Cilley’s non-economics

It must be nearing an election. Jackie Cilley is out with an opinion piece that is nothing but a self-congratulatory paean to herself and to social democracy. It is completely devoid of the economic consequences of the minimum wage, so it’s hard to rebut her argument--she doesn't have one! Let's see what we can point out.

Ad hominem and false class analysis

First, she is subtly making ad hominem attacks by claiming that the “voters in the bleachers [the proletariat?] are way ahead of the 1% in the skyboxes [the bourgeoisies?]” when it comes to the minimum wage. She relies on a non-existent class struggle. Many of the “99%” are also capitalists. Anyone who has a 401k, certificates of deposit, mutual funds, etc., is a capitalist. A single man is not just a laborer, or a capitalist, or an entrepreneur. Rather, these are concepts, roles that all of us play during our lives. 

The real class analysis is comes from the libertarian perspective: the class distinction is between those who are net tax receivers and net tax payers. This is not divided by income: big banksters who receive bailouts and the rich military industrial complex are in the same lass as those who rely completely on welfare and public relief. Whether you agree or disagree with the use of tax money in these cases does not diminish from the fact that this group contrasts completely with the hapless taxpayer.

Regardless, let’s grant Cilley her perceived class distinctions, and that the 99% are “good,” and the 1% “bad.” So what? An argument made by a bad person is not invalid because of the person’s badness. A KKK member might support free speech so that he can promote some racist propaganda. Does that make free speech law? Of course not. What Cilley is doing here is making an ad hominem attack: she is implying that the evil fat cats’ opposition to the minimum wage is wrong because they are evil fat cats. And, from the other side, she is implying that because 99% of the people are with her, the minimum wage is the good and correct policy. A moment’s thought would reveal that a majority vote does not make a policy good or moral. It just means that most people are wrong. [By the way, there are those for whom even the bleacher seats at Fenway are too expensive…maybe the bleacher voters are also evil.]

Theory of the minimum wage

She offers no argument on the logical consequences of the minimum wage. Let’s deal with the positive theory first, then talk about her likely counter claims.

First, in the absence of government intervention, a “wage” is the market price for labor. There is a supply of labor (from the laborers) and a demand for labor (from the employers). The going wage will tend towards that price such that the quantity supplied equals the quantity demanded. Suppose a minimum wage above this market price is imposed and enforced. It means that laborers are prohibited by law from offering their services for lower prices. Because supply schedules decrease with increasing price, and demand schedules increase with increasing price, a minimum wage means that there will be a higher supply of labor than a demand to obtain it. Translation: involuntary unemployment. This is like any other price fixing schemes: a price floor logically implies, all else equal, an unsold surplus of the good in question.

Now, given the market wage, one might think about ways to make it higher. In order to answer this, we must understand what determines the wage itself, the actual number. The answer is the (discounted) marginal value produce of the labor. This is technical jargon for the value that a laborer imputes to the ultimate consumer good. This is just how productive the person is: the more productive—as evaluated by consumer demands—the higher his wage. What determines productivity? For the vast majority, it is capital equipment: we are far more productive pushing buttons on a machine that makes tables than we are making tables by hand. So, if Jackie Cilley wants to raise wages, she should eliminate all taxes on capital and businesses. (Yeah, right!)

A common retort: "but minimum wage X was tried in area Y and it people’s wages rose and unemployment did not increase." Such “empirical data” are unconvincing because, unlike in a science lab, there is no way no control. It is a unique historical event, not a repeatable experiment. More simply, I can answer: "the positive results happened despite the minimum wage, not because of it, and the results would have been better had there been no government interference." There is no way out without a logically consistent theory. [Besides, you can scour the internet for stories of minimum wage laws increasing unemployment, like this one. Personally, one story about a loss of a job or reduced hours is enough to vitiate any claims that a minimum wage is helpful.]

Value judgments

Cilley also likes to sneak in her own value judgments. Where does this 99/1 division come from? Why not 98/2, or 90/10? Maybe Ms. Cilley divides it just so that she can claim she is with the majority. Cilley talks about how “millionaires [are] refusing to pay a reasonable wage.” What is “reasonable”? Is it whatever Cilley says? There is no objective criterion, and I submit that she is an stingy old 1%-er who refuses to pay laborers a reasonable $1000/hr.

Conclusion

Jackie Cilley has zero understanding of the minimum wage. She should listen to the wisdom of economist Murray Rothbard:

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

Instead of supporting a policy that would harm the very people she claims to be helping, why not advocate reducing taxes so that people have more money in their pocket? Or, even better, end the monopoly of the Federal Reserve and revert back to sound money whose purchasing power doesn’t vanish simply by sitting in our pockets. These things probably don't buy as many votes.