Once upon a time, the land of Tyrantia was ruled by an evil king who took intense pleasure in inflicting pain and suffering upon the poorest people in Tyrantia. “Ha, ha, ha!” laughed the evil king one night to his evil wife, “I’ve just devised an excellent scheme to cause poor people to needlessly suffer even more!”
“What, dearest vile one,” asked the queen with a sinister smile, “is your new brilliant plan?”
The king answered as he grinned and rubbed his gnarly, warted, and sweaty hands together: “I will command that the price of bread be raised so high that the poorest of my people will be unable to buy any! They will go without! Many poor people will starve to death!”
“Oh, my loathsome liege! You are an evil genius!” the queen cooed as she flashed one of her fleshy ankles at her beloved.
Economic Chain of Reaction
In case you missed it, the king and queen in the above little fairytale are very bad people. They intend to harm others for no reason other than that doing so gives them pleasure. And their intention in this case will reap the desired result: the artificially high price of bread will indeed cause many of the poorest people of Tyrantia to suffer starvation. For all their dastardliness, the king and queen do understand basic economics.
The evil king and queen understand that economics can starve their people.In particular here, they correctly understand that an exchange between Farmer and Baker will not take place if Farmer does not offer for Baker’s loaf of bread at least as much as Baker values that loaf of bread. The monstrous monarchs also understand that, while Baker wants from Farmer as much as possible for a loaf of bread, competition from Baker’s many siblings and cousins will prompt him to give to Farmer his loaf of bread in exchange for Farmer agreeing to give to him (Baker) just enough dough to compensate Baker for his sacrifice of the loaf of bread.
These ruthless rulers understand also that Farmer’s resources are limited. Farmer has only so much dough that she can offer in exchange for a loaf of bread. If the maximum amount of dough that Farmer has to offer to any Baker for a loaf of bread is less than the amount of dough that any Baker asks for a loaf of bread, Farmer will not get a loaf of bread. Farmer needs more dough, but she doesn’t have it. And she cannot conjure it out of thin air.
Finally, because these terrible tyrants understand all of the above, they correctly conclude that if they instruct their polizei to prohibit Bakers throughout the land from lowering the cost of bread below some arbitrary minimum, some – and perhaps many – poor Farmers will be unable to buy bread, even though each possesses enough dough to entice Bakers to sell bread to them at prices below the dictated minimum price of bread.
Who doesn’t understand any of the above? It’s all so straightforward and obvious that it’s a waste of my time to write – and a waste of your time to read – the above paragraphs. Right? Sigh, apparently not, for those who advocate minimum wages as a means of raising the incomes of all low-skilled workers do not understand the above points.
Low-skilled workers are akin to the Farmers in the above tale, and employers are akin to the Bakers. Low-skilled workers want to exchange with employers and employers want to exchange with low-skilled workers. Low-skilled workers offer that which they have (namely, their labor services) and want to receive in return that which employers have to offer (namely, spending power in the form of money, and also job experience).
A minimum wage tells workers that if their wealth of skills is not deemed minimally appropriate, they may not purchase employment opportunity.What the dastardly dictators in the above tale would correctly understand, but what many minimum-wage proponents do not, is that a minimum wage artificially raises the price that workers must pay to purchase economic opportunity. By enacting a minimum wage, the state tells each worker that if his or her current wealth of skills is not as high as the state deems minimally appropriate, he or she may not purchase from any employer the opportunity to earn current income and job experience. “If you are too poor in skills,” says the state to workers, “you may not acquire any income or job experience. If your current wealth of skills falls below what we, the state, deem minimally acceptable, you are too poor in skills to participate in our economy.”
To workers who are very poor in skills, the state declares: “Any income and experience to be gotten from working at jobs in our economy are reserved for people who are richer in skills than you are. You are too poor in skills to be allowed access to those economic opportunities. Those opportunities are for the ‘haves.’ You are a ‘have-not,’ and you shall remain that way.”
And yet when government officials in, for example, Washington, DC, and Washington State enact minimum-wage legislation – doing effectively the same thing as is done in the above fairytale by the awful autocrats – these officials are widely celebrated as humane and “Progressive” champions of the poor rather than condemned as the evildoers that they are.
This reality is grim.
This first appeared at Cafe Hayek.