From “Faith, Snow & Government” by Skip Oliva:

It’s often said that libertarians have “faith” in free markets. I don’t think that’s the case. What we have is an understanding of the division of labor and the law of comparative advantage. Some people mistakenly confuse that with religious fanaticism. …

Government, in contrast, is an attempt to violate the natural laws of economics. The division of labor is irrelevant, claim the faithful, because we have elections to install leaders who will provide all manner of services, regardless of the leaders’ actual knowledge of experience. If we just elect the “right” people and have faith in them, the political system will outperform individual action and voluntary exchange.

I lived half a year on a kibbutz back in the late 1980s, just as the intifada was starting.

For most of that time, I was the “shotef sirim” — the pot scrubber. For me, it was a proud title. It was the one kitchen job they wouldn’t let women do (something about the weight of the pots or the height of the top shelves), so I spent the work days surrounded by women — but with my own little domain behind the oversized sinks and the power spray of hot and cold water.

Now I learn from the Financial Times (“The rise of the capitalist kibbutz”) that “Tasks that used to be performed by kibbutzniks regardless of their education and background — such as washing the dishes — are today largely the preserve of hired workers from outside the community.”

As the article’s title implies, that’s not the only change confronting the kibbutzim, the once-upon-a-time bastion of voluntary socialism — the “proof,” as some of us once claimed, that “it worked.”

As kibbutznik-turned-economics-professor Omer Moav argues,

the kibbutz movement was always destined to fail. It worked, he says, only as long as kibbutzniks enjoyed a standard of living broadly comparable to, if not better than, the Israeli average. “People respond to incentives. We are happy to work hard for our own quality of life, we like our independence,” he says. “It is all about human nature — and a socialist system like the kibbutz does not fit human nature.”

See also Literature and the Economics of Liberty by Paul Cantor and Stephen Cox

“It’s not the state but rather technology and a bad economy that have made porn profits go limp — reportedly down 30–50 percent. But there is still money to be made, just not the monopoly profits that intellectual-property law provides.” – Doug French, “The Porn Bust”

“In 1918, the Soviet Union became the first country to promise universal ‘cradle-to-grave’ healthcare coverage, to be accomplished through the complete socialization of medicine. It didn’t turn out well.”

FULL ARTICLE by Yuri N. Maltsev, senior fellow of the Mises Institute. Maltsev worked as an economist on Mikhail Gorbachev’s economic reform team before defecting to the United States. He teaches economics at Carthage College.

What we said then: This isn’t a free market; it’s monetary central planning; it will all end badly. Study price theory!

What they said then: You’re wrong; you’re wrong; you’re wrong, you crazy extremist doomsayers. All other economists disagree with you.

What we say now: That wasn’t a free market, and that’s why it all ended badly. Stop interfering. Study price theory!

What they say now: No one saw this coming. Economists haven’t a clue. The free market has failed us. We need bigger government!

I try so hard to ignore the news. I really don’t want to know what’s going on. But Mises.org is there to give me a gentle nudge every once in a while, as it did today. I learn from Art Carden’s new blog post that the minimum-wage floor is being raised tomorrow. Here we are in a depression and policy is being passed to put the most desperate people out of work. Here we are putting the poorest working people out of work and people who think of themselves as champions of marginal workers are cheering.

It’s clearly time to run this old effort of mine, however little it will do. Better to light a candle, etc. (he said as he cursed the darkness).

The 3 E’s of the Minimum Wage

It’s time, once again, to talk about the minimum wage.

Or rather, it’s time to talk about why we’re still talking about it.

Why is this absurd law still with us? Why is it so popular? Why are the Democrats talking about the need to raise the minimum yet again?

From an ethical perspective, the law is wrong. From an economic perspective, it is damaging and dangerous. And yet the emotional perspective — the actual basis of most opinions — has a strangle hold on well-intentioned people.

Let me elaborate the three E’s mentioned above:

E1: Ethical alignment.

This is also known as one’s principled or moral position. This is where we talk about right and wrong in our deepest sense of those words. This is the focus of those who believe that the ends cannot justify the means.

E2: Economic alignment.

This is also known as the practical, utilitarian, or consequentialist perspective. Those who believe that the ends can justify the means would presumably care most about economics, the study of which means effect what ends.

E3: Emotional alignment.

This is the realm of connotation, of symbolic alignment, which “side” you want to be on. Emotional alignment is how people feel about an issue, and perhaps more important, how they feel about the people they associate with the different sides.

To take a position, I believe one needs to address the first two: the ethical and the economic. To persuade someone, I think one needs to address all three. We libertarians often neglect E3. While most people will claim to hold positions based on morality or on consequences, they really base their positions on symbolic- or emotional alignment: agreeing with “the good guys” and not wanting to side with “those people” etc.

E1: The Ethics of the Minimum Wage

When debating the minimum wage law with an advocate, I used to address only E1: the right of contract. I didn’t need to understand the economics of price fixing and the consequences for unskilled labor; all that mattered was the right of individuals to engage in voluntary arrangements without the coercive influence of third parties.

If I own myself, then I own my labor. If I own my labor, then I have a right to exchange it for whatever compensation I agree to, on whatever terms I agree to. That’s my perspective as a worker. My perspective as an employer would be the same: if someone is willing to do work for me at a price I find agreeable, then it’s nobody else’s business to interfere with our exchange. This seems so straight-forward to me now that it takes a real effort to remember how I could ever have believed anything else.

E2: The Economics of the Minimum Wage

As Jim Cox points out in his Concise Guide to the Minimum Wage, the question isn’t whether a person will be employed at an hourly wage of $X or something more than $X; the question is whether the person will be employed at $X or unemployed at $0.

In the past, when talking with a minimum wage advocate who didn’t know any economics, I’d try to sketch out a very quick lesson on how to produce shortages and gluts through price fixing. I eventually realized that I was abstracting too much to hold their attention. (See E3, below.) It has proven more useful to describe concrete examples.

When I was growing up in New York, buildings all over the Upper West Side had doormen. They would welcome tenants and visitors in the lobby, and operate a manually controlled elevator to take them to their floor. At some point in the late 1970s, the doormen went on strike. I learned three things from this strike:
(1) It’s fun to operate an old-fashioned elevator when you’re a kid;
(2) To give the doormen what they were asking would have meant that my family’s rent would have to go up;
(3) It’s cheaper to install intercom systems and new push-button elevators than it is to pay the doormen more.

Everyone seems to understand why there are hardly any manually operated elevators left on the Upper West Side of Manhattan, but they don’t seem to generalize that understanding to labor and the minimum wage.

Similarly, there are many on the economic Left who advocate excise taxes on cigarettes because they know that higher prices will discourage consumption of cigarettes. They want higher gas taxes to lower the consumption of gasoline. So why is it so hard to see that higher work prices will discourage the consumption of labor?

Many people I talk to about the minimum wage seem unaware of any economic downside. The mark of economic illiteracy is the failure to anticipate trade-offs. But some minimum wage advocates do understand the economics of price fixing and do acknowledge that a rising minimum wage means an increase in unemployment. So why do they still support the law? They point to labor statistics, which show that the unemployment effect is mostly on teenagers. They claim that it is worth a rise in the wages of “bread winners” if the only downside is the loss of some part-time and summer jobs for kids. They tend not to mention that these unemployed “kids” are mostly young black men, and that they are the least skilled and least educated among young black men. These are the people most in need of on-the-job training! Minimum wage advocates, mostly white so-called liberals, take for granted the very skills that these young men are now unable to learn on the job: punctuality, responsibility, communication, cooperation, etc. Next time you hear someone decrying the plight of inner city youth, ask how different their futures would be if the bottom rungs hadn’t been removed from the economic ladder.

E3: The Emotional Support of Minimum Wage Law

The most painful part in writing this is that nothing I’m saying is new.

So why is this battle still being fought? Worse yet: why does it seem that we’re losing? Minimum wage is one of the absolute simplest issues to address rationally, and yet the irrational law enjoys overwhelmingly popular support.

Abstract arguments and ethical principles leave people cold. They say that they are “results oriented” — which would seem to imply a belief in the positive economic consequences of price fixing. But when confronted with basic economic theory and history, they remain unconvinced.

Why?

Because to them, minimum wage law feels right. They don’t like thinking of someone working for less than $X per hour. To them, it therefore follows that no one should be allowed to hire a person for less than $X per hour. They don’t see it as a prohibition on labor; they see it as a blow against the oppressive bosses!

They associate the libertarian position not with principle or conviction, but with cold hearts, greed, and selfishness. What we call freedom of contract, they call exploitation. What we call reason, they are convinced is merely rationalization.

This is emotional alignment. Symbolic self-image. People who seem to care about the poor tend to support minimum wage law; therefore someone who wants to support the poor supports the position of that group. It’s as if reality itself could be defined by majority rules.

“I am a progressive, therefore I support progressive legislation.” Or, “The Christian position is X, and I’m a Christian, therefore I support X.”

It’s all based in the belief (habit, reflex) that an issue isn’t about a principle, isn’t about reason, but is always about whose side you’re on. There’s management and there’s labor. The rich and the poor. Exploiters and exploited. Minimum wage law is seen as siding with labor, siding with the poor, the underdog. To oppose minimum wage law is to side with management, to support the rich over the poor.

And of course, the whole context is the damned Class Warfare assumption that Marx managed to plant in the brains of even the most ardent anti-communists. An appreciation of market economics reveals the mutually beneficial nature of trade (as would simple philosophical rigor), but our culture has been indoctrinated with the image of economics-as-warfare. People believe that the rich take wealth from the rest of us, rather than creating wealth for the rest of us. To side with the rich in our dichotomous symbology would be to side with the thief over the victim, and no amount of principled argument — or even practical disproof — will shake that impression out of someone’s head when it’s been lodged in there for so long.

What is to be done?

Should libertarians abandon principles and persuasion in favor of symbolism and emotional manipulation? Perhaps we should focus more on public relations and advertising than on philosophy and economics.

No, there’s nothing wrong with E1 or E2. They are the realms of reason. Abandoning our heads for our hearts leaves us with only arbitrary next steps. But persuasion requires more than reason. It might be less about teaching and more about helping people unlearn certain mental reflexes.

From now on, if I’m going to discuss minimum wage law (or any other regulation, prohibition, or legislation) with a supporter, I’ll say up front that I’m going to address three different perspectives on the same issue, and I’ll introduce them to the 3E approach. There’s not much I can do to change someone’s symbolic alignment or their emotional reflexes, but by making these things an explicit part of the conversation, I can hope to reduce the hold they have on a person’s moral imagination.

On the Mises Blog, William Anderson has an interesting review of Krugman’s latest (and more insidious than usual) apology for economic fascism, but what really caught my attention was this comment from “Adam I.”:

You know what I’ve realized about these guys? It’s true for pretty much all American foreign policy thinkers too.

History begins in 1930. There are five historical events:

• The Crash of ‘29 and the Great Depression
• The Rise of Hitler
• WWII
• The Cold War
• 9/11

That’s it. That’s history. Economists seem to stop paying attention in the 1950s anyway, so their list is even shorter.

Ludwig von Mises on “commercial good will” versus government “consumer protection”:

The role which good will plays on the market does not impair or restrict competition. Everybody is free to acquire good will, and every bearer of good will can lose good will once acquired. Many reformers, impelled by their bias for paternal government, advocate authoritarian grade labeling as a substitute for trademarks. They would be right if rulers and bureaucrats were endowed with omniscience and perfect impartiality. But as officeholders are not free from human weakness, the realization of such plans would merely substitute the defects of government appointees for those of individual citizens. One does not make a man happier by preventing him from discriminating between a brand of cigarettes or canned food he prefers and another brand he likes less. (Human Action, p. 377, emphasis added)

I’m enjoying my wife’s current project editing Turgot.

Anne-Robert-Jacques Turgot (1727–1781)

Here’s the latest, cross-posted to blog.Mises.org:

It is this advance and this continual return of capitals which constitute what one must call the circulation of money — that useful and fruitful circulation which gives life to all the labors of society, which maintains movement and life in the body politic, and which is with great reason compared to the circulation of blood in the animal body. For if, by any disorder whatsoever in the sequence of expenditures on the part of the different classes of society, the undertakers [entrepreneurs] cease to get back their advances with the profit they have a right to expect from them, it is evident that they will be obliged to reduce their undertakings; that the amount of labor, the amount of consumption of the fruits of the earth, the amount of production, and the amount of revenue will be reduced in like measure; that poverty will take the place of wealth; and that the common workmen, ceasing to find employment, will fall into the extremest destitution. (Reflections on the Formation and Distribution of Wealth)

(See also “Economics in 2 Paragraphs.”)

(via blog.Mises.org)