Paul Krugman Defends the Minimum Wage

Paul Krugman recently wrote an op-ed in support of President Obama’s call for raising the national minimum wage to $9.00 an hour. Surprising, right? The intergalactic war advocate wasted no time in lamenting the lack of spending in Washington and how Republicans have been especially effective in preventing government largess. Lame, right? Thats our first clue that this is a work of fantasy on par with President Obama’s last two budget proposals, none of which got a single vote, Democrat or Republican.

The Presidents minimum wage proposal includes pinning future increases to inflation. Even if you accept the premise of central economic planning like this you gotta ask yourself. Why the fuck does inflation happen over time? Why do prices keep rising? More on that later.

One of the strange things about intellectuals is that they can admit the validity of reality and then go on to advocate for policy that violates that very admission. Krugman is no different. He must do a lot of brain yoga. It’s a rare sight seeing a man twist his own brain into a pretzel… smothered in cheese whiz.

“Well, Economics 101 tells us to be very cautious about attempts to legislate market outcomes. Every textbook — mine included — lays out the unintended consequences that flow from policies like rent controls or agricultural price supports. And even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems.”

His first argument for raising the minimum wage is that it has not kept up with inflation. Like I said before, perhaps instead we should look at how we can prevent inflation (Like ending the Federal Reserve). This is an admission that inflation hurts the poor, but that fact seems to be lost on him. He is of the thought that low inflation fuels the economy and helps reduce unemployment. The problem with low inflation is that it accumulates. Since the Federal Reserve’s founding around 1913 the dollar has lost 98% of its purchasing power. Sounds like a disaster to me. Imagine saving for retirement for 30 to 40 years and when you retire many of those dollars have lost a significant amount of purchasing power. That’s why its called the invisible tax. So Krugman’s first argument is that we are slowly destroying our dollar so we need to mandate wages for low skilled workers to keep up with it. Talk about morphine for tooth decay.

Krugman references a study that says a minimum wage doesn’t impact unemployment. The study says that that is likely because companies often adopt cost cutting actions or increase the price of their product or service.

“The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers. In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment. Employers can reduce hours, non-wage benefits, or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity (from reorganizing production to increasing training), increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.”

Even if its claim that unemployment is unaffected, the study admits that companies must react to the minimum wage mandate, including ways that hurt the people making minimum wage, higher skilled employees, the customers, and the company as a whole. Thats a lot of damage on the behalf of the low skilled worker.

People who support a minimum wage often ignore a critical fact a person’s income tends to rise over time. Very few people will work in low skilled jobs for their whole life. As people gain experience and skill their income will rise because of promotions or applying for more skilled jobs. America is famous for the ability of its people to climb up the social ladder (even though that has been reduced in recent years).

Krugman claims that he and others want to increase the wages of “hard-working but low-paid Americans”. If that is true then he needs to reassess his view of inflation. Inflation is constantly rendering the minimum wage obsolete. After the government sets a the price of low skilled work those people may benefit for a time, but the government is intentionally devaluing the dollar. Seriously, the Federal Reserve’s official policy is to create 2% inflation every year and as far as I know Krugman supports that policy. That may sound small, but over 5 years, that’s 10% of your purchasing power that has been silently taxed from you. In essence, the minimum wage is just the state reacting to the negative side-effect of its own monetary policy. Does this sound like a sustainable system? Its a snake eating its own tail.

Krugman uses a poll showing wide support for the minimum wage to make Republican men look like elites that, in his words, “disdain” workers. In reality that poll says little about Republican men, but a lot about the rest of the country. Its shows that the majority of people don’t understand economics and, worse, that they have strong authoritariancollectivist leanings. The minimum wage is just another intrusion on property rights and another part of a centrally planned economy, which never work outside of a handful of small homogeneous countries. The minimum wage is incompatible with a truly free society.

Lets not forget that the minimum wage was created to keep blacks out of the workforce.

From Reason.com:

“The failure to move against these poverty-sustaining interventions indicates either that the self-styled champions of the poor are ignorant of economics or that they are poseurs. Let’s not forget that the biggest boosters of the minimum wage are the leaders of organized labor, whose members’ incomes are far above the minimum. Before we assume the motive is humanitarian, let’s recall that such legislation was first proposed years ago by people who wanted to exclude their competition—particularly blacks and women—from the marketplace.”

There is no end to the length that people like Krugman and the President will go to control our lives for our own “good”. Violating the rights of some for the “benefit of others” is no virtue and no good can come of it. If Krugman is worried about the poor and the working class, then he should stop supporting the devaluing of the money low-skilled workers make. He should also stop supporting the ban of low-skilled jobs that prepare people for future better paying jobs.

Live Free


Sources:

Paul Krugman’s op-ed: http://www.nytimes.com/2013/02/18/opinion/krugman-raise-that-wage.html?ref=opinion&_r=5&amp

Paul Krugman saying alien invasion would boost the economy and calling for inflation: http://www.huffingtonpost.com/2012/06/21/paul-krugman-alien-invasion_n_1612973.html

http://reason.com/archives/2013/03/03/the-min-wage-harms-the-most-vulnerable

Walter Williams and Thomas Sowell on the minimum wage and discrimination: http://youtu.be/2jv1Zae0sgo

Minimum Wage study: http://www.cepr.net/documents/publications/min-wage-2013-02.pdf

Minimum Wage poll: http://nelp.3cdn.net/0be1c6315f2430afa6_arm6bq9wu.pdf

US inflation: http://www.tradingeconomics.com/united-states/inflation-cpi

Murray Rothbard: http://mises.org/daily/6367/Outlawing-Jobs-The-Minimum-Wage

Learnliberty on minimum wage: http://youtu.be/Ct1Moeaa-W8

More: http://blog.skepticallibertarian.com/2013/02/25/remedial-economics-and-the-minimum-wage-for-presidents/

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