The Capitalist’s Case for a $15 Minimum Wage… Minus the Capitalism

It’s too bad the term “capitalism” has been bruised and bloodied so intensely that people can literally claim that it represents the exact opposite of what it really stands for. For instance, I came across an article on Bloomberg.com titled “The Capitalist’s Case for a $15 Minimum Wage” by Nick Hanauer. For poops and giggles, let’s define capitalism before we get into the article.

Google defines it as: An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.

Marriam-Webster defines it as: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

I think that the most important parts of these definitions are private ownership of property, the price system, and the free market. Now that we have defined the most important term we are going to talk about, let’s see just how Nick thinks that a capitalist could support a $15 minimum wage; let alone any minimum wage.

Nick Hanauer starts out strong by defining capitalism completely different from its actual definitions. After all, how are you going to twist an economic system into supporting something that it doesn’t?

“The fundamental law of capitalism is that if workers have no money, businesses have no customers. That’s why the extreme, and widening, wealth gap in our economy presents not just a moral challenge, but an economic one, too. In a capitalist system, rising inequality creates a death spiral of falling demand that ultimately takes everyone down.”

I’ve never seen capitalism described as “workers need money so that businesses have customers”. That statement might be true, but I don’t see how that applies to capitalism. You could say this about pretty much any economic system. It’s like saying “Maglite flashlights need electricity to give light”. True, but that applies to all brands of flashlights, not just the one you’re using. Sorry buddy, do not pass go, do not collect $200. Do not stimulate the economy.

Speaking of “stimulating packages”; maybe what he really means is “demand is necessary for a healthy economy”. This sounds more like what a mainstream economist, Keynesian, or Paul “Alien Invasion” Krugman might say. I think a more appropriate title for this article might be “The Non-Capitalist’s Case for a $15 Minimum Wage” or “Surprise! I’m not a Capitalist”.

He goes on to say that the US is quickly replacing middle-class jobs with low-wage jobs. 48% of all jobs will be low-wage by 2020. He is absolutely correct. The economy is creating mostly low-paying and part-time jobs. Talk about a terrible turn for the economy. Good thing he knows a “powerful”, “capitalistic”, and “elegant antidote”. Why not “spike” the minimum wage to $15 an hour?

Apparently if the minimum wage had tracked with increased US worker productivity since 1968 it would be at $21.72 an hour. I don’t see how referencing an arbitrary number from the 1960’s is a useful exercise. Yes, the minimum wage is an arbitrary number. It is based on the whims of central planners in Washington and not the price system that takes into account the wants of employers and employees. The minimum wage was a bad idea then and applying this rate of productivity growth doesn’t change that. Besides, this measurement appears to be based on the increased productivity of all US workers, not those making minimum wage. He’s going to poke someone’s eye out if he keeps blindly swinging these statistics around.

Nick then goes into full-on incoherent jibber-jabber as he talks about envisioning employees as customers/consumers.

“Traditionally, arguments for big minimum-wage increases come from labor unions and advocates for the poor. I make the case as a businessman and entrepreneur who sees our millions of low-paid workers as customers to be cultivated and not as costs to be cut.”

Funny thing about the origin of the minimum wage; it was first proposed and instated by labor leaders that wanted to price black people out of the labor market. Back in the day many black men would work construction jobs for less money than what white men would voluntarily work for. In response they lobbied government to place a minimum wage to prevent black workers from underbidding them in the job market. Even nowadays, the minimum wage and other costs associated with hiring workers are contributing to the VERY high black unemployment rate. The minimum wage is a fundamentally racist policy.

As for helping the poor; mandating a wage that outpaces people’s skills and experience will only ensure that they are unemployable. That doesn’t sound very helpful to me.

The next section is about pillows and rich people and investments and what-not. I think this guy was robotripping when he wrote this. It’s such a word salad that it doesn’t make enough sense to even be wrong. Take a look:

“Here’s a bottom-line example: My investment portfolio includes Pacific Coast Feather Co., one of the largest U.S. manufacturers of bed pillows. Like many other manufacturers, pillow-makers are struggling because of weak demand. The problem comes down to this: My annual earnings equal about 1,000 times the U.S. median wage, but I don’t consume 1,000 times more pillows than the average American. Even the richest among us only need one or two to rest their heads at night.

An economy such as ours that increasingly concentrates wealth in the top 1 percent, and where most workers must rely on stagnant or falling wages, isn’t a place to build much of a pillow business, or any other business for that matter.”

Next we get a list of the economic benefits of raising the minimum wage to $15 an hour. $450 billion a year would be injected into the economy. 81 million people would be directly or indirectly helped by this. Wow, how can we say no to this? First, I would like to point out that the “economic institute” that he links to as a source has some questionable street-cred. Let’s look at the titles of some of their articles from the past:

Obama stimulus plan is smart, necessary-except business tax cuts, 2009
An investment that worked: The Recovery Act two years later, 2011
Government regulation isn’t impeding the recovery, 2012

Forgive me if I’m skeptical of the predictions that a clown college makes. Step one, raise minimum wage to $15 an hour. Step two, … Step three, $450 billion more in the economy!

Where exactly is this $450 billion coming from? Will it materialize out of unicorn farts? No, it will be pulled away from the useful activities it is currently engaged in. How do people think that taking money from one part of the economy to another will add wealth to a society? Nothing is created. These people won’t be more productive just because their wage doubles. Money is shuffled around, that’s all. This is a perfect example of Frederic Bastiat’s concept of “that which is seen and that which is not seen”. Does he really think that all businesses that employ a good number of people at minimum wage will be able to just cough up the money to double their wages out of thin air? Simple math says that people are getting laid off or getting moved to part time. It’s happening right now as we speak because of the interestingly named Affordable Healthcare Act.

Not to be out done by a clown college, David Card and Alan Krueger (the current chairman of the White House Council of Economic Advisers) describe a “virtuous cycle effect” that claims employment increased in states that raised their minimum wage during times of high unemployment. Oh, I see now: Step one, raise minimum wage to $15 an hour. Step two, virtuous cycle effect. Step three, $450 billion of success! You just have to add “virtue” to government force and coercion! Usually when you write articles like this it is not useful to quote people that have built careers out of being completely wrong all the time. Referencing economists connected to the White House is dumb for two reasons. It is in their best interest to justify the policy supported by the man currently holding that office. Also, the proof is in the pudding. They missed the housing bubble that started the recession and have been wrong in their predictions that the economy is improving ever since.

Now is the time for an article like this to flex its moderate, bipartisan, or even “conservative” muscle by arguing that policy X will save the Federal Government money. How much you say? A butt-ton.

“A higher minimum wage would also make low-income families less dependent on government programs: The CBO report shows that the federal government gives about $8,800 in annual assistance to the lowest-income households but only $4,000 to households earning $35,500, which would be about the level of earnings of a worker making $15 an hour.”

The problem with central planners like Nick here is that they think the vacuum in which their calculations take place is anything like the real world. Businesses react to incentives and prices. Right now the healthcare costs associated with employing full-time workers is causing employers to just hire a bunch of part time people so they can avoid paying for government mandated insurance plans. The combination of rising health insurance costs and mandatory employer coverage is functionally the same as a wage increase in an employer’s eyes. Increasing the cost of labor even more will make the problem worse and create more poor and unemployed people needing assistance.

This is an article about a central planner’s case for a $15 minimum wage. Nick does not make any arguments from the capitalist philosophy; partly because he can’t understand capitalism outside of his biased economic views and because the task contradicts itself. He misidentifies what capitalism is, he makes arguments no capitalist would make, and suggests the government intervene more in the price of labor in the market. This violates the business owner’s property (his company), the price system (labor prices set by the markets), and the free market itself. I find it incredibly Utopian to believe that the government can just pass a law and shuffle money from one place to another to fix a complex social issue. People don’t make enough money? Pass a law; that ought to do the trick. Economics and freedom be damned.

Sources:

The Capitalist’s Case for a $15 Minimum Wage
Economic Policy Institute
More Part-Time Jobs With Obamacare
With Eye on Obamacare, Companies Move to Cut Workers’ Hours
Obamacare Already Shrinking Small-Business Job Growth
Thomas Sowell on the Minimum Wage
Thomas Sowell on Race, Poverty, and Intellectuals
Walter Williams and Thomas Sowell on the Racism on the Minimum Wage
Employment Report Shows More Jobs, Questionable Quality, Smaller Labor Force
Williams: Minimum Wage has Racist Origin

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s