Economics Is Super Hard, Y’all (Part I)


 

After watching an oh-so informative clip of “The Daily Show” (mirror), which excels at putting opinions before facts for the sake of comedy, I made sure to make my concerns about its contents known. Afterwards I was met with a staunch rebuttal from the guy– let’s call him Mr. S– who shared the clip. I assure you, reading our discussion will be both entertaining and edifying. I also assure you that no matter how mechanical this intro paragraph may seem, it’s much better than my first go. Anyway, here it is.

John Everett:

This argument is utterly false. 1: An increase in aggregate wages means nothing if it’s offset by an increase in prices.

 2: Minimum wage jobs are not meant to make a living off of; they’re meant to lead to higher-paying positions. Most minimum wage earners either receive a raise or a promotion within a year of starting out, meaning that raising the minimum wage would do nothing for them (http://www.heritage.org/research/reports/2014/01/most-minimum-wage-jobs-lead-to-better-paying-opportunities)

 3: When companies are forced to pay employees more, those with low skill/less experience will be more likely to either be laid off or not get hired in the first place because starting at a high wage would cause their employer to lose money. This is why in places with a high minimum wage, such as Australia, unemployment among the unskilled (which mostly includes teenagers) is extremely high. (http://www.internationalman.com/articles/the-minimum-wage-and-unemployment-in-australia) It’s difficult to find a job when companies can’t hire you at a small wage so they can teach you skills, then raise your pay once you start actually producing something of value. When companies have to pay to train you (during which time you produce nothing) they are losing money. The more money they lose, the less likely they are to hire. (https://fbcdn-sphotos-g-a.akamaihd.net/hphotos-ak-frc3/t1/q71/1655999_215486371970699_1105483499_n.jpg)

4: It’s difficult for the fast food workers in this video to find a better job because of the government. Minimum wage laws keep people unemployable which means they can’t produce anything. If they produce nothing of value, goods will be more expensive, which means we’ll have less left over to save/invest/buy. With less disposable income we’ll be less likely to spend our money on things, which means less money going to fewer people. Imagine if we had no money left over to buy movie tickets. That means entertainment jobs would be fewer and those people would be unemployed.  Furthermore, the sheer size of the government prevents the economy from growing (https://fbcdn-sphotos-a-a.akamaihd.net/hphotos-ak-prn1/t1/1511742_727958450571913_2092664297_n.png) When it’s stagnant, our situation can’t change, now can it?

5: Those workers are perfectly capable of asking their bosses for a raise. Now [sic] matter how high the minimum wage, you always have the freedom to ask for a raise, but you can’t ask below the legal limit, now can you? Let’s say that I don’t mind working for $5/hour and ask for a job at that wage. The boss can’t give me a job at that price because it’s illegal. That’s right: Two consenting adults entering a business arrangement is illegal.

Here’s what I’d like to ask everyone who supports raising the MW: Why do you think it’s ok to make voluntary business transactions illegal? If I WANT to work for less, why make it illegal for me to get a job? Do you think I’m so stupid I can’t negotiate my own terms of employment? Why not let me have the freedom to live my life the way I want instead of forcing your beliefs on me? I guess it all comes down to what Alexis deTocqueville said 150 years ago: “A man’s admiration for absolute government is proportionate to the contempt he feels for those around him.”

[end original post]

 Not my best debating, I must confess, but I pulled no punches and neither did Mr. S. In an effort to keep the debate organized and to make it more readable for you, Mr. S’ rebuttals will appear first in black text, then my responses will appear in blue text after. Here goes:

1) There may indeed be increases in prices due to raising the minimum wage, but to be honest, our US economy greatly undervalues many products that we already purchase (food, clothing, electronics) because we, as Americans, refuse to pay what things are worth.
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And who gets to decide what things are worth? If I decided that my socks are worth $50.00 would it be right to complain if I don’t sell any pairs?

[picture inserted to break up wall of text]

[Discussion continued:]


Shoes for $40? Shirts for $16? A meal for $4? This demand for rock bottom prices places a toll on society as a whole.
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If, by toll, you mean, a higher standard of living, then I agree. It’s called bidding. Producers want to charge as much as possible, and consumers want to pay as little as possible; the cost ends up somewhere in the middle. Businesses competing to sell us their goods makes us better off by allowing us more money to buy more things. Businesses have to innovate in order to find cheaper ways of producing. We consume over 16 times what we did in 1700. We can buy more food, more medicine, more clothing, and we’re so rich that our children don’t have to work, for the first time in human history. Toll on society, indeed.

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Walmart and Sears are only able to sell dirt cheap clothing because they rely on dangerous sweat shops in Bangladesh,
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If you don’t like Wal-Mart, don’t shop there. Sam Walton said, “The customer has the power to fire everyone at a company, from the chairman of the board down, simply by choosing to spend his money somewhere else.” The responsibility of society is not the responsibility of the government.
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Apple can sell you a ridiculously inexpensive iPhone or iPad— because they get their product from practical slave labor in places like Foxconn in China.
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And yet those people AREN’T slaves. They choose to work in sweatshops because hard labor for a dollar is better than starving to death. That’s the point of industrialization; it presents an opportunity that wasn’t there before. In 200 years England and America went from sweating in factories to chatting around the water cooler. These people work because they choose to. Efforts to ban child labor, for example, result in impoverished families being worse off than before (http://www.cato.org/blog/bans-child-labor) because their children’s paycheck provided up to a quarter of the family’s income. I hope you’ll agree that working for twelve hours to assemble electronics is better than dumpster diving or prostitution.

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When you demand unrealistically low priced items at the stores, you’re just pushing that burden onto workers around the world.
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No, I’m placing that burden onto employers. Just as employers have to compete for customers’ business, so do they have to compete for workers’ labor. Imagine if a competing sweatshop went up next to Foxconn and said “Build Samsung phones for us and only work ten hours a day.” Workers would choose to work there instead and Foxconn would have to negotiate with Apple to improve working conditions, lest they lose their workforce. What you’re lamenting is really a lack of competition, a lack of capitalism. That is what I also lament. The system you wish to put in place is called “protectionism,” which was thoroughly disproved by Frederic Bastiat over 120 years before you were born. I urge you to read his book Economic sophisms at your earliest convenience. I’ll send you a .pdf.

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[Bastiat’s complete works are collected in this .pdf file, courtesy of https://mises.org/Literature.]

2) Minimum wage jobs are no longer just starting position jobs—they are actually long term jobs.

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That’s not true. Let me provide this link for a second time. (http://www.heritage.org/research/reports/2014/01/most-minimum-wage-jobs-lead-to-better-paying-opportunities)

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As of 2011, less than 12% of low wage earners are high school age kids and less than 25% are college age kids.

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I know. I said as much when I posted a picture showing the decline of teenage labor as a direct result of raising the MW. Let me provide that link a second time. https://fbcdn-sphotos-g-a.akamaihd.net/…/1655999…) Your argument is a propositional fallacy known as Denying the Antecedent. I said that MW jobs were meant for teenagers and they aren’t being hired because of MW increases. You said that most workers are not teenagers so therefore MW jobs are not meant for teenagers. Let me ask you something: What jobs ARE teenagers meant to have, if not MW jobs? Are they meant to be doctors? Lawyers? Of course not. Doctors and lawyers earn a lot because they go to school to learn a very specific, highly desirable set of skills. MW jobs are meant to teach you skills so that employers will want to hire you. If people reach 20, 25, 30 without ever being hired (as a result of the MW) then they will have to start at a MW job later in life, and continue to work crappy jobs instead of moving up.

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The minimum wage job holders are now middle age, struggling families.

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But there aren’t that many of them, and most of them aren’t struggling. Who told you that they were? (http://www.forbes.com/sites/jeffreydorfman/2014/01/30/almost-everything-you-have-been-told-about-the-minimum-wage-is-false/)

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We no longer have the high paying manufacturing jobs in the US that existed decades ago.

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Because outsourcing those jobs makes goods cheaper, which leaves Americans with more money left over to invest in new jobs. Could YouTube exist if we had no money left over after buying bread and fuel? Or is the entertainment industry’s existence proof that capitalism creates wealth?

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Most of increasing new jobs are service industry jobs, like fast food restaurants, which are low wage, and most people are staying with those jobs long term.

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And why do you suppose that is? Could it be, perhaps, that jobs are scarce because of government action? In the 1970s everyone complained that they wanted to go to college, so the government responded by giving out student loans and grants. Now instead of going to school only for engineering degrees, students are going for every subject including Liberal Arts. They graduate with no work experience and a worthless degree, and they can only get jobs in fast food, and never get ahead because they have to pay back their student loans which can’t be forgiven under bankruptcy law. Meanwhile the US Dept. of Education makes $40 Billion per year in profits off of them, more profit than Exxon makes (http://www.usatoday.com/story/news/nation/2013/11/25/federal-student-loan-profit/3696009/). In fact, as far as I know Apple is the only company that makes more profit than the Dept. of Education. So why is free market schooling a bad idea, exactly?

 [I’m not the first to call into question the effectiveness and necessity of college. Could it be that the kind of person who goes to college is more likely to succeed because s/he is more likely to have his/her act together regardless?]

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3) I see your study on Australia, and I raise you several studies in the United States, most notably a real side by side comparison of hiring rates for fast restaurant chains between similar regions in New Jersey and Pennsylvania by Krueger and Card. (http://davidcard.berkeley.edu/papers/min-wage-ff-nj.pdf). New Jersey increased their minimum wage in 1992, Pennsylvania did not, and employment either maintained pace or actually went up in New Jersey.

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This study is a load of crap. For one thing, the cost of living is higher in New Jersey than it is in Pennsylvania (The most recent stats from the Bureau of Labor put NJ at 129.5 and PA at 101.1. For another thing, this study is rife with assumptions. For example, when compiling their data they say “We find that stores with missing data on employment, wages, or prices are similar in other respects to stores with complete data.” What other respects? They FOUND that? How? How can you find missing information if it’s still missing? If a scientist tried to prove a theory like this he would be laughed into obscurity. Furthermore, the study only studies aggregate employment. It doesn’t see what groups of people are least likely to be hired and which are most likely. When David Neumark and William Wascher attempted to verify these results, they found that “the estimated disemployment effects in the payroll data are often statistically significant at the 5- or 10- percent level although there are some estimators and subsamples that yield insignificant—although almost always negative”
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Think that’s a fluke?…well check out this multiple study review by the Center for Economic and Policy Research (http://www.cepr.net/documents/publications/min-wage-2013-02.pdf) which showed other studies, including ones by Dube, Lester, and Reich which expanded a minimum wage comparison to employment over the entire country and took into account other influences, when combined found that increasing minimum wage had an INSIGNIFICANT EMPLOYMENT EFFECT.

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ON CERTAIN WORKERS. Granted, I said that over time, with many raises in MW, the participation of teenagers will end up being very low. I didn’t say that each individual raise has small effects, so I’ll take responsibility for that misunderstanding. Besides, even without all these other considerations, the existence of the MW makes employment more unstable overall. Take a look at what happened in European countries with MW versus those without. (http://www.cato.org/blog/minimum-wage-laws-kill-jobs) Adults who have experience will always be hired because companies know that these adults know what they’re doing and will turn a profit. No matter what the minimum wage, the highest-skilled employees will always be safe. If you produce $10 worth of goods per hour and you employer pays you $7.25, you’ll be safe. If you have no experience and you’re only skilled enough to produce $5.00 per hour, a company would lose money by employing you. It seems that the one requirement for being a democrat or republican is to be so bad at math that you can’t count to 20 without taking off your shoes.

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4) My point #3 sort of knocks argument #4 out of the park. Increasing minimum wage does not have a significant effect on the hiring.
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Yes it does—see previous.
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And the prices of goods do go up, I’ll wager it’s not substantial. http://abcnews.go.com/blogs/business/2013/07/price-of-big-mac-could-rise-by-68-cents-if-minimum-wage-doubles/).
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That abc story is based on a patently false calculation, which HuffPo retracted shortly thereafter. (http://www.minimumwage.com/2013/07/about-that-68-cent-big-mac-price-increase/)
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Businesses still need to do business—if they price themselves out of the market, then they only hurt their business. The margins are not that tight. Surely a few executives could do with a slightly lower raise or smaller stock option payout, and instead pay their workers a fair market value.
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Surely workers could do without their raises and let the executives earn a fair market value. Remember when I said that doctors and lawyers get paid a lot because they have uncommon and highly desirable skills? So do executives. Denying them their pay would make them jump ship and lead a competing company that pays more. Besides, giving a $100K raise to ten executives is a lot cheaper (and the raises are a lot more obvious, and therefore more incentivizing) than giving a $1 raise to two million workers.
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Plus your side argument about increased government spending hurting growth only makes my argument for raising the minimum wage stronger. By keeping workers’ wages too low, you force the government to spend more to provide a safety net, and thus increase government spending.
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This is a logical fallacy known as Denying the Conjuct. [Actually it’s “False Dilemma.” Sorry.] I’m not FORCING the government to do anything. If you pay someone $10,000 to produce something of value, he’s benefiting the economy and making everyone, including himself, less likely to be poor. When you give him $10,000 to produce nothing, you’re essentially wasting that money. When Americans have to pay $1 Trillion for welfare, that’s $1 Trillion they’re not saving/investing/consuming. That’s $1 Trillion worth of jobs you’re not creating and $1 Trillion worth of goods and services that you’re not producing. How much better off we’d be if the government didn’t destroy wealth to “fight” poverty!
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By pushing the true cost of a workers wages back on employers and businesses, you take it off the governments tab, and give that money back to the economy—because who spends those higher wages back into the economy, none other than low wage workers.
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Low wage workers send money back into the economy? So what do rich people do, if not save/invest/consume? Swim in gold coins like Scrooge McDuck? No! They hire workers! Wal-Mart employs 2 Million people! How many millions of people do you employ? It’s a lie to say that most economic activity comes from the poor. I didn’t build the casinos in Las Vegas. Multi-millionaires did. Besides, if every minimum wage employee in America were to receive a raise to $9.00/hr. and put all of their extra money into the economy, it would only result in an increase of about $20 Billion, slightly more than .1% of the GDP. How is that supposed to help?
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5) All I can say about your 5th argument is that there is a fair amount of arrogance in this argument. You ask if people think you are too stupid to negotiate your terms of employment, And yet you turn around and assume these workers were too stupid to have not already tried negotiating a better salary.

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I never said that. I said you’re free to negotiate a higher salary no matter how high or low it is, but you can’t negotiate a salary below the legally prescribed limit.

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Many of these workers have already done so—and it’s not enough.

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Which is exactly why we need a free market. If they could just pick up and move to a different company who’ll treat them better, they wouldn’t feel like they have to stay with their current crappy jobs.

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Major franchises have crunched the numbers about how to maximize their profits, and they’ve come to the conclusion that keeping these wages ridiculously low, gives them a tidy profit to pocket.

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So? What’s the problem? Let them do so. If workers don’t like it, then under a free market they could leave for a better job. Under the current market where the government artificially raises the cost of labor, however, jobs are scarce. The great thing about capitalism is that it just about renders greed harmless. If a company is greedy, so what? Don’t work there! If you don’t like the way executives run their businesses, then start your own!

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These workers are asking and striking for better wages because they aren’t seeing improvements through negotiations.

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Good for them. I hope their strikes result in fair wages. I mean that sincerely. I want unions, workers, and businesses to have the freedom to talk and negotiate and argue and strike to their hearts’ content. But when they use the coercive and aggressive force of the government to force their terms on others, that’s where it becomes wrong.

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I’ll just end by saying that raising the minimum wage isn’t the end-all-solution to income inequality.

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There is no solution to income inequality because it’s not a problem. You know where they have income equality? North Korea. You know who used to have income equality? America, during the Great Depression; everyone was equally poor.

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It’s a small move that will likely affect about 10 million Americans. It’s merely a stop gap improvement at best.

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That’s all the government ever does! They use stop-gaps to temporarily fix the problems that they caused! Government is nothing more than a disease masquerading as its own cure. [source]

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The truly best solution is determining the next big industries in the US to invest in and ensuring that we are getting our workers educated for those new jobs and incentivizing the market to invest in those new jobs and let them go.

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And how are businesses going to have incentive to invest when the government eats up our earnings with corporate taxes, property taxes, income taxes, inheritance taxes, price-fixing on labor, restrictive regulations, and then attempts to toughens rules on doing business overseas, which helps bring those people out of poverty and gives us cheaper goods so we have disposable income to invest in new jobs?

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But the private market isn’t infallible.

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Neither is your Government. The great thing about the free market is that it is better than any other system so far devised throughout human history in regards to increasing the wealth of not only the rich, but also the poor.

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Like with many things, it overvalues some things and undervalues others.

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“It?” What is the market, if not the human beings who participate in it? And what is the government, if not the people who participate in it?

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It makes the salaries of relatively useless professions like sports figures, Hedge Fund speculators, and Marketing people ridiculously high, while underpaying very important professions like teachers and police officers.

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Teachers and police—both of which are employed by the government. Isn’t that a coincidence? If parents could choose where to send their children and schools had to compete, you wouldn’t see this happening. Just as with every other problem, a lack of capitalism is to blame.

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So, like with many things, the government has to sometimes step in

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Based on what evidence? How often is “sometimes?” What many things? Nothing Dems and Reps say is ever concrete and factual! It’s all philosophy and assumptions!

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and, at the very least, set a lower cap to this undervalued part of the economy. The data suggests this minor step does not do that much harm (see point 3 again).

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To whom? Unemployment among teens is triple the overall national rate. [source]

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But for critics to make this step out to be some Machiavellian tampering that will tank the economy simplifies the whole argument and cheapens the discussion.

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Does it? The Constitution does not grant Congress the authority to set workers’ wages. What is Machiavellian, if not doing whatever you can in order to reach a goal?

And that’s it for round one. Next week we’ll have the next round with Part II! Allow me to leave you with this:

http://en.wikipedia.org/wiki/Lilo_%26_stitchDebating is so much fun it makes me want to kill myself.