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Repeal the Minimum Wage

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To put it bluntly, given all the evidence we have about the destructive effects of the minimum wage law, anyone who still calls for an increase in it is either sadly lacking in economic education or is a demagogue. There’s just no getting around the fact that if you use the law to price something higher than people think it’s worth, that thing will go unbought. In the case of the minimum wage, that means unemployment. Don’t raise the minimum wage. Repeal it.

Those who favor an increase don’t deny that it will put people out of work. They say there won’t be “significant” job losses. Other people’s losses are always insignificant. Why should they get in the way of President Clinton’s or Labor Secretary Robert Reich’s good intentions? It is particularly unseemly to downplay a burden when it will fall mostly on the least skilled people in the country. If higher wages result from a raised minimum wage, they will constitute a transfer of money from the poorest Americans to the children of middle-income and affluent Americans. The purported beneficiaries will be the actual victims.

The case against a legislated minimum wage is so well established in theory and in the data that one tires of making it. So instead of going over old ground, let’s examine what support for a minimum wage reveals about its advocates. It reveals much, and it’s not flattering.

Here’s a typical statement, from Ron Carey, president of the Teamsters union: “It’s an outrage that while corporate executives are getting multimillion dollar bonuses, Congress has to be dragged kicking and screaming to assure working people a $5.25-an-hour wage.”

Such statements are made so often that their deeper meaning is usually missed. Mr. Carey opines that Congress should be concerned with how much people are paid. Where an inequity is perceived, he says, the government should do something about it.

How does that view fit with the widely held belief that our economy is based on free enterprise? In a free economy, the price of things, labor included, is set by supply and demand; which is to say, the countless transactions conducted everyday by millions of people–billions really, since we live in a global economy. In a market, no one sets wages, whether for day laborers or corporate chiefs. They are ultimately the unintended result of people freely buying and selling all kinds of things, or abstaining from doing so. If consumers dislike a product, the company’s chief won’t keep his big salary for long.

There are systems in which wages are consciously set by officials. Three come to mind: communism, socialism, and fascism. None of those has a good reputation in this country. We even pride ourselves on having never been tempted by them, unlike our European cousins, because those systems cannot tolerate the individual freedom and consumer sovereignty we prize so highly. It’s no coincidence that they also have been conspicuously bad at producing prosperity. To call on Congress to set wages is to advocate that we imitate those hated economic systems.

Then why do polls show that an overwhelming majority of Americans support a rise in the minimum wage? Probably because too many people judge an idea by its presumed intentions, not by its results. The advocates of a minimum wage have succeeded at persuading people that their intention is to raise the condition of the working poor and that their opponents’ intention is to protect the rich. That makes the issue ripe for demagogues.

Someone not distracted by intentions would wonder why organized labor so ardently supports a minimum wage when the pay of union members is well above the floor set by the law. Someone concerned with consequences might discover that the law is in part intended to stifle competition from unskilled workers by making it too expensive to hire two or three of them in place of one skilled union worker.

The way to immunize oneself against demagoguery is to forget intentions and look at consequences. Wishful thinking is no substitute for clear thinking. The minimum wage should not be increased. It should be repealed.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.