Five Myths/Lies That Are Told By People Who Hate The Minimum Wage

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By David Grace (www.DavidGraceAuthor.com)

Myths about the minimum wage that are promoted by the right wing:

1: The Market Price For A Good Or Service Is The Correct Price And It Is Wrong To Change It

People who believe this myth have no understanding of how price is determined in a market economy.

In a market economy, price is determined by the respective bargaining powers of the buyer and the seller.

When the bargaining power of the buyer and seller are equal you end up with a Cost + Overhead + some level of Profit price — the free-market, competitive price.

When the bargaining power of the seller is massively greater than that of the buyer you end up with a Monopoly Price or the Maximum Revenue Price.

The price for unskilled labor has nothing to do with some mythical true, fair, proper, correct or inherent value of that labor.

The price for unskilled labor has everything to do with the bargaining power of the employer versus the bargaining power of the worker.

Unionized, unskilled auto workers who have the power to shut down nationwide production have high bargaining power and that power results in their wages being in excess of $30/hour.

Similarly-skilled but non-unionized restaurant workers who, at most, can shut down one or two out of ten thousand restaurants have low bargaining power and get paid $10/hour.

The market price for a good or service is not right, not wrong, not fair, not unfair, not accurate, not inaccurate, not untouchable or inviolate any more than it’s right, wrong, fair or unfair for a particular army to win a battle.

The most powerful contestant wins not because they are good or bad or right or wrong, but because they are the most powerful,.

Do you really think that the “right” price for a bushel of wheat is less than it cost the farmer to grow the wheat?

Do you really think that the right price for a vial of insulin is a hundred times greater than it cost the pharmaceutical company to manufacture the insulin?

Do you really think that the right price for unskilled labor is one that is insufficient for a full-time worker to feed his family?

If Ted Bundy attacks a fifteen-year-old girl and succeeds in strangling her, is that the right result which should not be changed or prevented?

The idea that whomever wins a contest should win that conflict and that it is wrong for anyone to aid the person on the weaker side of the contest is nonsense.

Both in life and in buyer-seller bargaining power, might does not necessarily make right.

The market price for unskilled labor is in no way a determination of the moral propriety of the amount being paid. That market price deserves no deference, respect, enshrinement or immunity because the market price is merely an expression of the employer’s vastly superior power versus that of the worker.

There is no ethical seal of approval attached to the market price for unskilled labor and there is a no good reason that that market price should be deemed inviolate.

2: If The Price For Something Goes Up, Some Of The People Who Make It Are Doomed To Lose Their Jobs

The quantity of a product sold does not necessarily decrease when the price goes up.

The effect of a price increase on sales depends on many factors — how vital is the product? Are there substitute products that are cheaper? In absolute terms is the dollar amount of the increase trivial or substantial?

Before the Civil War cotton was grown with slave labor. The plantation owners might have claimed that if they had to get rid of their slaves and pay their workers that the increased cost would drive them out of business.

Clearly nonsense. People still needed cotton. If the price doubled, people would still have had to buy cotton because there was no cheaper, acceptable alternative.

Mine owners may have claimed that they would go out of business if they had to stop using cheap child labor and pay adults to mine their coal.

Clearly nonsense. People still needed coal. If the price doubled, people would still have bought coal because there was no cheaper, acceptable alternative.

Walmart might claim that it will go out of business if unskilled labor costs go up by 50%.

Clearly nonsense. People still need to buy stuff and Walmart’s cost of labor is only a fraction of the total cost of the products it sells.

3: If People Stop Buying A Product, The Money They Would Have Spent On That Product Disappears

If I buy lunch at McDonalds and their prices go up, I still have to eat lunch. I will still likely buy my lunch there because it’s still going to be cheaper than the alternatives from other restaurants who are also paying the same, higher, minimum wage that McDonalds is.

If McDonalds is not cheaper than the alternatives, then I might start buying my lunch from a food truck, or I may buy more groceries from Safeway and make my own lunch.

Whichever choice I make, my lunch spending isn’t going to disappear. That spending won’t evaporate. At most, that money will just go to a different seller of a substitute product, and when that seller’s business increases it will need to hire more workers.

The money that was spent on one product doesn’t disappear when the price of that product increases. It merely gets spent either there or someplace else and the maker of that other product will have to hire additional employees to meet that new, increased demand.

4: People On The Bottom Earning More Means That People On The Top Will Have Less — The Economy Is A Zero-Sum Game And Every Additional Dollar Earned By Poor People Will Be A Dollar Taken Out Of The Pockets Of Rich People

When I was a kid I loved the Scrooge McDuck comic books that portrayed money as a physical thing. Scrooge McDuck kept all his money in coins and bills which he stored in a huge Money Bin. McDuck’s money never grew and it never decreased. Until he spent it, it was always just physically there.

If money were really only a physical thing then any dollar gained by one person would have to be a dollar lost by another person.

But money is not a physical thing and the amount of money in the country grows or decreases with the expansion and contraction of the economy.

It is entirely possible for both rich people to get richer AND poor people to get richer at the same time because an increase in commerce actually increases the supply of money.

How Banks Increase The Money Supply

Banks are required to maintain deposits equal to at least 10% of the amount of their loans.

So, if I put $100,000 into the Bank Of America, the B of A can then loan out $1,000,000. If the recipient of that $1,000,000 loan puts it into the Wells Fargo Bank, Wells Fargo can then loan out $10,000,000.

In this example, my $100,000 deposit increased the amount of money in the economy by $11 million dollars.

When bank deposits increase, the money supply increases tenfold. When bank deposits decrease, the money supply decreases tenfold.

If wages for the bottom 20% of the population double, those people will immediately spend that money and that spending will increase the sales and profits of numerous other business who, in turn, will plow some of that new income into purchasing additional goods and services and some of it into savings.

Those extra purchases and those new savings deposits cause the money supply to grow.

Employers paying higher wages may make a lower profit per unit sold, but they may sell more units because there is more money available to be spent on their products.

Or, they may raise the cost of their products to cover their additional labor costs without a reduction in sales and thus make the same level of profits as before.

If you have a child-like view of money as only physical bills and coins, then you may think that every extra dollar paid to employees means one less dollar in the pockets of employers, but when you understand that there is a feedback loop where higher wages increase sales in the economy and increase the money supply, you realize that an increase in the wages of poor people does not necessarily mean a decrease in the wealth of rich people.

5: Low Wages And Impoverished Workers Are Good For The Country

Poverty is never good for an economy or a country.

Wages that are insufficient for workers to care for themselves and their families:

  • Restrict consumption,
  • Reduce commerce, and
  • Impoverish the economy as a whole.

An impoverished population leads to:

  • Increased drug and alcohol use
  • Lower productivity
  • Increased medical costs.
  • More crime
  • More police
  • More prisons
  • More social volatility

More people living paycheck-to-paycheck means:

  • More people in debt without enough money to
  • Get medical and dental care
  • Educate their children
  • Eat healthy food

All of these conditions are costly to the economy, costly to the government, costly to the taxpayers, and costly to the country as a whole.

An impoverished population is bad for everyone. Moreover, an impoverished population is unnecessary when you understand that making people on the bottom richer does not mean making people on the top poorer.

To the contrary. Enriching the bottom 20% grows the economy, increases the money supply, and makes the entire country richer, including making those in the top 20% richer as well.

Enriching the bottom 20% also gets people off welfare thus reducing taxes and the size of the government.

— David Grace (www.DavidGraceAuthor.com)

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David Grace

David Grace

Graduate of Stanford University & U.C. Berkeley Law School. Author of 16 novels and over 400 Medium columns on Economics, Politics, Law, Humor & Satire.

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