The Minimum Wage Fallacy
“All those rejecting capitalism on moral grounds as an unfair system are deluded by their failure to comprehend what capital is, how it comes into existence and how it is maintained, and what the benefits are which are derived from its employment in production processes.”[1] ~ Ludwig von Mises.
Today the idea of raising the federal minimum wage has again entered the mainstream. Unsurprisingly, liberal socialist proponents see the increase or “living wage” as an antidote to poverty and inequality. While proponents differ on the rate of increase, $15 to as much as $33 dollars per hour, the socialist goal remains the same; to provide financial security for the collective poverty-stricken community. Yet, all honest economists know that raising the minimum wage increases unemployment, especially for young and unskilled workers. Given that most low-skilled workers tend to be a minority, these calls for increases in the federal minimum wage will clearly hurt the very people proponents propose to help.
According to New York Times columnist Paul Krugman, the effects of minimum wage increases in Europe have left youth from ages 18 to 30, without any prospect of finding a good job. Further, in these countries, a generation of young people is unable to get adequate job training or develop a career.[2] This is not left just to Europe. A study of the Seattle minimum wage increase found the numbers of hours worked by low wage workers fell by 3.5 million hours per quarter. This was reflected both in thousands of job losses and reductions in hours worked by those who retained their jobs.[3] Moreover, even those masquerading as socialist clearly see the effects of a higher minimum wage. Democrat millionaire and presidential candidate Bernie Sanders reduced the hours worked by his staff in an effort to bypass paying higher “living wages” demanded by his campaign staff. All the while campaigning on the policy of a federal $15 per hour minimum wage increase.[4]
The minimum wage increases routinely pushed by these socialists and pandering republicans reject economic logic and reality. Socialists believe the long-disproven Marxian “labor theory of value,” which holds that labor is the sole source of value.[5] Under this theory, socialists see a company’s profits as plunder and or exploitation of its workers. This rationale is clearly an economic fallacy; the fallacy of the “Zero-Sum.” The “Zero-Sum fallacy” is the false assumption that all economic transactions are a zero-sum process, I.E. what one individual gains is a direct lost by another individual. This false assumption is why most modern critics of capitalism fear economic freedom. They fear the results of allowing people the freedom to decide their own economic affairs (wages) and letting the unregulated market run its course. This fallacy has given rise to the belief that regulators and bureaucrats know better than private citizens in making their own voluntary arrangements and therefore regulators are needed to prevent individuals from suffering loss. Those that believe this fallacy fail to realize that economic transactions again are voluntary and that an individual would not and is not, compelled to enter into a transaction without mutual acceptance. Moreover, suffering an economic loss is not a bad thing. It causes individuals and businesses to reorient and or reallocate resources to better uses.[6]
[1] Ludwig Von Mises, “The Anti-capitalistic Mentality”, Liberty Fund, 2006
[2] DiLorenzo, Thomas., “The Problem with Socialism.”, Regnery Publishing. 2016
[3] Tabarrok, Alex, “Seattle’s Minimum Wage Has Been a Disaster, as the City’s Own Study Confirms,” Foundation for Economic Education, June 27, 2017
[4] Phifer, Donica, “Sanders Campaign Battles With Staff Demanding $15 Hourly Pay — Which Candidate Says Should Be Federal Minimum”, Newsweek, July 18, 2019
[5] DiLorenzo, Thomas., “The Problem with Socialism.”, Regnery Publishing. 2016
[6] Parker, Gregory, “Conservative Essays for the Modern Era,” Parker Press., 2017
