A Stitch in Haste

Two items of note crossed my aggregator this morning:

First, we have George Will, in an otherwise perfectly excellent piece trashing the stupidity, hypocrisy and irrelevance of a federal minimum wage, sloppily knocking a foul ball down the right-wing line:

The problem is that demand for almost everything is elastic: When the price of something goes up, demand for it goes down.

It burns us! It freezes! Nasty Will twisted it.*

Not to sound too much like an old Econ 101 TA, but "when the price of something goes up," the quantity demanded for it goes down, not the demand for it. That may sound like mere semantics, but it's an important distinction to economists.

But that wasn't that my point anyway. Will also misdescribes all downward-sloping demand curves as "elastic." That is an important error that distracts from Will's overall thesis.

To review: Since the laws of economics, including the law of demand, are not subject to repeal by any legislature, raising the minimum wage above the free-market equilibrium wage (i.e., creating a price floor) will inevitably result in a surplus — quantity supplied will exceed quantity demanded. Which, in labor markets, has a name: "unemployment."

But let's say, as liberal-progressive-socialists often do, that you care more about "the poor" than you do about "poor people." It's a subtle but important distinction. It means that even though some ultra-unskilled workers ("poor people") may lose their jobs as a result of progressive "compassion" for them, the ultra-unskilled who don't lose their jobs ("the poor") will be earning higher wages. So while some "poor people" suffer because they are now unemployable, perhaps "the poor" as a collective might be better off because, in the aggregate, they will be earning more money.

That is where the notion of "elasticity" comes in — not, as Will errs, in simply noting that demand curves slope downward.

Economists call the total wages paid to labor the "wage bill." It's simply the sum of all wages paid to individual workers. If government imposes an artificial, equilibrium-disturbing price floor (i.e., minimum wage) on the ultra-unskilled, then their wage bill may increase, decrease or remain unchanged. It is a simple trade-off between "the poor" (i.e., people who don't lose their jobs and therefore earn more wages) and "poor people" (i.e., those who do lose their jobs and therefore earn zero wages). Some gain, some lose — but is the gain greater than the loss, or the other way around?

There's no way to tell without more real-world information about how responsive — how elastic — the demand curve for ultra-unskilled labor is. The more elastic the labor demand curve is, the more the wage bill will decline, making not just "poor people" but also "the poor" worse off.

The presumption of liberal-progressive-socialists is of course that demand for ultra-unskilled labor is highly inelastic — that employers will not lay off too many ultra-unskilled workers after the minimum wage rises and that the gains to "the poor" will therefore exceed the losses of "poor people." Whether that presumption is valid (i.e., whether ultra-unskilled labor demand is elastic or inelastic) is of course a question for empirical economists.

Libertarians, meanwhile, reject this entire analysis outright. We don't make arrogant distinctions between "the poor" and "poor people." We are too modest to pretend that we can "fine-tune" the labor markets as though they were an iTunes playlist. We believe that competent consenting adults should be free to enter into voluntary private labor contracts for mutual gain. We believe that forbidding such voluntary contracts is an unconstitutional violation of due process.

And we tend to be very inelastic in our thinking.

More thoughts at Liberty Papers.

(*Gollum, "LOTR.")

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Second, we of course can't talk about the minimum wage without concurrently discussing the "maximum wage" — CEO compensation:

Home Depot Inc. Chief Executive Officer Robert Nardelli's "egregious" $210 million severance package may be the catalyst for legislation that tries to rein in executive pay at U.S. companies.
...
U.S. Representative Barney Frank, a Massachusetts Democrat who is the new chairman of the House Financial Services Committee, said yesterday that he would hold hearings on executive pay and will push for legislation to give shareholders greater say over what CEOs make.

Oh my goodness.

First of all, see my discussion, supra, about voluntary private labor contracts. If Home Depot wants to pay a semi-competent CEO a brazillion dollars to run the company into the ground, then that's, literally, their business. Who the hell is Barney Frank to say otherwise?

As for shareholders, they already have all the "say" they need over what CEOs make: they have the power to sell their shares any time they choose. If you think that Nardelli's compensation is "egregious," then don't own the stock. How is this a difficult concept?

Incidentally, if "only the rich own stock" (a classic lie told by liberal-progressive-socialists), then why do those same liberal-progressive-socialists care one way or the other about "egregious" CEO pay? So what if "the top 10%" crowd loses a bit of money on their Home Depot stock because its "overpaid" CEO ran the company into the ground?

Of course, in reality most stock is owned not by the rich but by pension funds representing the middle class and working poor. This includes labor union and, more importantly, government pension funds (e.g., the massive California pension fund, CalPERS, with $223.5 billion in assets). The bureaucrat portfolio managers of these public funds (and the politicians who oversee them) often seek to achieve "socially responsible" goals via their portfolios (i.e., via other people's money). Therefore, to "empower shareholders" is to empower government (and also labor unions). Behold Barney Frank's ulterior motive.

The original framework of corporate ownership was the correct one, and should not be "improved" upon by activist politicians or regulators: Stockholders, in exchange for limited liability, have limited control over the corporation they own shares in. And they are free to sell their shares at any time if they no longer find the investment appealing (or the company a "good corporate citizen"). What could possibly be more "progressive" than that?

(Via DealBreaker.) More thoughts at Point of Law.

"It is a moral outrage that millions of Americans who work full time still live in poverty."
--Representative George Miller (D-CA)

Except for one small detail: it's not millions --

[A]bout 18 percent of the 12 million workers who were paid an hourly wage rate between the federal minimum wage of $5.15 and $7.24 were in families that had a total cash income below the federal poverty threshold in 2004.

Eighteen percent of 12 million is 2.16 million. And that's not even how many workers make the current minimum wage -- it's those who make up to the proposed minimum wage. So Representative Miller's outrage is mostly a figment of his political imagination.

The statistics regarding the minimum wage are not disputed. Ignored, yes, but not disputed. It is mostly teenagers, retirees and very recent immigrants, all of whom are typically seeking to supplement family income, not support a family outright.

And in any case, at least some of those workers will lose their jobs when the surplus unemployment created by a raised minimum wage price floor kicks in. "Outrage" indeed.

More:

Had all of the workers in that wage range, instead, received $7.25 per hour, they would have gotten about $11 billion in additional wages in that year. About 15 percent of those additional wages ($1.6 billion) would have been received by workers in poor families.

An anti-poverty program in which only 15% of the benefit actually trickles down to the working poor is a pretty good definition of "failure."

I'm also guessing that this estimate ignores the increased unemployment that would result from raising the wage floor and also ignores taxes. So we are in fact talking about an increased net wage bill (i.e., a "social benefit") of far less than $1.6 billion annually -- which, in federal budget terms, is puny anyway.

So why not just have the government give the working poor an additional $1.6 billion directly, in the form of increasing the Earned Income Tax Credit? Why pass the burden on to the private employers who are actually making these jobs possible in the first place? Does an extra $1.6 billion mean more to the federal government or the corner bodega?

Finally, it bears repeating: Who is primarily responsible for creating a social infrastructure, especially a public school network, that perpetually generates "millions" of ultra-unskilled workers in the first place, year after impoverished year?

Hint: That also wasn't the corner bodega.

I have little to say about the economics of the increase in the minimum wage that was just stealthily passed by Congress and will be signed into law by the president. I have blogged against the minimum wage before. It is bad economics, a violation of substantive due process, and an exercise in both utilitarian cannibalism and the Broken Window Fallacy.

When it comes to the minimum wage, you either get it or you don't. You either passed freshman economics or you didn't. You either acknowledge the realities of unskilled labor markets or you pine for a delusional fantasy world where the laws of economics can be repealed by a legislature. You either evaluate policies based on their consequences (both intended and unintended), or you evaluate them on the warm fuzzy feelings they stir in your bowels.

That is all old news, and I will not revisit it.

Having said that:

The wage hike was largely ignored, however, during an acrimonious debate over an emergency spending bill for the Iraq war, to which it was attached. The tactic of attaching it to a must-pass bill deflected attention from an issue Democrats hammered at effectively during last year's election. But it ensured that the wage increase and $4.8 billion in corresponding business tax breaks would take effect despite objections from the White House and other Republicans who wanted a larger package of business incentives.

Pardon my uneducated, uninformed political naivete, but what does the minimum wage have to do with the Iraq War?

More to the point, how is it "enlightened statecraft" when politicians -- whether legislators or executives, whether in the majority or the minority -- agree to engage in this dodge-and-parry political maneuvering?

If the Iraq War is so important as an issue, and if the minimum wage is so important as an issue, then why not -- an admittedly brash idea -- vote on each issue separately? Doesn't holding one issue hostage to the other, or piggybacking one issue upon the other, belittle and demean both issues, which everyone seems to insist are so important?

If our politicians were leaders rather than rulers, abominations like this would not happen. Deliberative bodies (of which at least half of Congress is supposedly the "greatest") should actually deliberate, not expend their energy devising Rube Goldberg political contraptions. Identify an issue, debate it, vote on it, move along to the next issue.

Embrace or oppose the Iraq War; embrace or oppose the minimum wage. But either way, acknowledge that the issues each deserved their own vote. And acknowledge that we deserve legislators who accept and implement this basic principle of governance.

But acknowledge also that, since all politicians are, by definition, moral defectives, we don't get what we deserve.

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Finally, note also that the White House made no mention of the minimum wage in its press release on the passage of the Iraq War funding bill. Go figure.

Not in their committees, apparently:

Schlozman didn't get any relief from the grilling from Senate Republicans during the first part of the hearing, as none showed up.

That's one way to learn who your friends are — or are not.

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When it comes to the moral defectiveness of Congress, let it not be said that I am all criticism all the time:

Ms. Pelosi allowed the Iraq war spending bill to clear the House with predominantly Republican votes while most Democrats — including her — opposed it. It was a marked departure from the principle that guided Mr. Hastert during his years as speaker.

Mr. Hastert was an advocate of governing the House by a "majority of the majority" — a standard he thought best served the interests of his Republican members and, by extension, the nation. Just months into her tenure, Ms. Pelosi has shown she will deviate from that approach, balancing the potential of significant rewards against big risks.

Entirely as it should be. "Majority of the majority" — it is painful for me just to type it — is a despicable hyper-partisan practice that has no place in any legislature. A democratically elected body should have the integrity to act democratically. Indeed it must if it is to lay any claim to legitimacy — a daunting challenge for Congress under the best of circumstances.

I am still spitting nails over the unconscionable inclusion of an increase in the minimum wage in that very same Iraq War emergency spending bill. In a sane world with sane legislators, two entirely separate issues would mean two entirely separate votes. So Madam Speaker may have a leg up on her predecessor, but her leadership is hardly cum laude.

But in this one very narrow context, I tip my hat to her.