Monday, August 13, 2012

How About Minimum/Maximum Temperature Laws?

A version of the post below appeared on CD during the unusually cold winter of 2008-2009, and I present it again today, now that Rep. George Miller (D-Calif.) and more than 100 of his House Democratic colleagues have recently proposed legislation that would increase the minimum wage to almost $10 per hour:

Q: Couldn't the government intervene in the market for temperature-reading equipment to counteract "excessively low" winter temperatures or "excessively high" summer temperatures, just like the government does in the unskilled labor market to counteract "excessively low" wages for unskilled workers?  Let me explain.

In Defense of the Minimum Wage Law:

Unskilled workers are at the mercy of greedy, cold-hearted, ruthless, profit-seeking employers. Without some kind of government intervention in the unskilled labor market, employers will ruthlessly exploit unskilled workers, and pay them sub-standard wages (e.g. $5 per hour).

To counteract this injustice in the labor market for unskilled workers, our collective sense of fairness and justice demands legislation that currently forces employers to pay a minimum wage of $7.25 per hour. Wages below that minimum (e.g. $5 per hour or $6 per hour) are unconscionably low, and are outlawed by the minimum wage legislation, with violations subject to penalties, fines and possible jail time for employers paying less than the government-mandated minimum wage of $7.25 per hour.


In Defense of the Minimum Temperature Law:

The frigid, cold, and harsh winter of 2008-2009, and the hardships it has caused for millions of Americans (including an estimated 700 deaths), firmly establishes that we are at the mercy of a very cruel, ruthless, merciless, cold-hearted, and uncaring force: Mother Nature.

Something must be done about this unacceptable situation. Without some kind of government intervention in the market for low temperature readings being registered on existing thermometers and thermostats, Mother Nature will continually and ruthlessly expose Americans to harsh winter conditions of unconscionably low temperatures. Who among us wouldn
’t agree that these excessively low winter temperatures are unfair, unreasonable and unjust?

To counteract this inherent cold weather injustice and Mother Nature’s ongoing lack of concern for cold Americans, our collective sense of fairness and justice requires legislation that will force all thermostats and thermometers sold in the United States to have a minimum, reasonable and fair temperature reading of let's say 0 degrees Fahrenheit. As part of the new Minimum Temperature Law, all existing thermometers and thermostats in homes, offices, and businesses should be immediately replaced with new temperature-reading equipment with a minimum reading of 0 degrees.

Any temperatures below that minimum (e.g. -10 degrees F. or -20 degrees F.) are considered to be unfair and unconscionably low, and will be illegal and outlawed by the Minimum Temperature Law, with violations subject to penalties, fines and possible jail time for thermostat manufacturers continuing to sell thermostats with temperature readings below the government-mandated minimum temperature. Further, all news and weather reports, all TV and radio stations, and all newspapers and websites are immediately prohibited from quoting any temperatures below the federally-mandated minimum of 0 degrees F.  

If successful, subsequent legislation for a Maximum Temperature Law should be considered for summer months, e.g. a maximum allowable temperature reading of 85 degrees Fahrenheit on all thermostats to control Mother Nature's unfair "temperature gouging" and "temperature scalping" this summer, with temperatures in the 90s and above in so many parts of the country this summer.    

Bottom Line: If Minimum/Maximum Temperature Laws seem ridiculous, that's because they are totally ridiculous. And so are Minimum Wage Laws.  Forcing employers to pay an unskilled worker $7.25 per hour doesn't change the reality that many of those workers are actually only worth $5 or $6 per hour. The artificially high minimum wage causes distortions and inefficiencies in the unskilled labor market because the minimum wage does not accurately and truthfully reflect many workers' true productivity, and it's like creating a government-mandated fantasy world.  A disconnect is created between the true measure (e.g. $5 per hour) and an artificial, government-mandated measure ($7.25 per hour), of a worker's value or productivity.

Likewise, imposing a minimum (or maximum) temperature law would create a government-mandated fantasy world about weather conditions, with a disconnect between the true temperature (e.g. -20 degrees or 100 degree F) and an artificial government-mandated minimum or maximum temperature (0 degrees or 85 degrees F). And just like the minimum wage law creates havoc in the labor market, so would the minimum temperature law create havoc for Americans, because thermostats would be conveying inaccurate measures of the true temperature.  

When it comes to the weather, what we want most is the most precise measure possible of temperatures, and we get those from accurate thermostats and thermometers, not from artificial, government-mandated minimum or maximum temperature laws. When it comes to maximizing the efficiency of the labor market, what we want are accurate, truthful and precise measures of worker productivity, and we get those from market wages, not from artificial, government-mandated minimum wage laws. 

60 Comments:

At 8/13/2012 2:16 PM, Blogger Jon Murphy said...

Hey, I like frigid, cold weather! If it isn't so cold that you get brain freeze the second you inhale, I am not happy!

Your proposed law is unfair to me, the cold weather guy! I demand retribution!

By the way, I am only being sarcastic in the second half of this post. I do love the cold weather.

 
At 8/13/2012 2:19 PM, Blogger Che is dead said...

It's off topic, but Dr. Perry has covered this story. Henry Juszkiewicz, CEO of Gibson Guitars talks about doing business in Barack Obama's America. "Juszkiewicz is a Republican donor, while the CEO of one of his principal competitors, C.F. Martin & Company, is a Democratic donor. Martin reportedly uses the same wood, but DOJ hasn’t raided them ..."

If this doesn't disturb you, well, ...

 
At 8/13/2012 3:45 PM, Blogger Ken said...

Mark,

One of the ways I analogize the minimum wage is like this. Imagine some politician somewhere is aghast at how little the less well off in society get when selling or trading in their old cars. This politician campaigns to make sure there is a minimum price to be paid for any car, all the while ensuring that anyone who sells a car will get what is "fair".

Does anyone really think that if someone had an old beater of a car no one was willing to pay more than $500 for, would all the sudden pony up $1000 if the minimum car price was $1000? Or do you think that the people who own these old cars will simply have to find a way to dispose of these cars themselves since no one will buy them now?

 
At 8/13/2012 3:53 PM, Blogger PeakTrader said...

Without safety standards, we can get a natural or precise number of deaths, instead of the distortions we get now.

 
At 8/13/2012 4:09 PM, Blogger PeakTrader said...

"When it comes to maximizing the efficiency of the labor market, what we want are accurate, truthful and precise measures of worker productivity, and we get those from market wages, not from artificial, government-mandated minimum wage laws."

BLS
The Editor's Desk
The compensation-productivity gap

"Since the 1970s, growth in inflation-adjusted, or real, hourly compensation—a measure of workers' purchasing power—has lagged behind labor productivity growth.

Real hourly compensation growth failed to keep pace with accelerating productivity growth over the past three decades, and the gap between productivity growth and compensation growth widened."

Chart:

http://www.bls.gov/opub/ted/2011/ted_20110224.htm

 
At 8/13/2012 5:10 PM, Blogger Ron H. said...

Ken:

"Does anyone really think that if someone had an old beater of a car no one was willing to pay more than $500 for, would all the sudden pony up $1000 if the minimum car price was $1000? Or do you think that the people who own these old cars will simply have to find a way to dispose of these cars themselves since no one will buy them now?"

Wasn't a program something like what you suggest already tried in 2009?

All us taxpayers ponied up cash to make sure the poor got a "fair" price for their trade in, as I recall.

Come to think of it, that actually worked just the opposite of it's intent by removing perfectly good cars from the market so the "less well off" became even more "less well off".

 
At 8/13/2012 5:23 PM, Blogger Ron H. said...

"Your proposed law is unfair to me, the cold weather guy! I demand retribution! "

You like it colder than 0 deg. F? Wow.

Actually, at one time, car speedometers only registered to 85mph - I suppose to keep cars from being driven faster than that. Not sure how well it worked, but it's no longer common practice now that horsepower is once again popular.

 
At 8/13/2012 5:32 PM, Blogger PeakTrader said...

Fact sheet for 2009 minimum wage increase
July 20, 2009

"On July 24, 2009, the federal minimum wage will increase to $7.25 per hour...about 4.5 million workers will receive a raise (less than 4% of the workforce), providing an additional $1.6 billion annually in increased wages.

However, when adjusted for inflation...still less than the minimum wage through most of the period from 1961 to 1981.

2.8 million workers currently earn less than $7.25 and will be directly affected by the increase. The additional 1.6 million workers earning slightly above the minimum, those we call indirectly affected, will also be likely to benefit from an increase due to “spillover effects.”

76% of workers whose wages will be raised by a minimum wage increase to $7.25 in 2009 are adults (age 20 or older)...63% of workers who will benefit from an increase to $7.25 by 2009 are women.

African Americans represent 11% of the total workforce, but are 18% of workers affected by an increase. Similarly, 14% of the total workforce is Hispanic, but Hispanics are 19% of workers affected by an increase.

New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases...employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale."

 
At 8/13/2012 5:33 PM, Blogger Jet Beagle said...

Peak Trader, quoting the BLS: "Since the 1970s, growth in inflation-adjusted, or real, hourly compensation—a measure of workers' purchasing power—has lagged behind labor productivity growth."

I think that statement is a little misleading. If you follow the links at that BLS page you provided, you will find a more in depth analysis by Susan Fleck, John Glaser, and Shawn Sprague. They explain why productivity gains in manufacturing didn't flow to labor:

"The nonlabor inputs to multifactor productivity in manufacturing are capital, energy, materials, and purchased business services. The decline in labor share during the 1990s coincided with a falloff in materials share, whereas purchased business services and capital investments, such as information technology, expanded. The shift in expenditures reflected a shrinking manufacturing sector that reorganized production to become more capital intensive. Since 2002, however, the share of materials, which includes imported intermediate inputs, has expanded, contributing to the further decline of labor share."

When productivity increases arise from increased capital investment, and from offshoring the production of intermediate inputs, American labor should expect their share of output to decline.

 
At 8/13/2012 5:51 PM, Blogger Ron H. said...

"Real hourly compensation growth failed to keep pace with accelerating productivity growth over the past three decades, and the gap between productivity growth and compensation growth widened."

And that's to be expected. Isn't increased productivity by definition of increasing output for the same input or decreased input for the same output? Why would you expect labor wages to increase in step with productivity unless it was entirely due to workers working harder?

I can frame a house three times as fast with a nail gun as with nails and a hammer, but I wouldn't expect my pay to triple. The productivity tool gets most of the credit.

 
At 8/13/2012 5:53 PM, Blogger Ron H. said...

Dr. Perry will become a hero for this idea. Who would have ever imagined Global Warming could be so easy to cure?

 
At 8/13/2012 5:55 PM, Blogger PeakTrader said...

Jet Beagle, also, it seems, since 1982, higher productivity was reflected in lower prices (inflation was overstated) and lower interest rates, which somewhat offset lower real compensation growth.

 
At 8/13/2012 6:09 PM, Blogger Ron H. said...

"Fact sheet for 2009 minimum wage increase July 20, 2009"

76% of workers whose wages blah blah blah...How about citing a reference?

all those numbers assume everyone affected stays employed.

"New economic models that look specifically at low-wage labor markets help explain why there is little evidence of job loss associated with minimum wage increases...employers may be able to absorb some of the costs of a wage increase through higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale."

What nonsense. Models? Heh. Let's see a reference. Doesn't higher productivity ever result in fewer jobs? or higher training costs? You can't have all of those things at once.

Lower absenteeism? Higher morale? You must be joking.

Employers "may"? you want to base a conclusion on "may".

 
At 8/13/2012 6:10 PM, Blogger PeakTrader said...

Moreover, I think, quality improved more slowly in 1947-73 than 1982-07.

 
At 8/13/2012 6:12 PM, Blogger Ron H. said...

"Moreover, I think, quality improved more slowly in 1947-73 than 1982-07."

You "think"?

Well, I guess that's good enough, it's settled then.

 
At 8/13/2012 6:12 PM, Blogger PeakTrader said...

Ron, typically, a higher wage attracts better workers.

 
At 8/13/2012 6:17 PM, Blogger Mark J. Perry said...

I've found that the minimum wage issue is an accurate litmus test for basic economic literacy. Defenders of government price controls like the minimum wage really can't be taken seriously because they haven't yet mastered basic economic principles and don't yet understand the laws of supply and demand.

 
At 8/13/2012 6:19 PM, Blogger PeakTrader said...

Ron, if you don't believe me, then you may believe this chart:

http://en.wikipedia.org/wiki/File:Transistor_Count_and_Moore%27s_Law_-_2011.svg

 
At 8/13/2012 7:12 PM, Blogger givemefreedom said...

peaktrader said
Typically higher wages attract better workers



Even if that was true, which it isn't, I thought that min wage was supposed to help the workers at the bottom of the quality scale? Your better workers would already be employed so min wage doesn't help them.

Or are you saying that a higher wage increases the quality of the lower end workers?

That makes no sense.

Just by paying them more won't make them more productive.

 
At 8/13/2012 7:24 PM, Blogger Ron H. said...

Peak

"(Moore's law)"

What the...

Have you lost your marbles? What's the connection here?

 
At 8/13/2012 7:30 PM, Blogger Ron H. said...

Peak

"Ron, typically, a higher wage attracts better workers."

As with so many other things, you have this backward. Better workers attract a higher wage.

 
At 8/13/2012 7:45 PM, Blogger Ron H. said...

GMF:

"Even if that was true, which it isn't, I thought that min wage was supposed to help the workers at the bottom of the quality scale? Your better workers would already be employed so min wage doesn't help them."


That would make sense, but Peak is of the opinion that most unskilled or low skilled workers have a high "reservation wage" that keeps them from taking gainful employment if the pay offered doesn't rise to a level matching their unwarranted high opinion of their own worth, so at $7.25/hr there will be a flood of job applicants whereas at $6.50 there won't be any.

"Death Before Dishonor", or something like that.

 
At 8/13/2012 8:42 PM, Blogger Doug said...

I've found success in explaining it more in detail, that some tasks are not worth minimum wage, and that when driven beyond that, people will pay $0.00/hr by doing it themselves. You can no more legislate a higher minimum wage with no effect than you can legislate a minimum cup of lemonade for a lemonade stand. If people aren't willing to pay it and aren't allowed to pay lower, the actual market cost will go to zero.

 
At 8/14/2012 2:29 AM, Blogger PeakTrader said...

Labor laws, including a minimum wage, can prevent exploitation.

What about immigrants from Mexico who come to U.S. farms and work hard for the minimum wage. Aren't they attracted to the higher wage?

Perhaps, you believe they should receive $2 an hour, which is what they'd earn in Mexico, if they could find a job.

You could be working at a minimum wage job and find you're twice as productive as your co-workers. In the real world, do you believe your employer will double your wage?

If he offers you a 10% raise, you may want to quit. However, do you believe you can get another job that pays you what you deserve?

Anyway, rigorous empirical studies by labor economists reveal more economic forces than what's shown in a two-dimensional partial equilibrium model.

Raising the minimum wage can cause a (positive) wage effect that exceeds a (negative) employment effect.

 
At 8/14/2012 4:23 AM, Blogger Jet Beagle said...

peak trader: "What about immigrants from Mexico who come to U.S. farms and work hard for the minimum wage. Aren't they attracted to the higher wage?"

Do you have statistics showing the wage rate of illegal immigrant workers? My guess is that this would be very difficult to obtain.

I have seen/heard anecdotal evidence about the pay of illegal immigrants, including the observations of a close relative who used to hire illegals. Interviews in popular media and discussions with a few employers of illegals leads me to believe that most undocumented workers received more than minimum wage.

 
At 8/14/2012 4:37 AM, Blogger Jet Beagle said...

peak trader: "Raising the minimum wage can cause a (positive) wage effect that exceeds a (negative) employment effect."

In the short term, perhaps. But there are problems with your argument:

1. those "rigorous empirical studies" you refer to never include the longer term impact of automation which became cost-effective once the wages of unskilled workers were artificially raised;

2. those "rigorous empirical studies" do not include the longer term impact of offshoring decisions which employers eventually make once the cost of U.S. unskilled labor exceeds the value provided by such labor;

3. the short term wage effect certainly does nothing to help those who lose jobs because they are priced out of the labor market (the crushing job losses you casually refer to as negative employment effect).

Minimum wage laws are both an assault on liberty and an economic distortion to the efficient functioning of free markets.

 
At 8/14/2012 4:52 AM, Blogger Ian Random said...

Really, it is about minimum productivity, not wage. If you fail to generate that much value, your job will fail to exist. A business owner was complaining, that he'd pay someone $5/hour to file, but anything more than that he'd just do it himself.

Also it assumes that people are too stupid to leave a job for a better one. I left a minimum wage IT job for data entry, since it paid a few cents more an hour. I guess most people are too stupid to leave jobs when they garner enough experience.


Nixon, the paragon of free markets, wanted everyone to maintain an average temperature of 68 degrees.


www.whatifchallenge.org/pdfs/nixon-transcript.pdf

 
At 8/14/2012 9:05 AM, Blogger givemefreedom said...

Peaktrader said,
Raising the minimum wage can cause a (positive) wage effect that exceeds a (negative) employment effect.



Common sense and basic economics does not support your statement but even if it is true, why should the people who are affected by "your negative employment effect" be forced to suffer the pain of losing their job or not getting a job because the min. wage has now made their productivity too expensive for employers to hire them?

Even you must agree that these people would be employed if there were no min. wage since the employers could then pay them what their productivity is worth.

Why should they suffer? Is this another case of "they should sacrifice for the common good of society". Why distort the market for labour so that those people have to suffer, just to make some other group marginally better off?

Let the market decide who gets what, min. wage is just another government intervention into the market to pick winners and losers.

 
At 8/14/2012 9:31 AM, Blogger Mike Tayse said...

If you pay people less than a reasonable living wage they will resort easily to crime. You don't pay them for their worth, you pay them so they can have a reasonable quality of life so they don't infringe upon your quality of life. Ohio has prisons run by for profit companies and they like anything that helps get more people in prison and hire lobbyists in accordance with those desires, I'm sure they love the low wages and stress upon people who make very little.

 
At 8/14/2012 9:47 AM, Blogger givemefreedom said...

Mike Tayse said...
blah, blah....economic nonsense...blah, blah....socialist baloney....blah, blah...




So the for profit companies that run prisons in Ohio are responsible for low wages?

We need to have a high min. wage so that those people don't come rob the rest of us who make more than min. wage?

That is just nonsense.

 
At 8/14/2012 9:59 AM, Blogger Jon Murphy said...

Mike-

I'm not sure where to start in responding to your comments.

Let's start with an easy one:

You don't pay them for their worth, you pay them so they can have a reasonable quality of life so they don't infringe upon your quality of life.

Pay me $200 a day and I won't burn your house down.

Ohio has prisons run by for profit companies and they like anything that helps get more people in prison and hire lobbyists in accordance with those desires, I'm sure they love the low wages and stress upon people who make very little.

That's an argument against government involvement in prisons and minimum wage, not an argument for it.

If you pay people less than a reasonable living wage they will resort easily to crime.

No, they won't. For the majority of people, crime is not a considerable option. The costs far outweigh the benefits. Besides, if that were true, why aren't the poor just preemptively arrested? If poverty causes crime, then all poor people should be arrested. You got your causality backwards here. Poverty doesn't cause crime. Crime causes poverty.

You don't pay them for their worth

I suppose when you go to the store to buy anything, you always pay more than what the price tag says? When you buy a car, do you negotiate up? If that's the case, I have a 2000 Honda Civic with just under 200,000 miles on it. I'd be happy to sell it to you, and since I know all I need to do is threaten your personal belongings to get more money, I'll just keep negotiating up.

The thing you need to remember is negotiation is a 2-way street. The worker can just as easily go to another company if he doesn't like the pay.

 
At 8/14/2012 10:16 AM, Blogger Jet Beagle said...

Mike Tayse: "don't pay them for their worth, you pay them so they can have a reasonable quality of life so they don't infringe upon your quality of life."

Mike, I applaud your persistence in earning a BFA and a Masters degree in Arts Education. I'm sure you know know far more about general art, jewelry making, and ceramics than the rest of us who comment here.

I'm just curious, Mike. Where did you receive your education in economics? How did you come to understand the concepts of supply and demand - the basics for price determination?

 
At 8/14/2012 10:21 AM, Blogger sethstorm said...

[article]
Physics != Economics.

Nice try, but this is one of the long line of comparisons stretched beyond belief.


Actually, at one time, car speedometers only registered to 85mph - I suppose to keep cars from being driven faster than that. Not sure how well it worked, but it's no longer common practice now that horsepower is once again popular.

Given the plethora of lawnmower engines requested by environmentalists, I doubt that it is the case.



2. those "rigorous empirical studies" do not include the longer term impact of offshoring decisions which employers eventually make once the cost of U.S. unskilled labor exceeds the value provided by such labor;

No, offshoring is a result of unpunished fraud, at whatever level of perceived skill you wish to claim.

 
At 8/14/2012 10:33 AM, Blogger givemefreedom said...

sethstorm said...
offshoring is a result of unpunished fraud



That is one of the most ridiculous comments yet made by the "crew" of Hydra, Larry G., Sethstorm, etc. etc.

So every company that employees people outside of the US should be charged with fraud?

More nonsense.

 
At 8/14/2012 12:57 PM, Blogger Ron H. said...

Peak:

"Raising the minimum wage can cause a (positive) wage effect that exceeds a (negative) employment effect."

It boggles the mind that you don't believe the immutable, universal laws of supply and demand apply to labor.

"What about immigrants from Mexico who come to U.S. farms and work hard for the minimum wage. Aren't they attracted to the higher wage?"

Everyone is attracted to the highest wage they can get, and the highest wage at which they produce more than they are paid.

For Mexican immigrants that may be back breaking farm work in the US.

"Perhaps, you believe they should receive $2 an hour, which is what they'd earn in Mexico, if they could find a job."

What I believe, Peak, is that they should be paid an amount that they and an employer agree on. I can't possibly determine what that dollar amount should be. I'm not a party to their negotiation, and neither are you. If an employer can make $2/hr from their work, then I expect that's about what they will be paid. If the employer can make $10/hr I expect the pay to be close to that.

If they could get the same wage in the US as they can get in Mexico, they wouldn't be immigrants.

"You could be working at a minimum wage job and find you're twice as productive as your co-workers. In the real world, do you believe your employer will double your wage?"

If he won't pay me more for double the value to him, someone else will. I expect to make an amount slightly less than my value to an employer.

I don't know about double my pay, because doubling productivity usually involves adding capital equipment.

If I can dig a hole with a shovel as fast as 100 of my coworkers, I don't expect to make 100 times as much as they do, because the employer can buy and operate a backhoe with one trained operator for less, and get at least 100 times as much digging as with 100 shovel operators.

"If he offers you a 10% raise, you may want to quit. However, do you believe you can get another job that pays you what you deserve?"

Yes. As I wrote above I expect to make an amount proportional to my value to an employer, up to the point at which adding capitol is cheaper than adding more labor.

""Anyway, rigorous empirical studies by labor economists reveal more economic forces than what's shown in a two-dimensional partial equilibrium model."

How can you write such drivel without pointing to those rigorous empirical studies that show economic forces more powerful than supply and demand?

"Raising the minimum wage can cause a (positive) wage effect that exceeds a (negative) employment effect."

Nonsense. Where is that rigorous empirical study?

 
At 8/14/2012 1:14 PM, Blogger Ron H. said...

GMF:

"That is one of the most ridiculous comments yet made by the "crew" of Hydra, Larry G., Sethstorm, etc. etc"

I don't think even "the crew" will allow sethstorm into the club. He's pretty much on his own.

 
At 8/14/2012 1:15 PM, Blogger sethstorm said...


So every company that employees people outside of the US should be charged with fraud?


Given how it is implemented, yes for work outside the First World and pre-expansion EU.

Whether it is illegal immoigration or guest worker programs, employers show their contempt for US citizens

I like my country and am ashamed to see these people forsake it by avoiding US citizens or hiring them in ways that put workers at a disadvantage.

What happened to the balance that existed between business and the people that worked for them? That is something that should be restored instead of the un-American policies of business.

 
At 8/14/2012 1:26 PM, Blogger sethstorm said...


The thing you need to remember is negotiation is a 2-way street. The worker can just as easily go to another company if he doesn't like the pay.


That incorrectly presumes that an suitable alternative exists and can be sought by the worker. In the last thirty years, such alternatives that follow your model are increasingly rare. I wouldnt mind that being the case, but that hasnt happened since the late 1990's.


The default is to seek a feudal dominance over those that work for a business - evidenced by such things like the increasing use of temporary labor. In addition, offshoring is used to scare people into taking less - never mind the push for secrecy on offshoring for the fear of backlash. How is that freedom if only business gets to have it?

 
At 8/14/2012 1:41 PM, Blogger Ron H. said...

Mike Tayse:

I see by your rather extensive profile that you are an avid reader.

If I may, I'd like to recommend some important background material you might find it helpful to read if you plan to comment on economics blogs and wish to be taken seriously.

Notice that it's available as a free download that should be readable on your Kindle, Nook, laptop, or even your iPhone.

As you can see it is also available as a hard copy at Mises.org and of course at Amazon.

It would be hard to overstate how important I feel it is that you add some economic understanding to your already extensive education if you wish to benefit from discussions on this blog.

 
At 8/14/2012 1:46 PM, Blogger Ron H. said...

"I wouldnt mind that being the case, but that hasnt happened since the late 1990's."

Have you really been unemployed that long?

 
At 8/14/2012 2:03 PM, Blogger Jon Murphy said...

Good suggestion, Ron.

I would also add Economics for Real People by Gene Callahan and/or Lessons for the Young Economist by Robert P Murphy (no relation). Both are available from mises.org

 
At 8/14/2012 2:41 PM, Blogger sethstorm said...


Have you really been unemployed that long?

No. I just recognize that the late 1990's was about as good as it would get for workers.


 
At 8/14/2012 2:55 PM, Blogger PeakTrader said...

Jet Beagle & Givemefreedom, the real world isn't a limited supply-demand model. It's a general equilibrium model with hundreds of major forces pushing and pulling the economy through many mechanisms.

In response to Jet Beagle's assumptions on automation and offshoring (again):

Unskilled jobs may be lost through automation. However, many of those jobs are replaced with higher skilled jobs. Workers will invent, produce, improve, install, maintain, and operate the equipment. Also, labor will be freed-up to move into emerging industries.

Offshoring also frees-up labor. Capital creation of U.S. firms and the global saving glut allow Americans to acquire higher skills, e.g. through a virtuous cycle of consumption-investment (where imports are sold too cheaply and dollars are lent too cheaply). Also, dollars from trade deficits flow to U.S. Treasury bonds, which lower government's borrowing costs to allow spending on education, for example.

 
At 8/14/2012 4:54 PM, Blogger Ron H. said...

"I would also add Economics for Real People by Gene Callahan and/or Lessons for the Young Economist by Robert P Murphy (no relation). Both are available from mises.org"

Those are both on my nook - along with 50 other books I plan to read eventually. :)

Based on your recommendation I will give them higher priority.

As a starting point for those who have had little or no exposure to the Austrian School or Libertarian ideas I like to recommend Friedman's "Free To Choose", although he wasn't an Austrian. His ability to convey ideas was unmatched.

 
At 8/14/2012 5:14 PM, Blogger Ron H. said...

"Jet Beagle & Givemefreedom, the real world isn't a limited supply-demand model. It's a general equilibrium model with hundreds of major forces pushing and pulling the economy through many mechanisms."

Actually the real world isn't a model at all, it's the *real thing*. People attempt to emulate and explain the real world by constructing models, and frequently become confused about which is which.

I believe that's what your problem is.

While you are correct that supply and demand by themselves aren't everything there is to know, they are in fact basic laws that must, along with the concept of scarcity, be part of the foundation of any reasonable explanation of the world of human interaction. Without them you have nonsense.

Your attempts to explain minimum wage and labor as something outside the laws of supply and demand are exactly such nonsense.

 
At 8/14/2012 6:47 PM, Blogger PeakTrader said...

Ron, I'll try to make it simple for you.

Say there's a firm with 100 workers that has a minimum wage of $5 an hour, 90% of the workers earn $5 to $7 an hour, 10% earn $200 to $500 an hour, and the firm makes $1 billion a year in profits.

If the minimum wage is doubled to $10 an hour, do you believe output, consumption, and employment will rise, fall, or remain unchanged?

 
At 8/14/2012 6:54 PM, Blogger PeakTrader said...

Over the past 30 years, profits, productivity, and income inequality all increased substantially, while the real minimum wage decreased.

 
At 8/14/2012 8:23 PM, Blogger Hydra said...

How does that make it simple? Too many unknowns to evaluate.

 
At 8/14/2012 8:27 PM, Blogger Hydra said...

Immutable laws? I don't think so.

Current unproven theories based on ideal hypothetical conditions unrelated to real world experience.

 
At 8/14/2012 8:34 PM, Blogger Hydra said...

The laws of economics cannot violate the laws of physics. Followed to its conclusion and root drivers, most of economics boils down to the uses of energy and resources. Which pretty much follows the laws of thermodynamics. Of which one must consider the laws relating to entropy. These preclude the idea of spontaneous order, for starters.

 
At 8/14/2012 8:39 PM, Blogger Hydra said...

The minimum temperature law analogy is simply ridiculous.

 
At 8/14/2012 9:07 PM, Blogger Mark J. Perry said...

If you don't like the minimum temperature approach, just try basic economic theory including the laws of supply and demand and you'll arrive at the same conclusion: minimum wage laws make unskilled workers worse off, not better off, on net.

 
At 8/14/2012 9:22 PM, Blogger sethstorm said...


Unskilled jobs may be lost through automation. However, many of those jobs are replaced with higher skilled jobs. Workers will invent, produce, improve, install, maintain, and operate the equipment. Also, labor will be freed-up to move into emerging industries.

Except when it (often) doesn't work out as cleanly as you say it would work out. By omitting the vagaries that happen to people caught on the wrong side of the transition, you ignore the real-world effects of that theory.


Offshoring also frees-up labor. Capital creation of U.S. firms and the global saving glut allow Americans to acquire higher skills,

Except that if it were so virtuous and good, it would not require extensive amounts of secrecy. It would not also require the perpetuation of fraud to exist. Finally, the proper place for training is with the employer itself - since they know best about the true requirements, not the ones they have to list.


Both of these problems can be lessened by having the employer stop complaining and start making do with what is around them. That is, treat those that work for a business in the same way that they would want be treated themselves - versus the current desire to conquer the worker. Or businesses can continue to wonder why people think they're willfully tone-deaf to those that aren't of the proprietor class.

 
At 8/14/2012 9:30 PM, Blogger juandos said...

"What about immigrants from Mexico who come to U.S. farms and work hard for the minimum wage. Aren't they attracted to the higher wage?"...

Gosh pt that fairy tale died when slick willie was defiling the Oval Office...

Where have you been?

Frist of all they're not immigrants from Mexico unless they have the proper paperwork and you haven't set that condition and backed it up with something credible...

Study: 70% of Texas’ illegal immigrant families receive welfare

 
At 8/14/2012 9:42 PM, Blogger givemefreedom said...

Hydra said...
The laws of economics cannot violate the laws of physics. Followed to its conclusion and root drivers, most of economics boils down to the uses of energy and resources. Which pretty much follows the laws of thermodynamics. Of which one must consider the laws relating to entropy. These preclude the idea of spontaneous order, for starters.



Hydra, the above statement tells me alot about you. Laws of physics and economics? The laws of physics affects economics but only to a point.

If Newton is sitting under an apple tree and an apple falls from the tree, the law of gravity explains why the apple will hit him on the head. Economics is a study of what Newton will do if he sees that apple falling. You believe he will not move and let it hit him on the head because the laws of physics predict that will happen, hence you do not understand economics in the real world. I know that Newton will move out of the way because human nature says he will.
To understand economics you need to understand human nature.

 
At 8/15/2012 12:26 AM, Blogger Ron H. said...

"If the minimum wage is doubled to $10 an hour, do you believe output, consumption, and employment will rise, fall, or remain unchanged?"

Without knowing more about the nature of the business it is hard to predict changes to output and consumption, but my guess is they would change very little.

Employment will be a different story. 88 of those 90 low wage workers will lose their jobs to automation, and the other two will be sharp cookies who will train to operate and maintain the machines, so their skills will now be worth $10/hr.

Are these 90 workers shovel operators by any chance? If so, that $880/hr savings in labor costs will be enough to make the payments on one helluva nice excavator.

If this business cannot replace labor with capital one or more of the following will occur.

- some of the 90 will lose their jobs and the rest will work harder.

- dividends will be cut to pay the higher labor costs, thus lowering the price of stock as the company becomes less attractive as an investment, and it will be harder to borrow money at a good interest rate due to the lowered credit rating.

- The company may be able to raise prices to cover labor costs, in which case their products will cost more.

- The compamy may go out of business.

Someone will lose no matter what. Employees, stockholders, or customers.

 
At 8/15/2012 12:27 AM, Blogger Ron H. said...

"Current unproven theories based on ideal hypothetical conditions unrelated to real world experience."

Learn some economics.

 
At 8/15/2012 1:34 AM, Blogger Ron H. said...

"The laws of economics cannot violate the laws of physics. Followed to its conclusion and root drivers, most of economics boils down to the uses of energy and resources."

Economics boils down to human action based on human wants, which are never fully satisfied. That and the fact that resources are scarce can be observed to be related by the laws of supply and demand.

Everything else evolves from that basis.

"Which pretty much follows the laws of thermodynamics. Of which one must consider the laws relating to entropy. These preclude the idea of spontaneous order, for starters."

I've already covered this for you on a previous thread. this is spontaneous order. Thermodynamics need not be considered.

Learn some economics.

 
At 8/15/2012 1:36 AM, Blogger Ron H. said...

"Except when it (often) doesn't work out as cleanly as you say it would work out. By omitting the vagaries that happen to people caught on the wrong side of the transition, you ignore the real-world effects of that theory."

No sethstorm, you cannot possibly be ignored because you're so damn noisy.

 
At 8/15/2012 9:09 AM, Blogger misterjosh said...

The difference is that with a minimum wage, some jobs disappear, or never exist in the first place. With a minimum temperature, those days still exist, it's just a lie.

Thankfully for me, the "natural" minimum wage is not much lower than the statutory one, so it's only the poor & the unskilled who are really losing out. Fortunately for me, few of the politicians are either ethical enough or smart enough to understand exactly who they're screwing as they pander.

 

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