This is Jennifer Diane Reitz's (of
Unicorn Jelly) response to my Minimum Wage
essay, and my reply. She didn't email back, so I figured I'd post it.
I just didn't have the time to continue to debate with people who wrote
me about it, and I think there were 2 letters I didn't reply to at all,
which wasn't very nice of me, but this touches on a lot of the things
people wrote about, so I think it's good to post. This contains all of
our letters that relates the my essay; I deleted some unrelated parts.
As always, I am loyal to your work, and found your recent article of interest, and thought to respond to it. I should state that I will not attempt in any way to state that your reasoning is false in and of itself, or that your points are not thoughtful or rational, rather I wish to question one element, one presumption within your argument, the statement that minimum wage, ultimately, is a negative thing.Quite correct, but the problems of minimum wage still exist even when it is small.
I argue that a minimum wage is a good thing, not a destructive thing, but only when the minimum wage is seen in a certain way, in terms of the purpose of it, and only if the implementation of a minimum wage is done with carefully capped, which is to say limited, boundary conditions.Socialistic policies like the minimum wage have the same concequencies no matter what their intents are; people often say say that the road to hell is paved with good intentionts.
To make this argument, I must first answer your questions three, thusly:That's correct. The point of the question is that the money must come from somewhere at any rate.
Profits, for most companies today, are extreme, for we live in a world of corporations, often multinational in scope, where the primary focus is on creating value for investors and owners, and the degree of profit is often overwhelmingly vast. With this comes also unbelievably large salaries for those in the elite ranks of society, where a single executive may make as much as the income of an entire small third-world nation in but one year. Investors are paid very well also, and so a case may be made that there is far greater return for productivity than was ever imagined possible in other times, due greatly to the advancements in technology humanity enjoys.One of the fallacies that many people hold about economics is that enormous profits are bad: there is only so much money in the world, and it is immoral to take so much of it. However, it is that enormous profits are allowed which allows you to enjoy the comforts that are cheeply available in our society because, regardless of the ammount of money in the world, the ammount of VALUE changes. Although many people profit on stupid things, or by trickery, in general profit most easily results from making a thing which people genuinely find useful or enjoyable. When someone profits, people have a greater choice of what to do with their money and their money has greater buying power. Thus, when someone profits, this represents an increase in the real wealth of society.
Incedentally, one of the reasons that high up executives can command such high salaries is that they are so hated by everyone else. The wages of a job which is held in disapprobation will always command more money because one must pay more to attract people to it. Adam Smith discusses this same phenominon in the Wealth of Nations for the case of acting, which was held to be a rather immoral job in his time, and thus commanded huge wages.
2. How can a business with increased cost of production avoid a greater chance of failure? For although many businesses could still survive under these conditions, there will certainly be some who could not.You are quite correct, but you don't answer the question. The point is that the more expenses you have, the harder it is to succeed.
Historically, the surest way to cure poverty has been economic progress. The reason is that the necessities and luxuries of life become gradually cheeper. Today, we live in a society where poverty is still hard, but even the poorest people rarely starve.
A forced redistribution of wealth, like that of the minimum wage, inhibits profit, and thus, though they may SEEM to be of benefit for the ones who work for low wages, their concequencies make that claim questionable. Where people have a smaller chance to profit, the value of money goes down and the beneficiaries are left with less than one might expect, while everyone else has lost far more than they might have thought before.
3. If the production of something is decreased, how is the price of it to avoid increasing? For the tendencies of the minimum wage (to decrease the chance of success and increase costs) make production more difficult, and thus to decrease the supply. A thing which becomes scarcer on the market commands a higher price.I have read this same point before from Robert A Heinlein, and it's a very good idea so I think I'll keep it in mind.
I think it is clear that laborers are more harmed by a minimum wage than helped. Even disregarding the fact that their money becomes less valuable, the minimum wage also causes unemployment. Although one might think intuitively that a minimum wage would make more money move from the rich to the poor, it actually tends to take the wages of of the people affected by the law, and concentrate the wages among a portion of them, leaving the rest with nothing. This is just what one would expect given the laws of supply and demand, for, as the price goes up, the demand goes down.
As for compassion, I can't say it better than Benjamen Franklin (The Encouragement of Idleness, 1766):
"I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer."
My feelings are that no compassion at all is better than unconditional compassion, but that considered compassion which seems likely to be of real benefit is better still. Have you ever had a friend who was constantly depressed and who needily begged for emotional support, but would never, no matter how much you gave, support himself? I have, and it's definitely a time when compassion must be withheld. It was draining and unrewarding to me, and apparently of no use to him. State enforced charaty often works like that; although our government has massive social programs, one can hardly say that many strides against poverty have been made by them. Indeed, if you think about the incentives produced in a system where money is given solely on the basis of need, it is not surprising if such a thing would merely serve to create more need.
By constast, the end of the 19th century, the era of almost total government noninvolvement, saw the rise of the most private philanthropy ever, which according to what I read did some real good.
One more thing about compassion: it is not really compassion if it's not voluntary. I don't know, but I would suspect that most people who would advocate a minimum wage do not have to pay it (except indirectly through higher prices). It's not compassion to give away someone else's money. Although it is clearly better to be compassionate rather than cruel, no one has the right to force people to be compassionate. If one hires employees, one has the right to offer high wages, but he has the right to offer stingy wages too.
The value to a civilization of caring for its weakest and least capable members is more than arbitrary, it is a highly rational thing, for even the strongest may fall, due to circumstance, and even the weakest may prove of absolute value. This is because of Nature, which on one hand is dominated by random events, misfortunes and chaotic collapses of fortune, and on the other by an equally random distribution of talents, abilities, and genius. To put this in perspective, it should be noted that at this very moment, there are at minimum one-hundred thousand geniuses, equal to, or greater in caliber, to Albert Einstein, or Stephen Hawkings, alive upon the globe. Enough to make up the population of a very large city, if collected in one place, and all of them far more intelligent than it is possible for an average person to even fathom. One may wonder, then, where are the Warp-Drives, the Teleporters, the Immortality Serums, the Hyperdimensional Gate Machines, and all manner of science fictional wonderments, if this is true, and the answer to this question is that the geniuses that could have given mankind these things, and more, are employed otherwise. They are employed, in the most part, by what they have always been employed at, which is to say, digging ditches, growing rice, shovelling excrement, starving in alleyways, or working in sweatshops for money far less than minimum wage. They are without education, without means, without hope, lost to humankind forever, and only a very small, extremely fortunate few, manage to get decent enough employ that they may have time to work on matters of genius on the side, much less be lauded for their abilities.Society, I agree, does not pay as much heed to geniuses as it should, but I explained above how a minimum wage is harmful to those it attempts to help. However, in a society with the time to engage in scholorship, scholors will always be valued, and where skills from higher learning are wanted, great teachers will be too.
However, as for your comments about those who recieve wealth in excess of their actual benefit to the world, it certainly would be nice if justice would be meeted out exactly, and the rewards to everyone were in exact proportion to their use, but this would require infinite knowledge about everyone, and an infallable means to evaluate their character. Only god knows that, human presumption to such knowledge is bound to fail. Furthermore, although the rewards of the world are not meeted out fairly on their own, where people have the freedom to make good with what they have, people have the most opportunity to make good.
For more on that I'd REALLY suggest you read the Quest for Cosmic Justice by Thomas Sowell, which explains this sort of thing much better than I can.
The most useful purpose of Government is to address the needs of a civilization as a whole, to see that common needs, such as roads, are built, and to insure fairness in all dealings, so as to prevent the rule of gangs and thugs, and this the destruction of civilization. Part of the issue of fairness is in the redistribution of wealth, for wealth is nothing but a tool, and a food, the lifeblood of survival. Government, in protecting the common good of civilization, should therefore, if it is an intelligent government, look to the value of intelligence that lacks ambition and ruthlessness to succeed, and make sure that a minimum decent level of survival may be guaranteed, so that no genius is lost to mindless and exhausting constant labor, but instead has some small time, at least, to devote to thought, and discovery, and education, and bettering itself. Minimum wage is a very reasonable way to do this, and it should not cause the price of goods to rise, or the value of money to drop, if the minimum wage is not allowed to ever become absurdly high, and if the money is taken from the richest people only, to whom money is so common that were they to spend constantly every day of their lives, they would still only see their wealth grow (The billionaire is a good example of this, in that compound interest alone renders any but the most extravagant and lordly of lifestyles without any risk whatsoever of real loss).This sort of thinking is very dangerous to people in poverty. For one thing, a minimum wage does NOT bring about a redistribution of wealth from the rich to the poor; it merely redistributes wealth among the poor by giving some better incomes and leaving the rest unemplayed. In addition, planned economies, like the one you suggest, with limits placed all around, fail dismally, leaving nearly everyone in poverty except for a few elite; while unplanned ecomomies bring wealth to a society. Socialistic limits on capitalism actually depleat the wealth of a society just as profit by free enterprise increases it. A good example is Sweeden, which is often presented as some sort of Utopia, but has for the past decade experienced negative economic growth, which will get worse and worse until they stop being socialist or there is no wealth left in the country.
Not only does capitalism bring wealth, but the wealth of a capitalist economy is more evenly distributed than any other society. In societies where free enterprise is inhibited, there are few in the middle class, nearly everyone is poor, and a few hold all the wealth all their lives. If you compare our society to that of communist Russia, or the feudal societies of the middle ages, the difference is quite obvious.
Here and now, by contrast, there is almost no trace of class left. There are a few who are born to wealth and live with it all their lives, and a few who never escape being poor, but this is rare. Something like only 3% of people live in each group. Most people start out rather poor but grow in wealth over the course of their lives; by far the majority of wealth in the US is in the hands of people over 50 years old, and nearly all the poorest people here will no longer be among the poorest 10 years from now. My parents, for example, are like that, having endured several years in the late 70s on a weekly buget of $5 for food while they were in medical school, and who now give thousands of dollars to charity every year.
Here are some books I'd strongly reccomend you read if you wish to learn more on the relationship of freedom and the wealth of a society: The Wealth of Nations, by Adam Smith
Free to Choose, by Milton and Rose Friedman
The Quest for Cosmic Justice, by Thomas Sowell
I was kind of surprised at the reaction when I posted the minimum wage essay. I got only one letter agreeing with me and quite a few that disagreed, some rather vehemently. This is odd because what is written in the essay is just the simple application of basic principles of economics which have been known for litterally centuries.
It appears that ignorance of economics is more widespread than a basic knowledge of it. I think this is sad. Unlike physics, chemestry, or biology, which are of only indirect concequence to most people and of which one can live in complete ignorance without much trouble, economics effects everyone in a very direct way; we all participate in an economic system every time we buy or sell and the results of our votes have direct concequence for the type of economic system we participate in. So, unlike for physics, chemestry, or biology, a society that is largely ignorant of economics, except for a few experts, will incur bad concequences for this ignorance.
This is also sad just because of how easy basic economics is to understand and apply. I urge people to go read up on it. (I'd particularly reccomend reading The Wealth of Nations by Adam Smith, written in 1776. Truely one of the most fantastic and worldview-altering books I've ever read.)
The basic fact is that laissez-faire capitalism is the best way to promote prosperity for any society, and not just for the rich but for everyone. Capitalism increases wealth, decreases poverty, and reduces class distinctions, while all socialistic inhibitions on it depleat wealth, increase poverty, and re-enforce class distinctions, no matter how they are intended to work. If you look at data over the course of this century, for example, you see that poverty tends to increase as more government money is spent on social programs. If you compare how things are here with how they are in a totally laissez-fair system, such as Hong Kong (as of a few years ago; I don't really know what's happened to them since they went back to China), you find that Hong Kong, dispite having fewer natural resources than here, has a much lower unemployment rate and a much smaller proportion of people under the poverty level.
The reason laissez-faire capitalism works is the same reason that that Darwinian evolution produces such amazingly complex and diverse life-forms, and why the Earth can support so much life: many things compete for limited resources, and by their competition a flexible and highly optimized system results. (This is not the same as social Darwinism of course; under capitalism, the competition is between businesses for their profits, not between people for their lives; capitalism must be restrained by laws against theft, murder, and fraud while Social Darwinism desires no legal or ethical restrains whatsoever.) Although generally only completely ignorant people deny evolution with respect to biology, plenty of people who deny the same principle in economics are very intelligent, like Jennifer above. I don't see why this is.