Comments (12)

• Anthony

  Good article, very humorous too. It is a sure sign of defeat when defenders of idiotic measures need to find even more idiotic arguments to bolster their position.

  Published: September 6, 2007 9:06 AM

• Wade McGriff

  Government Induced Innovation = Entrepreneurs overcoming government obstacles in order to maintain profit margins.

  Market Induced Innovation = Entrepreneurs acting in order to increase profit margins.

  Published: September 6, 2007 9:07 AM

• Nasikabatrachus

  Good article, but I would have appreciated a more head-on approach. Mr. Beukelman seems to argue around Kleinknecht's argument rather than through it.

  I also found this paragraph questionable:

  The flaw in this argument is that it does not look at the economy as a whole. In Bastiat's broken window fallacy, the destruction of the window does in fact create some visible economic activity, but you cannot see what activity you would have had without the destruction. Likewise, the productivity of the business owner may increase as he automates his factory, but what about the workers who no longer have jobs because the government forced the business owner to automate? Their productivity drops to zero.

  Kleinknecht could easily respond: what about all of the people who didn't have cheaper goods and thus more money in their pockets with which to fuel jobs and growth because the government didn't force the business to automate?

  Peter's article leaves me unsatisfied.

  Published: September 6, 2007 10:08 AM

• Anthony

  I agree with Nasika. I hope that a more serious attempt at debunking these claims will come about later. Still a good article though, and funny.

  Published: September 6, 2007 10:31 AM

• Arend

  "The flaw in this argument is that it does not look at the economy as a whole."

  I think there is a flaw in the preceeding argument too in the sense that you claim that it follows from Kleinknecht's argument. You would have to include *additional* economic cluelessness rather that you can keep it up with the material given from the quote.
  Also, the flaw of the argument is not in that it does not look at the economy as a whole per se. The argument flaws (hence, it's now the argument that doesn't follow from Kleinknecht but from the additional economic cluelessness that you attach to him) because it assumes that in a free labour markt economy (without a minimum wage) low wage jobs aren't even worth the low wages because workers become complacent because the jobs are so easy to obtain. Well, if the workers does not meet a marginal revenue product that is in the neighbourhood of the wage then the employer would simply fire that worker. Even at low wage jobs you have to attain some productivity level that justifies your wage.

  Additionally, in the argument education and productivity level/wage seems to be posed (causally) backwards.

  Other from that, nice article. Like the (hysterical) reductio ad absurdums :)

  Published: September 6, 2007 11:25 AM

• Stephen W. Carson

  I've heard this argument, that the minimum wage has long-term benefits by "forcing" innovation, before. A businessman made the argument to me. I was surprised to see in this article that this wasn't just his own quirky idea... An academic has actually made the argument at length. Bizarre! I wonder how many others have come up with this strange argument on their own.

  Published: September 6, 2007 12:56 PM

• Anthony

  Nasika, one could retort to Kleinknecht that lower wages in absence of a MW could lead to cheaper products anyway.

  In fact, any sort of disaster should be favoured by such reasoning because it prompts greater innovation to deal with it. Insane "reasoning" to say the least.

  Published: September 6, 2007 1:05 PM

• Jacob Steelman

  Good article. Professor Kleinknecht is way out in left field. As is the case with all interventionist and socialist arguments the consequences will be the opposite of what they suggest. Wage legislation and worker protection legislation drives up the cost of hiring an employee and thus makes the more marginal employees unemployable. The marginal workers who desire to work must go into the informal cash-in-hand market where the real value is reflected. For those that are employed it stifles productivity and thus stifles innovation. Australia has had one of the most worker friendly systems in the world. Once the worker is hired they relatively hard for the first 3 months (the legal probationary period) and then once on the payroll permanently their productivity drops off dramatically because of the costs associated with terminating them. Employees frequently do not show up for work on Mondays as they call in sick. A first year worker is entitled to 1 month paid holiday. On top of that is the withholding tax paid by the employer and the 9% superannuation payment for which the employer is obligated. Employees easily could go to the Industrial Relations court to challenge their dismissal under the Wrongful Dismissal laws. The current government of John Howard of the Liberal Party (as in classsical liberal)changed these worker friendly rules and what happened - employment rose and unemployment fell to 30 year lows.

  Published: September 6, 2007 6:03 PM

• Fundamentalist

  Nasikabatrachus: "Kleinknecht could easily respond: what about all of the people who didn't have cheaper goods and thus more money in their pockets with which to fuel jobs and growth because the government didn't force the business to automate?"

  If using more equipment/technology would produce cheaper goods, business people would use them instead of labor. Most businessman are smart enough to calculate how much the labor costs them and how much using automations will cost. They'll choose the least expensive method because that produces the goods with the lowest costs. By raising the minimum wage, the cost of producing the goods/services increases also, which the businessman passes on to the consumer in higher prices. If the minimum wage is high enough, businessmen will switch to automation. This happened in the coal industry as unions drove up wages. But that doesn't mean the product will be cheaper than before a minimum wage increase; automation might produce a product that is cheaper than it would be with the higher minimum wage, but it will be more expensive than if there was no minimum wage.

  Also, keep in mind that the vast majority of minimum wage jobs are in the service sector--restaurant, hotel, cleaning, etc. In manufacturing, minimum wage jobs are in the clothing industry. All of these are difficult to automate. So minimum wage increases do nothing but increase the price of the goods or services.

  Dr. Reisman's book "Capitalism" has a good chapter on minimum wage and one on unions. It's available in pdf format free on this web site.

  Published: September 6, 2007 6:19 PM

• TLWP Sam

  Actually I'd have thought to some degree there is some truth to obstacles creating innovation. After all, necessity is the mother of invention. Perhaps there are two societies that don't go anywhere. One could be a society where people in a low-tech, fertile environment don't have to work overly hard to make ends meet and therefore wouldn't see any point in trying to improve their lot in life. Another would be a society that would see force and fraud as two more tools in their kit as to get the job done. I'm sure, more often than not, bumping off your competitor is much easier than out-innovating him as that requires creative thinking. Such a society I'd guess wouldn't go anywhere as everyone is trying bump off everyone else off until an equilibrium is reached where a handful are defending what little they have from each other.

  Published: September 6, 2007 10:12 PM

• gene berman

  Kleinknecht's thesis is similar to that in popular vogue about 50 years ago. The remarkable economic recovery of war-torn Japan and Germany were laid to the advantage they enjoyed of having their industrial assets obliterated by bombing and being forced, in building anew, to have more modern industrial plant. People with a bit more common sense observed that, if that were true, we could compete most effectively by getting our military to bomb and burn plenty of our own stuff.

  People can be remarkably innovative when handicapped in some manner. A guy with only one leg has a great advantage: he'll never have to buy shoes for the missing foot. I'm surprised that Dr. Kleinknecht hasn't spurred his own initiative with a variety of minor maimings.

  Actually, if rigidity of the operational landscape were the sine qua non of innovative stimulus, we should expect the very greatest to arise in a specific sector: the bureaucracy.
  Don't hold your breath! (Unless, of course, you want to eliminate your dependence on air--just think of the advantages.)

  Published: September 7, 2007 3:59 AM

• John

  I didn't take time to read the rest of the comments, but there's something this article leaves out that's of importance. When you raise the minimum wage, it increases the costs of labor not only in your own firm, but in the firm that is producing the automation-introducing capital goods with which you intend to replace your high-cost labor. If that shows up as higher prices for those capital goods, then the incentive to introduce automation is no better than it was before the wage hike. In fact, it's worse, because profits could be squeezed and the retained earnings with which to invest in innovations aren't there.

  Published: March 4, 2009 12:07 AM