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Does Alan Greenspan Hate the Poor?

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By calling for the repeal of the minimum wage during testimony before the House Financial Services Committee last summer, Federal Reserve Chairman Greenspan undoubtedly dismayed the members of Congress. After all, Greenspan didn’t recommend that the minimum wage be reformed or reduced. He suggested that the law should be abolished.

Of course, any tampering with such a sacred economic regulation is bound to encounter horrifying reactions from Congress. Don’t forget: The minimum-wage law was part of Franklin Roosevelt’s “New Deal,” the extensive system of government regulations that purportedly saved America’s free-enterprise system. Let’s also not forget that the minimum wage reflects Congress’s devotion to the poor and downtrodden.

Doesn’t Greenspan, who was once a member of the inner circle of Ayn Rand, the famous advocate of unfettered capitalism, understand that the minimum-wage law protects workers from being exploited by greedy, bourgeois, capitalist, selfish, profit-seeking employers? If the minimum wage were abolished, wouldn’t employers drive wages down to subsistence levels? Wouldn’t millions of people be starving in the streets? What’s with Greenspan? Does he really hate the poor?

Actually Greenspan understands that the minimum wage constitutes not only an egregious assault on the poor but also an attack on the freedom of everyone in society. In fact, the minimum-wage law’s infringement on economic liberty was the reason that the U.S. Supreme Court initially declared it in violation of the U.S. Constitution. (See Adkins v. Children’s Hospital [1923], which unfortunately was overturned in the famous case of West Coast Hotel v. Parrish [1937], after FDR’s infamous scheme in which he attempted to pack the Supreme Court with his cronies.)

A minimum-wage law does not force an employer to hire anyone. The law simply holds that if an employer does hire a worker, he is required to pay that worker the legally established minimum wage, say, $5 an hour. The rationale for the law harkens back to standard Marxian doctrine: Employers, being greedy and self-interested, will always exercise their power to pay workers the lowest wage possible. Therefore, the law purports to protect workers by providing a floor that guarantees that their pay will not fall below a subsistence level.

Even a cursory examination of this reasoning reveals its nonsense. For one thing, if employers do have the unfettered market power to bid wages down to subsistence levels, why is it that in many industries today employers are paying workers significantly more than the legally established minimum? Why don’t they pay only the minimum wage and nothing more? Could it be that there are market forces (e.g., competition from other businesses) that counteract the self-interest of employers and that “force” them to pay workers more than they would like to?

When an employer hires a worker, it is because he anticipates that the worker will produce a value that exceeds what he is paying him. For example, if a worker is hired at $5 an hour, the employer anticipates that the worker will contribute a value to the business of, say, $6 an hour. That’s why he hires him.

But what happens if an employer believes that a worker, because of inadequate work experience for example, will produce only $4 in value? Obviously, he won’t hire him if the law requires him to pay $5 because, in his mind, he’ll be losing $1 an hour.

Thus, the law does nothing to help people whose labor is valued by employers at less than the legally established minimum wage. On the contrary, the law actually attacks those prospective workers by denying them the opportunity to work at the lower wage. By locking them out of the labor market, the minimum-wage law prevents those people from grasping the first rung of the economic ladder, where they could gain work skills and learn work ethics that would enable them to keep climbing up the ladder. Consigned to permanent unemployment by the minimum-wage law, those prospective workers are then relegated to government welfare, where the state takes care of them . and, of course, controls them in the name of helping them.

Minimum-wage laws have no place in a free society. Freedom entails the right of people to enter into mutually beneficial exchanges with one another which provide them with the opportunity to improve their economic well-being. Greenspan has it right. It’s time for Americans to recapture their heritage of economic liberty, and a good way to begin is by repealing the minimum wage, a relic of the bankrupt economic philosophy of state control over economic activity.

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    Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.