Professor Mark J. Perry's Blog for Economics and Finance
ECON 101: The Speaker of the House wants everyone to pay the minimum wage except herself and other politicians. Watch Pelosi demonstrate her resistance to economic logic, and how she finally becomes so frustrated that she has to call the guard to prevent any more questions.
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
43 Comments:
Minimum wage is a pure economic issue based on the Law of Demand and the Law of Supply, it has nothing to do with a political viewpoint. Likewise, the belief in gravity has nothing to do with politics, it's pure physics. Unfortunately, politicians turn an economic issue into a political issue. Passing a minimum wage law, as if politicians can suspend, supercede or circumvent the law of economics, is equivalent to passing a law that would foolishly attempt to suspend the laws of physics.
Minimum wage does NOT protect the vulnerable, promote economic development, or imrpove employment conditions. If you understood economics you'd know that min wage undermines ALL of those things.
Hundreds of academic research papers have demonstrated this. You are merely asserting falsehood as if it were undeniable truth and declaring contrary opinions to be petty partisan politics.
Examine the plank in thine own eye. Your do-good schemes haven't helped alleviate ANY social ills where your ilk have had complete political control. They are cesspools of failure.
Unpaid internships are voluntary transactions, but so is working at sub-minimum wage. There is NO DIFFERENCE. Both jobs allow people to gain valuable experience. Those people who lose their jobs or are never hired because of min wage do not get that experience.
The good professor is trying to teach. LEARN instead of whine!
Jan asks, "so if somebody wants to volunteer to work at McDonald's for $4.00/hr [...]"
Why didn't Pelosi calm down and listen to the inherent stupidity in the question? If you are receiving a wage of $4.00/hr, you are not volunteering.
David, there is a long history on this blog of posts about the negative impacts of the minimum wage.
The Milton Friedman clip was this month. One on the effect on teenagers and another on student jobs at Ball State were in August. Going further back there were many many others.
Why throw throw terms like "shill" and "emotional pissing contest" on this post? That's pretty out of line with the long history of minimum wage posts.
Mark,
this video is nothing short of amazing. It illustrates the fact that many of our elected leaders feel themselves and their decisions above that of common men. It is somehow not O.K. for private individuals whom own private property to engage in the same practices that our magnanimous leaders indulge in.
David doesn't realize that there isn't anything funny about this video, at its core. It's damn scary, and not nearly enough of the electorate realize it. It's a shame that we don't really have a "team" to root for, as David suggests, but instead we can only elect the lesser of all evils.
Mark is absolutely right. Issues such as this are vitally important to our political process and our economy. Ignorance of basic economic principles on the part of our politicians is a grave threat to our prosperity and our democracy. These things need to be exposed for what they are.
I just love her ludicrous speech to camera at the end where she constructs an unbelievable story of the greedy businessmen that come talking to her.
some have come to me and said "you’d be surprised what profit we could make if only we had very low wages” I said NO I WOULDN’T be surprised!
That is just hilarious. Hey Nancy, were they twirling their villainous mustache while they said this to you? Were they tying a damsel to a railroad track?
It’s not just that she’s utterly ignorant of basic economics. She’s a thieving, crooked power monger. That’s not partisan. They all are. But, wow. Even my most liberal friends think Pelosi is a disgrace.
Six Ounces,
One may or may not receive money for doing volunteer work, but if it is volunteer work, then it is entirely up to the person/organization receiving the work to decide if they give the volunteer money or not. To say, "volunteer for $X.XX/hr." makes no sense.
BTW, what's with all the anger? If I'm really daft please be patient with me and teach me, don't turn me off.
BTW, a "volunteer" soldier is but one definition of volunteer and here the word is used in contrast to conscription. And in the context of the video, it makes no sense to use that definition as we are not talking about soldiers. I don't think Pelosi was trying to clarify that she wasn't forcefully conscripting students to do government work.
volunteer
adj : without payment; "the soup kitchen was run primarily by
unpaid helpers"; "a volunteer fire department" [syn: unpaid,
volunteer(a)]
"Instead of going for cheap laughs you could have provided some insight into how minimum wage laws both fail to protect the vulnerable and limit economic growth that would improve employment conditions within a region"...
Professor Perry has been there and done that more than a few times in the past year or so...
"Instead of educating and arguing from a position of research and data, this post is merely an emotional pissing contest of "I like one team better than I like another team"."...
What a truly bizzare statement!
Personally I can't help but wonder if you and like minded people think applied economics somehow operates in a vacuum sans the ugliness of politics...
"Why didn't Pelosi calm down and listen to the inherent stupidity in the question? If you are receiving a wage of $4.00/hr, you are not volunteering."...
Just curious why is it a stupid question?
Personally I would have to question the intelligence of anyone who wants to work for Pelosi whether it is for free or for $4000/hour...
Pelosi's Tuna Surprise
JANUARY 16, 2007
David,
You may not like the fact that Nancy Pelosi, once again, has been demonstrated to be a total, do-nothing, lightweight fraud in such a way as to make clear to all but the most pious Democrats that the woman has absolutely no idea what she's talking about on any given issue, but calling Mark Perry a shill for a political viewpoint here is way off base.
The point, as I understand it, is that the Speaker of the US House of Representatives is economically-illiterate. This has everything in the world to do with economics and it is entirely appropriate that an economist would post this interview on a blog. No shilling here.
My first impression was that Mark has reached for some low hanging fruit here and that there are and have been better ways to make the excellent point about minimum wage and the effects of bureaucratic interference.
My second impression, however, was not how hypocritical Pelosi is but rather how inept she is mentally. She could have easily turned the interview impotent in any number of ways but she showed she is either so arrogant or so dim witted (or both) that she couldn't do it.
I, for one, thank Mark for showing everyone the mental midget more so than showing us the laydown POV that minimum wage increases are merely the politically expedient thing to do, not the economically beneficial thing to do.
Anonymous et al,
The reason for the criticism of being a shill is that the economic illiteracy, support for minimum wage legislation, arrogance, and buffoonery apppear in pretty equal measure across the political parties. Mark chooses to only ridicule one party. That's not being an academic, nor is it being useful, it's merely being a shill. Oh, and by the way, read my comments again ... you've got my argument about the efficacy of wage legislation turned around in your head.
As for "1", again I suggest you read my comments, what "like-minded people" do you think I represent? I suspect, like anonymous you've leapt to the conclusion I'm pro Pelosi as opposed to what I actually wrote which is that being a thoughtless cheerleader for one team or the other is a waste of time and intellectually cheap.
A classic. Time for SNL to make a skit parodying this interview -- but then again, they could just show the actual footage and get laughs.
I always enjoy seeing our "polished" elected officials squirm, regardless of political party.
Hanfeld makes a good point. Let the free market decide wages.
How, seriously, HOW can people, even Californians, continue to elect this woman? She is the one of the dumbest public servants I've ever seen. Career politicians...there is simply nothing worse.
It appears that Ms. Pelosi basically agrees with the
NY Times editorial "Right Minimum Wage: $0.00", at least for unpaid government interns.
David Rotor wrote:
It's unseemly to be a shill for a political viewpoint. Disappointing.
And:
Instead of educating and arguing from a position of research and data, this post is merely an emotional pissing contest of "I like one team better than I like another team".
Baloney.
Exposing the irrationality and the evasions of one of the leaders of the Democrats does not automatically make one a "shill" engaging in an "emotional pissing contest" for the other side.
Mark has every right to show us the dishonesty and arrogance of those trying to further eliminate our economic freedoms -- he isn't obligated to turn a blind eye to Queen Nancy's shenanigans merely to avoid your ad hominem accusations.
Mark, please show us more. The public needs to know what these clowns are doing to us.
Minimum wage laws hurt the very people they are intended to help. They prevent unskilled workers (whom no one is willing to pay minimum wage) from being able to find a job.
The interviewer is asking valid questions, but Pelosi is unwilling to answer them due to her political commitments.
David Rotor, your ignorance is laughable. I can see that you have only been following this blog for a very short while since you think that Mark "takes one side over the other." I would cite evidence (such as the article Mark posted like this one that critique republicans too. But evidence doesn't matter to bastions of one-sided viewpoints like yourself.
David Rotor said:
"Instead of educating and arguing from a position of research and data ..."
What better research is there than the speaker's own words?
She is the speaker of the U.S. House.
She is second in line for the presidency.
Why wouldn't we be interested in her words regarding economic issues?
Dave, first, this is a blog - a place for discussion - not a PhD thesis. Second, why do you presume to define what the content of someone's blog should be?
Should the readers of this blog be allowed to define what the boundaries of your comments should be?
I like the idea of a minimum wage, but there is no way it can work in practice. I would also like the sun to shine every day, but that is not going to make that happen either.
I've had a lot of discussion over the years how numbers work. I was laughed at when I said UAW/GM could not keep doing what they were doing and stay in business way back in 1998, and I kept repeating it over the years. Sadly, I was correct.
I like the discussion on this blog; I find it very diverse and educational. I don't always agree with the posts, but I always learn something that either strengthens or weakens my position. I appreciate the time and effort involved. Keep up the good work.
Yes, Peter, volunteering for X dollars makes PERFECT sense whether it's $1 million, $50 and hour or $2 an hour. You are wrong when you say that the pay is solely determined by the employer. They must compete for labor with other employers. The problem with low skilled people is they have little to offer the employer. Their wage must be at or below their marginal revenue product - the value of their labor.
All transactions in a market economy are done willingly. That's why the DEFINITION of a demand and supply curve, which determines prices and wages, includes the phrase "willing and able". If people were not willing to supply labor below minimum wage, there would be no equilibrium wage there. In fact, the are usually people willing to supply labor below equilibrium wage.
To sum it up, the word "free" in "free market" is synonymous with voluntary. It has the added meaning of unencumbered (by government).
Sorry Peter, I can't teach you a course in economics in the space of a dialog box. You owe it to yourself to get an education. I get angry when people hold ardent opinions in complete ignorance. You weren't asking questions, you were making statements.
Bob et al,
I'm trying to influence the contents of Mark's blogs not define them.
I would rather have intelligent discourse on issues rather than partisan inanity. W
I think Mark provided a valuable public service when he began publishing data on the housing crisis that showed, as prices declined actual sales volume and total price increased (Supply and demand in action!), or when he began his series on the mancession, or today's article on what the data, rather than a political spin, has to say on income inequality.
I applaud him for this work, and I make his blog a daily read. I frequently learn things, and occasionally try to offer useful commentary such as my experiences with managing healthcare in several different countries, or my pointer to the Herfindahl-Hirschman Index in his article about banking concentration.
On the other hand, he occasionally uses this blog for purely partisan reasons, when he does (or to be fair, when I notice and care enough) I call him on it.
I call him on it not because I agree or disagree with the partisan viewpoint he takes, but because it limits the value of the other work that he does. If he comes to a reputation as merely a shill for the Republicans any worthwhile work he does is more easily dismissed.
If I want blatant partisanship from a (formerly?) respected economist I'll read Krugman. When was the last time that you read Paul Krugman for insightful analysis into an economic problem? Thought not, I can't recall one either.
It will be a loss of talent, intellect, and insight if Mark merely becomes yet another braindead hack spouting a party line de jour.
I don't see the post being party- line at all. I see it as against government meddling in a free market by any party.
For the first time, I actually feel sorry (just a bit) for Nancy Pelosi. The interview demonstrates that she has built a career around a worldview that is morally and intellectually untenable, and I think she knows it. All that she can do when backed into a corner with a rational argument is hiss.
Two words: "Term Limits"
For all politicians of all stripes.
Definition of a intern - a student who works (often without pay) in order to gain experience in their chosen field
This is not worthy of an otherwise intelligent blog.
I agree with David Rotor's thoughts.
Definition of a intern - a student who works (often without pay) in order to gain experience in their chosen field
Typically a college student is paying tuition. So a student who is a intern is not just working for free but is actually paying to work for free.
What's tuition today? $7000 to $45000 per year.
Seems to me that anyone who supports minimum wage would be outraged unless they suspend reason.
"As for "1", again I suggest you read my comments, what "like-minded people" do you think I represent? I suspect, like anonymous you've leapt to the conclusion I'm pro Pelosi as opposed to what I actually wrote which is that being a thoughtless cheerleader for one team or the other is a waste of time and intellectually cheap"...
Wow! You do make some bizzare leaps in logic!
Never said or intimated that you were pro-Pelosi but I have to question your ability to grasp reality if you can't see how Pelosi et. al (both parties BTW) can impact economic conditions to the detriment of us all...
There's only one thing that comes to mind if I want to consider what's worse than a politico when it comes to economics and that's being a Keynesian...
"Definition of a intern - a student who works (often without pay) in order to gain experience in their chosen field'...
Interesting point Biren and one I'd wholeheartedly agree under most circumstances...
Then again shilling/intering for a politico might be interesting and even educational but then silly me just keeps stumbling over the 8th commandment...
All of this quibbling over the term volunteer is silly and avoids the obvious point of the question. Should an individual be permitted to work at McDonald's for less than the minimum wage if they feel that is good for their career? If not, then why is it okay for them to work a non-paid internship? If you support non-paid internships would it be acceptable for McDonald's to start such a program which enabled people to gain work experience in exchange for free labor. If it is not okay for McDonald's to do this then why are you limiting it to instances where interns are more educated and likely more affluent and excluding the poor and less educated from similar opportunities?
I would be interested in an open and honest discussion of this question rather than resorting to name calling or picking on others' words. In my view that style of behavior is a sign of limited intellect which I presume the authors are not looking to project.
"Should an individual be permitted to work at McDonald's for less than the minimum wage if they feel that is good for their career?"...
I'm sorry but why this even a question?
There's nothing as far as I can tell there's nothing in this latest evolution of FSLA that says an employee CAN'T ask for less...
Am I wrong?
Biren:
"Definition of a intern - a student who works (often without pay) in order to gain experience in their chosen field"
I absolutely agree with you. But then why wouldn't someone who wanted to gain experience in the food service industry for example, but had little else to offer employers, also be allowed to work for less than the minimum wage?
The interviewer's point was not that Pelosi is wronging her interns by paying them little money; it is that people entering all fields should be able to work for little money in order to gain work experience and to be educated. It happens to be that interns, by virtue of the fact that they have little experience and few marketable skills, are not able to command a high wage for their services. Instead, they offer their time and limited abilities in exchange for knowledge.
Professor Perry is not being a shill. He just pointed out that Pelosi is a hypocrite. I've been coming to this blog for 2 years now, and I can attest to the fact that Perry attacks inconsistency on both sides.
1:
You're not wrong. An employee can ask for less. But if the employer obliges and is found to be paying less than the minimum wage, they will be in violation of labor laws.
Thus, it is the case (and Pelosi herself agrees, though she calls the comparison "silly") that if I want a job, but McDonald's isn't hiring at 6 dollars an hour, so I offer my services at 3 dollars an hour (I put myself "on sale," so to speak), McDonald's would decline my generous offer. They would see that, though it is a good deal to hire a worker at half price, minimum wage laws (and penalties for infractions thereof), they could not afford the litigation and harmed reputation concomitant with my hiring.
"But if the employer obliges and is found to be paying less than the minimum wage, they will be in violation of labor laws"...
Excellent point like such as!
I wonder if there's a new niche in there somewhere for these folks?
Biren
A rather major point to me personally is that the Speaker of the House couldn't articulate the very point you succinctly spelled out in a three second paragraph. Therefore she couldn't possibly transition to a worthy discussion applying the same "internship" to anything else or discuss the merits/casualties of minimum wage policies. And, while off point a bit here, I find that fascinating (and alarming!).
I think Mark has done an excellent job in providing a perfect example of why we shouldn't allow politicians (of EITHER party) to get their hands on our free market economy. Because they do not understand basic economics.
And the pissing contest about "volunteer" is ridiculous. Clearly the interviewer's first language is not English. If it was, he might have asked "If someone wants to VOLUNTARILY work at McDonald's for $4 an hour, would that be illegal?" And Queen Pelosi's answer would have been the same: "Yes." The point is that the minimum wage laws (just like rent control laws) are politically expedient and economically stupid. They force companies to overpay for labor and they create a shortage of jobs. Pure and simple. What is so magical about $7.25/hour? If higher is better, why not make it $10/hour? Or $20/hour? Why stop there? I'd like to make $100 an hour, and if the federal government would just enact it into law, I could buy a really nice new car!
"Should an individual be permitted to work at McDonald's for less than the minimum wage if they feel that is good for their career?"...
I'm sorry but why this even a question?
There's nothing as far as I can tell there's nothing in this latest evolution of FSLA that says an employee CAN'T ask for less...
Am I wrong?
Let me rephrase. If a person feels that it is good for their career to gain experience by working at McDonald's for less than minimum wage, should McDonald's be permitted to create positions at a lower pay rate for this group which they would not do otherwise?
*"Let me rephrase. If a person feels that it is good for their career to gain experience by working at McDonald's for less than minimum wage, should McDonald's be permitted to create positions at a lower pay rate for this group which they would not do otherwise?"*
Of course they should be able to. An employer should be allowed to use whatever means necessary to attract the workforce that makes the business the most profit. As long as these means do not infringe upon the rights of other individuals or businesses, there can be no problem.
One thing that always bothers me about this topic is the fact that people don't seem to realize that the employer-employee relationship is not a default. It's not as though God created man on the 6th day, then came back before He rested and created another man called "the employer." The employer is just a person who sees an opportunity and decides to pay another person to do work for him.
The key, though, is the risk involved. If the risk is too high, or if that prospective employer cannot find a worker whom he can afford, the prospective employer is under no obligation to continue to employ. Under this reasoning, the "job" belongs to the employer.
However, if you look at the actions and attitudes of politicians and those who think like them, once a "job" has been created, there appears, as a millstone to the neck, a stupendous weight of regulations and red-tape that only make the very existence of that job more precarious.
So McDonald's should be allowed to do whatever it wants (within the libertarian "non-aggression principle"). It can advertise positions that pay a penny an hour, though I can't think of anyone who would take that job. It should be able to offer a position that pays no money, but pays for top-notch medical care, room, board, and vacation time. Why not? It should be able to offer a position that pays no wages, but pays for a semester of college? Why not?
The funniest part is when Nancy Pelosi and whoever else then turn around and try to figure out why people can't find work (must be the animal spirits in the economy. better stimulate...)
WaltG, you have a beer or a dozen anytime you come near Philly. We have had our disagreements here, but you are a guy who calls it as it is.
Kudos to Dr. Perry. I poached his Milton Friedman video, and may do so with this one - with proper credit!
There is absolutely no quibbling going on with a discussion about the definition of 'voluntary'.
In a free market, participants freely choose whether to employ labor or not, take a job or not, and mutually agree on a salary in a competitive market of employers and workers.
As soon as government IMPOSES price controls (min wage is a price floor on labor) then the exchange is only constrained volition. Neither the employer nor the worker is free to set the wage below the floor. Employers will respond by hiring labor for fewer hours than they would like and fewer hours than workers would like. This is called a Surplus of labor and that results in unemployment which is, BY DEFINITION, involuntary.
Some more definitions should (but probably won't) clear it up:
Labor demand function: the quantity of labor hours employers are WILLING AND ABLE to hire at alternative prices.
Labor supply function: the quantity of labor hours workers are WILLING AND ABLE to supply at alternative prices.
If equilibrium wage for certain workers is $2 per hour, BY DEFINITION the workers are WILLING AND ABLE to work at that wage. If no one was willing or able, equilibrium wage would necessarily be higher.
Aside from interfering with free will, price controls lead to inefficient allocation of ressources - a loss of social welfare. Prices of output will be higher, unemployment higher, profits lower, consumer and producer surplus lower, production lower and a black market for labor is likely to develop.
Good stuff Six Ounces!
Very good explanations...
Thanks...
In a free market, participants freely choose whether to employ labor or not, take a job or not, and mutually agree on a salary in a market of employers and workers.
That's the academic definition; reality is a bit more different.
Six Ounces says:
"You are wrong when you say that the pay is solely determined by the employer. They must compete for labor with other employers. [...]"
Oh for crying out loud, you are twisting (poorly, not even artfully) my words. I said that the decision to pay or not in a volunteer situation is entirely in the hands of the organization (I didn't use the word 'employer' for obvious reasons - funny you quote me as doing so).
That was an interesting follow-up econ 101 lesson with a condescending tone to boot. So yes, I made a statement and you have failed to prove it wrong. Here...have another shot:
When one volunteers for an organization, the organization gets to decide whether or not they will transfer any funds to the volunteer. This is the nature of volunteer work and the accepted definition given the context of the video. However, if the individual is employed, there is typically a contract involving monetary renumeration and, assuming the employee has fulfilled her side of the contract, it is not within the organization's (i.e. employers) power to decide to pay the employee or not.
I'm looking forward to hearing you claim otherwise. It might get really entertaining - perhaps you'll throw in a lecture on elasticity and suggest a good college for me to enroll in? I need to finish high-school first though...
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