Smith and I go way back.

See also:

The Truth About Infrastructure Projects?
Jeff Madrick vs The Invisible Hand

Economic Fairytales?

The liberals over at the Crooked Timber blog published an entry on the efficient use of scarce resources... Dives and Lazarus: An Economic Fairytale

Here's my comment on their entry...that they decided not to publish.  Why didn't they publish it?  Well...perhaps they wanted to stick with the whole "fairytale" theme by critiquing the efficient use of scarce resources without even once mentioning opportunity costs.

Here's my last comment...The Psychology of Political Change...which they hesitated publishing and here's the first comment of mine...Crooked Timber Liberals...which they did not publish.

**********************************

Anybody ever read Dogshit Food by Liu Heng? It's a story that was set during China's Great Leap Forward when 20-30 million died as a result of state induced famine. In my blog entry on The Dialectic of Unintended Consequences I juxtapose Mao Zedong and Deng Xiaoping in order to highlight the stark disparity between the consequences of giving people less, and then more, choices.

We all intuitively understand that we have to choose between having our cake and eating our cake. Therefore, we all intuitively understand the "opportunity cost" concept...which is essential to ensure the efficient allocation of scarce resources.

The problem is that there are numerous goods that people can benefit from without having to contribute to...aka...the free-rider problem. Therefore...it's very well possible that the private sector would fail at producing adequate levels of these goods...aka public goods.

Libertarians believe that the free-rider problem only applies to very few goods...national defense, the courts and the police. Yet, here's an exceptional libertarian..."The same reasoning applies in the context of poverty. Almost everyone would be happier knowing that fewer people are starving to death. Some people might help the poor out of altruism, but many others will free-ride. Purely private provision might therefore be insufficient relative to most people’s optimum. That is, alleviation of poverty is also a public good." - Jeffrey Miron, Libertarianism and Anti-Poverty Programs.

Is it progressive for a libertarian to entertain the possibility that the free-rider problem might apply to welfare programs? Of course! Would it be progressive for liberals to recognize the value of efficiently allocating public funds? Of course! Nobody would willingly give a kidney to somebody that truly didn't need it.

In order to guarantee the efficient allocation of public funds we should allow taxpayers to directly allocate their taxes. This would force them to consider the opportunity costs of their tax allocation decisions.

So yes, Elizabeth Warren was correct that taxpayers have an obligation to "pay it forward". However, in order to maximize the benefit to society, taxpayers should be able to directly choose which government organizations they give their taxes to. For more information check out my blog entry on the opportunity costs of public transportation.

The Real World - Pragmatarian Rules

A "very liberal", a conservative and a libertarian all responded to a forum thread that I started on pragmatarianism.  After some brainstorming I came up with an analogy that was kind of like a pragmatarian twist on MTV's the Real World.

Here's my post...written in response to Pinkie...the "very liberal"...


Pinkie, let's say that you, me, Chuckberry and Neomalthusian agree to purchase a house together...and we all agree to split the mortgage.

The trickiness comes into play in deciding what the house needs. As a "very liberal" you believe the house needs a pool, a jacuzzi, a pool guy, a home gym, a vegetable garden, a greenhouse, a gardener, a state of the art washer/drier/fridge/dishwasher, a maid/cook, post-modern furniture, modern art, an interior designer, a feng shui consultant, a ridiculous home entertainment system, earthquake insurance, flood insurance, tornado insurance...etc.

Chuckberry, the conservative, believes that the house needs two dobermans, a security guard, a steal-reinforced 10ft brick wall topped with razor wire...and new copper pipes.

Neo, the libertarian, believes that the house needs very little. He just wants a home security system and super high-speed internet.

As the centrist, I believe that the house needs a reasonable amount of common goods.

In order to pay for all your common goods we'd each have to pay a lot of money. On the other hand, we wouldn't have to pay much money to cover Neo's common goods. So we all agree to each pay the average amount between your high cost and Neo's low cost.

We decide to allocate our "common money" via the representative method. So we take a vote and everybody votes for themselves...except for me. I vote for you...so you win. You immediately increase our common money rate in order to try and pay for all the common goods. But you decide it's not enough money so you take a second mortgage on the house.

Us guys start to grumble and even you kind of realize that we can't afford all the common goods you want. So we take another vote and elect Chuck. Chuck lowers our common money rate but doesn't pay off the second mortgage. Then he directs nearly all of our money to building his super wall, hiring a second guard and buying a third doberman.

You point out all the weeds in the garden, the alligator in the pool, the dishes in the sink...and you promise not to raise our common money if I vote for you again. Neo objects of course...he wants me to vote for him. Heh, like anybody would ever vote for a libertarian. Obviously our house needs more than two common goods.

So I vote for you but you do exactly the same thing as the first time. So then I vote for Chuck but he does exactly the same thing as well. The bank is breathing down our necks and the animosity in the house is palpable. There's got to be a better way.

I call a house meeting and suggest a new method. Everything would be exactly the same...except, if we're not happy with our representative we can choose for ourselves which common goods receive our individual common money. We decide to give it a try.

Neo pulls me aside and tells me that we've been seriously overpaying for pretty much all of our common goods. He takes me to ikea to see some reasonably priced furniture.....then to a local gym which has an olympic sized pool and low fees. Afterwards we go to a local mom and pop restaurant with healthy but very affordable dishes. Lastly he takes me to a very nice local botanical garden where he tells me about how we can significantly reduce our insurance rates by bundling.

What do I do? I present you with all these alternatives. Perhaps you'll agree with some and disagree with others. Maybe you'll provide some different alternatives.

What ends up happening is that we start focusing on results. If you can find us a super skilled/affordable chef to come cook for us then none of us guys are going to bother going out and paying more money for mediocre food. If you can find us a crazy motivated/knowledgeable personal trainer that can give us a great group rate then we wouldn't bother paying for a gym that we never go to. If you can find a gardener that turns our garden into the Garden of Eden for less money than the cost of membership at our local botanical garden then we wouldn't complain.

We all want the best results for the least amount of money. We all want the most bang for our buck. It's within our reach. We just have to concentrate. Pragmatarianism...it's completely non-partisan...and within our reach. We just have to concentrate.