Comments (110)

• Tom Papworth

  Are you aware that you published this very article just three weeks ago on this very same website?

  Published: January 19, 2009 9:51 AM

• bob graham

  For the exact response of minimum wage as explained in this article, dosen't one have to ASSUME that a living wage is the minimum? Doesn't the lower wage level interfere with over qualified applicants even applying? Any buffoon can say that the most qualified will get the position, but longevity prospects of the employee must come into play also. Even basic short order hamburger flipping takes some training and if an over qualified individual applies, any buffoon will also see that longevity is not in the mix? I would not hire a Harvard Law School graduate to flip burgers due to qualifications saying I would either not have this worker for a needed term, or if I did, I could expect legal problems somewhere down the line. This still makes the drugie a better prospect for my employment needs.??

  Published: January 19, 2009 10:30 AM

• Michael

  Bob, aren't "legal problems" sourced to state edict? If this threat ceased to exist, would it in anyway influence your hiring decision?

  Published: January 19, 2009 10:57 AM

• Umair Rasool

  You just forget one important thing in your examples. It is the fact that at the end producers are consumers. In other words if you don't have regulations for a minimum wage then the workers will not be paid enough to buy the very things they are producing. The end result will be the present day situation in US and the world over. Here the wages has been kept lower for about 80% of the population (since 1960s) and they just couldn't buy the goods that were being produced in the economy. To solve this problem they have to been given loan instead of giving higher wages. And burdening consumers with loan is basically a much short-term solution to the problem. The loan-edifice falls at the end and this is what you are seeing in the US and rest of the world. I believe the fallacious arguments of economists like you are at the backbone of this crisis. Problem is that arguments like these are very easily bought by the multi-millionaires to continue to earn more and more profit at ever decreasing wages. But at the end they are left with goods that a majority of population cannot afford to buy (they are simply not being paid well to buy all this stuff). Here comes the crisis. I would suggest you to re-evaluate you theory on this point if you sincerely believe in it. Want to learn more on this topic see www.ravibatra.com.

  Published: January 19, 2009 11:41 AM

• Nick

  @Umair

  Stupidest thing I've ever heard.

  Ever.

  This fallacy of the "workers being able to afford that which they produce" is quite possilby the most idiotic clap-trap ever uttered in human history.

  Every day I go to work and produce multi-million-dollar ultra-high speed computer networks. Should I be paid enough to buy one?

  Not to mention - a Big Mac costs about one dollar to produce. How much should someone making Big Mac sandwiches be paid based on your brilliant, regurgitated, and over-used observation? Should we pay them based on the wholesale or the retail value?

  Published: January 19, 2009 11:59 AM

• Inquisitor

  LOL Again this trite nonsense? It seems Marx won't die, as he should.

  Published: January 19, 2009 12:06 PM

• Stefan

  Umair,

  Have you forgotten about the contributions of inflation to falling purchasing power? If they are paid too little and their skills are highly valued, then it will be the tendency for their wages to be competitively bid up, will it not? Have not cumbersome regulations with regards to wages and workplace environment caused productivity to fall?

  Also, what is with this sense of entitlement? Should a worker in a BMW plant who sweeps the floor necessarily be able to comfortably afford a brand new vehicle? I think your argument needs more thought. If the man in charge is siphoning all excess millions for his personal use then his business won't last for very long....
  

  Published: January 19, 2009 12:21 PM

• I Hate Taxes

  I would be willing to accept very high risks in exchange of very high wages.

  I would be willing to risk my life for very very high wages, although I would do my homework and study all the risks and rehearse all the steps to be sure I would lower my risks as much as possible, in the end there would still be some high risks but the high reward is what would keep me going.

  And the governement would want to take that away from me.

  I am driven by INCENTIVES, the more I can make, they more I want to work hard and take risks.

  Published: January 19, 2009 12:33 PM

• I Hate Taxes

  Reply To Bob Granham,

  Given that the LAW is nothing but government sponsored gobble-dy-gook, I would expect that in libertarian free market Capitalism, a Law degree from Harvard would be worth nothing and that your lawyer would be flipping hamburgers for a living.

  If I were you, I would hire that lawyer right away to prevent him from defrauding society and contributing to government.

  Published: January 19, 2009 12:41 PM

• billwald

  Minimum wages are evil but not for the reasons in the essay. Minimum wages are evil because they killed union apprentice programs. A small shop can't afford to pay the minimum wage to a high school "grad" who never learned to read and write and can't do anything for the shop except sweep the floor. Now days the kid has to take out a loan and go to "college" to get a high school education.

  (Minimum) Wages are a union contract problem, not a government problem.

  Published: January 19, 2009 12:54 PM

• Michael

  Umair, you make a compelling case for government intervention. Are you sure that 80% figure is accurate? I'm sure it's closer to 82.2343291%.

  Published: January 19, 2009 1:01 PM

• Steve Hogan

  billwald,

  I think it's more fundamental than you've explained. Minimum wage laws, like all wage and price controls, are evil because they prevent voluntary exchange between consenting adults. Some politician or bureaucrat, whether he is merely cynical or actually believes he knows better, resorts to coercion to impose his will on others. Such action should have no place in a civilized society.

  Published: January 19, 2009 1:33 PM

• Robert A. Meyer

  Umair

  Apparently, you are ignorant of the laws of economics. How could multi-millionaires continue to produce goods and services that the majority of the population can’t buy? I doubt if most of them can profit by only trading with each other. I would think that without consumers these producers would be removed from their position of multi-millionaires.

  Anybody with even a passing knowledge of economic theory knows that over-priced goods remain unsold. Minimum wage laws dictate that some workers become over-priced—and therefore they remain unemployed.
  
  

  Published: January 19, 2009 1:49 PM

• Umair Rasool

  Those who are still insisting that I have made a real stupid comment here please visit the website www.ravibatra.com. In his books this guy has given the data and all the related material. Besides we have a minimum wage system and high taxation here in Scandinavia where I work. Wage difference here is extremely low as compared with rest of Europe and much less as compared with the US. There is much more government intervention in the economy as compared to the other countries. Still the economies in the Scandinavia are among the strongest economies in the world. So in case your theories are correct that interference in the wages will be detrimental to the economies why the ‘average person’ here has a much better time as compared with the average person in the US? A huge chunk of the economy is controlled by the government. Then according to your theories these economies should have been dead long ago. But this is not the case. No comment is stupid until it is proven to be so!

  Published: January 19, 2009 2:00 PM

• Brady Parks

  What I find ironic from this forum is that Mises has built a following of zealots that rivals the radical Marxists. If you are a follower and this offends you, I assume you recognize that your dashing and simplistic categorizations of socialists offends them just the same.

  And just like this poorly written post, the classical paradigms, of which Mises and the like defend, do no properly explain the functioning of Capitalism in the advanced industrialized western nations in the present, or perhaps ever.

  Published: January 19, 2009 2:02 PM

• Brent Railey

  Brady,

  Tell me how a centrally planned economy will do a better job in ever more complex and industrialized economies.

  ~ Brent

  Published: January 19, 2009 2:08 PM

• Inquisitor

  Not zealots. We merely repudiate rubbish like what you uttered, i.e. mere ipse dixit. So sorry if that makes us "zealots".

  
  Re Scandinavia, I'd recommend the Timbro reports to debunk the myth of the Scandinavian "miracle"... this coming from a Swede who is sick of Sweden.

  Published: January 19, 2009 2:11 PM

• Brady Parks

  Check the UN development Index, as the Scandinavian countries are higher than the United States and they are much further to the left then we are in their economic dealings with the State. Even France, which is rhetorically accused of being too Socialist, is rated higher than the United States. Spain, probably considered the most Socialist of the developed countries, is right around the same rank.

  Published: January 19, 2009 2:22 PM

• Francisco Torres

  Still the economies in the Scandinavia are among the strongest economies in the world.

  Comparing what? GDP? Because if you include Government expenditures, then any country whose government spends like a girl with a newly issued credit card WILL show great numbers. I would rather look at purchasing power and cost of living numbers. The table from http://www.finfacts.ie/costofliving.htm shows Sweden and Norway to have the most expensive cities, and yet the purchasing power has DECREASED according to the "Big Mac" index (http://www.oanda.com/products/bigmac/bigmac.shtml). A strong economy does not translate into "Strong enough to afford socialism", but strong enough to improve the wealth and well being of individuals. Scandinavian countries rank among the worst in cost of living versus purchasing power among the industrialized, developed nations.

  And if you bring up the limitations of land and resources, take into account Hong Kong, which is even more limited in space and resources: Its cost of living index is in the top six in the world, but the purchasing power is among the highest in the world.

  So in case your theories are correct that interference in the wages will be detrimental to the economies why the ‘average person’ here has a much better time as compared with the average person in the US?

  Wow, you have not done your homework. The AVERAGE POOR PERSON in the US has a bigger house and more stuff (TV, appliances, cars) and access to cheaper food than Scandinavians. I would much rather be a poor person in the US than a rich guy in Sweden or Norway, subjected to onerous taxation [and awful food to boot] as if I was guilty of something. In fact, i would rather have my eyes poked out with red hot needles than moving to a Scandinavian country - but that is just me. (http://www.heritage.org/Research/Welfare/bg1713.cfm)

  Published: January 19, 2009 2:26 PM

• Brad Parks

  Perhaps everyone here should actually read Marx's Capital or many of its offspring's before you come to dangerous conclusions. I recommend David Harvey's "Limits to Capital" or "Beyond Capital: Marx's Political Economy of the Working Class" by Michael A. Lebowitz to inquirers.

  If you can pass the blockade of believing only what you want to believe, I would also recommend Schumpeters Capitalism, Socialism, and Democracy for the inquirer of economic systems in conflict. For those hesitant due to my obvious stance on this matter, know that Schumpeter was a professed Capitalist. His work is highly unbiased and gets to the heart of the virtues of Capitalism and Socialism, both their strengths and weaknesses, and why he as a Capitalist believes that Socialism is fully functional in many different forms and with a continuity of institutions. He also lays out quite clearly that Socialist economies need not conform to the conventional wisdom of "what Socialism is", for example a Socialist economy need not be based on equality. The problem may lay in the fact that it is quite a complicated read. If you are serious about learning both sides however, I recommend it over this.
  

  Published: January 19, 2009 2:29 PM

• Brady Parks

  If Sweden is ranked much higher than the United States on the human development Index, does this cause us to rethink our preoccupation with the importance of production? I believe it does.

  Published: January 19, 2009 2:32 PM

• Inquisitor

  Check the Timbro reports, debunking conventional "wisdom" on these countries, and challenging the contrived "UN" reports... we're not ignorant of Marx or other socialists/communists, so citing reading materials isn't going to work.

  Published: January 19, 2009 2:34 PM

• Inquisitor

  Or does it lead us to challenge the UN index? One wonders...

  Published: January 19, 2009 2:36 PM

• Francisco Torres

  And just like this poorly written post, the classical paradigms, of which Mises and the like defend, do no properly explain the functioning of Capitalism in the advanced industrialized western nations in the present, or perhaps ever.

  What do you mean by the functioning of Capitalism? Exactly which paradigms do you think fail to explain how an economy works? For example, what's the issue with the law of diminishing returns, or the law of marginal utility, or the law of comparative advantage, or the law of supply and demand, or any of the economic laws that explain the way people act? Exactly how they fail to explain the inner workings of a market?

  Published: January 19, 2009 2:39 PM

• Inquisitor

  Francisco, our food isn't that bad... :)

  Published: January 19, 2009 2:39 PM

• Brady Parks

  Francisco and Inquisitor,

  I am simply open to the crazy notion that there are areas where markets failures are pervasive. I am also open to the notion that there are areas where markets perform best.

  As far as your redistribution rant, economics in general is concerned with the positive and negative effects of distribution methods. The market is a distribution method. To say that we should not concern ourselves with the question of why the richest 360 people in the world control more wealth than the poorest 3 billion (that is 3,000,000,000 for visual effect) shows the extent of your ignorance.

  Personally, the reason I do not go live in a more "socialist country", like Spain or France, is largely because I do not speak their language and have no social attachments there -family, friends, ect - but more importantly because I am not French or Spanish. Why haven't you gone to live in a country more suitable to your views, like Russia in the 1990s when the state had virtually no authority? Ultimately, I do not want to know the answer to this question because it is moot.
  

  Published: January 19, 2009 2:40 PM

• Inquisitor

  I'm not open to it until it is demonstrated, and I mean by more than neoclassical/Marxian assertions. Regarding distribution of income, stop imputing ignorance where there is none. How do you arrive at the conclusion that markets, which are effectively hampered, have anything to do with such a distribution, as opposed to political hindrances...? I'm not an egalitarian so I really am not put off by wealth differences...

  Published: January 19, 2009 2:50 PM

• Francisco Torres

  Brady,
  I am simply open to the crazy notion that there are areas where markets failures are pervasive. I am also open to the notion that there are areas where markets perform best.

  See, here lies the problem: WHAT is a Market Failure? How can a spontaneous system FAIL? The notion reads as something preposterous as talking about Evolutionary failure when flying, fire-spewing dragons do not appear as a species.

  As far as your redistribution rant, economics in general is concerned with the positive and negative effects of distribution methods.

  That's not the case, Brady. Economics concerns itself with how people make decisions, not how things are "distributed". Distribution is just another decision - I can decide to distribute my belongings to the closest poor persons I can find, or I can decide to find the poorest in India, or I can stay home and do nothing. It is how I made those decisions in the face of costs that interest the science of economics.

  
  The market is a distribution method.

  No, Brady, it is not. The Market is a spontaneous NETWORK of decisions that can be from what to trade and how, to what to DO and how, or whom to marry or date or divorce, all affecting other people's decisions. It is not A distribution method.

  To say that we should not concern ourselves with the question of why the richest 360 people in the world control more wealth than the poorest 3 billion (that is 3,000,000,000 for visual effect) shows the extent of your ignorance.

  It rather shows the extend of your illiteracy in economics. That is not in itself a bad thing, but without first educating yourself in how the economy works and how people make decisions, then you will be a slave of your own emotions and sense of righteousness. The fact that little people control a lot of wealth only means that they were that productive - unless you can show that somehow they TOOK that wealth by non-economic means, i.e. thievery.

  You do not seem to be alarmed by the fact that governments can control even more wealth, and also destroy it, by decree, callousness or simple caprice. Libertarians are QUITE alarmed by the last fact, and feel that wealth is something that each of us should be able to freely generate and enjoy.

  Published: January 19, 2009 2:59 PM

• Michael A. Clem

  A racist employer would suffer a penalty (lower profits than his competitors) if he insisted on indulging a "taste for discrimination" in a competitive market. When prices are fixed, and labor conditions are set by law, that same employer can indulge his racist preferences without receiving his capitalist comeuppance.
  
  While I've often made the same argument as the first sentence, the second sentence is probably more compelling. The idea that current laws actually help people to engage in unfair discrimination is a good point.
  
  As for free market zealotry, all I can say is that I think voluntary exchanges will work out to the greater good and happiness for ALL people involved, given all the factors, rather than enforcing involuntary exchanges or preventing voluntary exchanges from occurring. An oft quoted economic saying is Bastiat's point about what is seen and what is unseen. Are you considering all the factors in your evaluation between the U.S. and Scandinavia? I seriously doubt it--the data is simply too complex to clearly evaluate. Even at face value, the U.S. isn't exactly the free market beacon that you imply it is.
  

  Published: January 19, 2009 2:59 PM

• Francisco Torres

  Instead of "little people", should read "few people".

  Published: January 19, 2009 3:19 PM

• Bill

  You have, intentionally or not, forgot one thing: nearly all real world labor markets are characterized by monopsony. With monopsony power, instituting a minimum wage can increase wages and the level of employment. You should look at page three of Wikipedias entry on monopsony. Given your background, my guess is you ignored this becdause it does not fit your political agenda.
  bye
  Bill

  Published: January 19, 2009 4:20 PM

• Inquisitor

  Sounds more like someone making up a term, then saying everything and anything under the sun comes under it, sort of like certain definitions of "monopoly". And how, prey tell, would a MW increase employment for a monopsony...? Talk about ideology-driven garbage.

  Published: January 19, 2009 4:50 PM

• fakename

  monopsony is predicated on the notion of perfect competition -a model which ignores time and uncertainty and one which the orthodox austrian rejects as illogical. But this doesn't even answer the question of whether or not monopolistic buying is good. In fact, for the same reason that austrians reject the concept of inefficient private monopolies, so too would we reject the concept of inefficient private monopolies of buyers. That's my two cents.

  Published: January 19, 2009 5:00 PM

• Robert A. Meyer

  Brady and Umair

  I believe the only means of determining if a certain government intervention on the marketplace, such as minimum wage laws, actually accomplishes its desired ends is to trace the full consequences of the intervention.

  You seem to be supporting your socialistic tendencies by showing data without explaining how it came about. By using ratiocination I believe that you will discover that all interference on the marketplace with voluntary exchanges have undesirable consequences.

  The statement Francisco made “Economics concerns itself with how people make decisions, not how things are distributed" has validity. Economics has to do with individuals and their actions. It all begins with an analysis of individual action—not with an analysis of the collective.
  

  Published: January 19, 2009 5:16 PM

• Different Bill

  "You have, intentionally or not, forgot one thing: nearly all real world labor markets are characterized by monopsony."

  Reference please?

  Published: January 19, 2009 5:30 PM

• pbergn

  Completely disagree with the author.

  This one of the most openly elitist and snobbish writings I have ever encountered reading the financial and economics blogs!

  The minimum wages and safety regulations are necessary to prevent total exploitation of the workforce, much like the brakes on the automobile.

  Otherwise what would prevent the employers from employing anyone practically just for food?

  I agree that the minimum wages and the safety rules must be set correctly at correct levels, otherwise they would start interfering with the free markets.

  Look what is happening with illegal aliens trying to find work in the US - they are not subject to the restrictions of minimum wage and safety regulations at workplace. Result? You have humanitarian catastrophe on one side, and rising local unemployment - on the other...

  Published: January 19, 2009 6:22 PM

• Inquisitor

  The "correct" level is its absence. There's nothing "elitist" or "snobbish" - or whichever other adjective you wish to evoke for emotive effect - about this, other than what you're reading into this, what with the descent into emotive hysteria (oh noes, the employers will just starve them!!! obviously wages only rise 'coz gubmint sez so! LOL). And as has been stated, merely taking a law by its intentions means precisely nothing. I can intend to make gold flow like rivers. So what?

  Published: January 19, 2009 7:01 PM

• Brady Parks

  I had originally meant to quote an item I saw another forum; however, I forgot to do so, which led to me being a troll by posting other items from someone whose opinion is different than mine, but someone I respect nonetheless. I offer my apologies, as it wasn't my intent to do this, but I got carried away. Again, I'm sorry. Thank you.

  Published: January 19, 2009 7:09 PM

• Francisco Torres

  Bill,
  You have, intentionally or not, forgot one thing: nearly all real world labor markets are characterized by monopsony.

  That's not the case, Bill. Whether you think it is or not, the case is that people HAVE choices regarding employment. Monopsony is a term that describes an institution that can crowd out other competing institutions for the labor market. However, labor is very diverse. The only institution that can even come close to being a monopsony is the government, which CAN offer higher salaries to potential employees than the normal market rate. This is a reason why most French university graduates want to land a government job.

  With monopsony power, instituting a minimum wage can increase wages and the level of employment.

  You will have to explain how that works.

  Given your background, my guess is you ignored this because it does not fit your political agenda.

  That's a "no true Scotsman" fallacy.

  Published: January 19, 2009 7:11 PM

• Inquisitor

  So what was meant to be quoted then?

  Published: January 19, 2009 7:13 PM

• pbergn

  RE: Inquisitor

  Well, how about the illegal alien example? If you do not set the limits to wages then the limit will de facto become survival, i.e. work-for-food times will make a startling come-back, since there are plenty of hungry people who would work for any US businessman with no safety equipment or gear just to feed their families...

  How about that then? By contrast, if you enforce reasonable minimum wage (i.e. $5/hr) this will cut-off many hungry and angry folks out of the picture, and will allow at least in some place for prosperity to set in.

  Make no mistake, I am no Socialist! I am for free markets, but you have to follow common sense sometimes...
  

  Published: January 19, 2009 7:16 PM

• Francisco Torres

  This one of the most openly elitist and snobbish writings I have ever encountered reading the financial and economics blogs!

  Thank you! We strive to be the best.

  The minimum wages and safety regulations are necessary to prevent total exploitation of the workforce, much like the brakes on the automobile.

  False analogy. Besides that, we're discussing wage restrictions (which is what the minimum wage really is: a restriction), not safety regulations.

  How does the minimum wage stop anyone from "exploiting" the workforce is something you will have to explain to me. Because as I see it, if I am down on my ropes after I used to live like a king, if I can only make the minimum wage, I would feel "exploited". So how can the minimum wage stop me from feeling that?

  [Maybe you can begin to see that "exploitation" is a relative, subjective term, and that just because you don't like to receive a certain wage level, does not mean other people are perfectly happy with it.]

  Otherwise what would prevent the employers from employing anyone practically just for food?

  How about competition from OTHER employers? What, you thought they don't have to compete for labor, as one competes for jobs or products?

  I agree that the minimum wages and the safety rules must be set correctly at correct levels, otherwise they would start interfering with the free markets.

  Ohhh, circular thinking. What are these "correct" levels? Who's supposed to set them, and how would you know if they are correct?

  Look what is happening with illegal aliens trying to find work in the US - they are not subject to the restrictions of minimum wage and safety regulations at workplace. Result? You have humanitarian catastrophe on one side, and rising local unemployment - on the other...

  Oh, I see. Ok, first of all, it is true that undocumented immigrants are not subject to minimum wage laws. It is also true that they compete for jobs with people that cannot bid a lower wage than minimum wage. Is this the fault of the immigrants, or the employers, or the very people that set the wage levels way high? Because if government lowered the minimum wage, then the locals could compete with the immigrants.

  If that is not to your liking, perhaps you advocate the massive expulsion and exclusion of immigrants. If that's the case, you might think that such a solution will entice employers to hire local hands. But if they were not willing to hire them in the first place, rather risking their businesses by doing something that the government says is illegal, just what makes you think they WILL hire without immigrants? Many of those employers will simply close their businesses, and THAT is happening all over as we talk.

  So maybe the minimum wage does NOT protect ANYBODY from employers, but rather it KEEPS many people unemployed. The REAL market wage would be the wage offered to the immigrants, who seem rather happy to accept, to the point where they risk their lives just to be able to receive it.

  Published: January 19, 2009 7:31 PM

• Inquisitor

  Or perhaps one can just, oh I dunno, decriminalize immigration...

  Published: January 19, 2009 7:38 PM

• Francisco Torres

  Well, how about the illegal alien example? If you do not set the limits to wages then the limit will de facto become survival, i.e. work-for-food times will make a startling come-back, since there are plenty of hungry people who would work for any US businessman with no safety equipment or gear just to feed their families...

  Let's say for the sake of argument that there ARE people willing to work for a small wage to feed their families, even at the risk of not using proper Personal Protection Equipment or following all of OSHA's regulations. By making employers pay a higher wage, you basically limit the amount of people they can hire. What can you say about the ethics or morality of someone that imposes such restrictions that leave some without work AND the ability to feed their families? Because if ALL it took to me was not having proper PPE, what would I care? What would anybody facing unemployment care? If the employer was willing to employ me but had no equipment to spare, I would go to Walmart or Grainger and get me a pair of cheap work boots, a V-Guard hardhat and some goggles. I would pawn my wife's earrings to get those if that is what it took.

  The problem, pbergn, is that minimum wage laws do not leave me THAT CHOICE. If I was really not worth $5.00 an hour considering my experience level and age, then I am basically locked out of any possibility of CHOOSING to work without PPE or any other nicety you can think of. YOU LEFT ME OUT OF BEING ABLE TO MAKE THAT CHOICE. It's MY LIFE, and yet the minimum wage just restricted me from doing with it what I wanted. Is that ethical? Is that moral?

  Published: January 19, 2009 7:58 PM

• lukas

  pbergn: You assume that labor is not scarce... How do you explain, then, that many people are getting paid above-minimum wages?

  Published: January 19, 2009 8:11 PM

• pbergn

  RE: lukas

  Lukas,

  It is trivial: when people have their minimum needs ,et, i.e. their very physical survival covered, taken out of the picture, they can always say "no" to any entrepreneur who, they feel, underpays them, or conversely, the free labor market will determine the correct wages for particular labor type at a particular time.

  But when the physical survival is at stake, the rules change dramatically:

  The hungry man cannot say "no" to ANY job offered. So this artificially lowers the compensation expectation of the workforce.

  Employment relationship where the employee faces the choice between below-the-living-standard compensation and starvation I define as extortion or exploitation. And also, what is to force the employer to think about safer work environment, if the minimum requirements are not enforced? By the time the free market forces a particular entrepreneur to come up with better safety regulations a lot of people may get injured or suffer, and it may never even become adequate enough due to cost versus profit considerations and availability of labor for such conditions...

  Let me bring you a somewhat contrived examples:

  Let us say there is an ingenious tractor mechanic working in the US who has some initial savings to survive for the next 6 months living at the minimum standard of living, and who incidentally wants $20/hr compensation for his labor at minimum. And, say nobody is willing to hire him for that rate.

  Now, since he has some savings, he can afford the luxury of flirting with the markets for about 6 months. But when the honeymoon is over, that's when the reality sets-in that no one will ever hire him even for $10/hr in the downturn economy which had, for the sake of the story, ensued...

  So, the guy winds up taking the low-waged gig picking the potatoes out of the ground on some farm...

  Now imagine another extreme situation - the guy does NOT have any savings. His very survival is at stake.

  What do you think he is going to wind up doing?

  Yes, that's right - making those big-macs, or greeting the shoppers at the door of the ill-famed retailing giant for say minimum wage, or, even work on the farm, as long as the employer offers the minimum wage (say $5/hr)...

  Well, I am going to make things even harder for the poor fellow: now imagine there are illegal aliens Jose and Pedro who just crossed the border and paid the coyote a grand (which left them with no survival money at all).

  They need a job badly - not only their own physical survival is at stake, but their families' and friends'. They are ready to do ANYTHING!

  So what Jose and Pedro are to do? That's right - work illegally at a local farm for the local redneck picking those tomatoes for just a few cents an hour...

  What happens to our mechanic guy, you think? Yeah, NOW you get it, things are not looking good for our good (by now) friend...

  So the guy winds up homeless or in a shelter or stealing something, for he is categorically NOT willing to toil day and night on the farm for just pennies. He needs at least the minimum wage to meet his, by now extremely lowered, standard of living expectations...

  Well, you are getting the picture...

  Now, if the minimum wages were enforced, Jose and Pedro, who did not even speak English could NOT have used their relatively lower cost of labor as a competitive advantage in competing for labor against the local guy, since the farm owner would have had to chose between relatively safer local guy and the unknown aliens, whom he HAD to pay the SAME amount of money....

  And also, as a follow-up to the somewhat contrived story above, the reasonably set minimum wages are not really going to impact anything, since most of the employees are getting paid above it, anyway... It is required only in the context of safeguarding some reasonable standard of living set in a particular geo-political entity...
  

  Published: January 19, 2009 9:01 PM

• Inquisitor

  If they're not going to have any impact, they're pointless. If they do, they cause inefficiencies in the market and unemployment. Competition and increasing capitalization increase wages and living standards. Not arbitrary gov't decrees imposing your own value scales... there's no such thing as "need"... only more or less urgent wants ranked on ever changing ordinal scales of preferences.

  Published: January 19, 2009 9:12 PM

• Tudor

  I had to write an essay on a related topic a while ago, and from what I remember, minimum wage was first introduced in Australia, in the early XXth century (or late XIX). Miners at that time had very low wages, and a bunch of judges decided to set a minimum standard, that mining companies would be allowed to pay. When setting this salary level, the judges considered what amount would suffice a decent living. What they did not consider, however, was the amount that employers could actually afford to pay, so the result was that part of the workforce had to be laid off.

  Minimum wage might seek to enforce social justice, but its effects are exactly the opposite. Had the workers who got laid off the chance to work for a lower pay than what the law said was right, would they not take it?

  It is exactly the ones which such laws seek to help (low-wage workers, unskilled labour etc) that end up being negatively affected by it. Employers which have high productivity are naturally remunerated at higher levels and do not fall under the MW level. Unskilled workers, students and others who can only provide low productivity services, however, are the ones affected by this law, since if their labour is worth less than MW, they won't get hired, despite the fact that they might prefer a lower income to NO income.

  Published: January 19, 2009 9:12 PM

• lukas

  @pbergn: As long as there is more than one job offer in the market place, the hungry man is not only able, but forced to say "no" to all but one of them.

  As for your farm example, you seem to think the farm owner will just be able to pay his employees whatever arbitrary wage the government deems adequate without negative consequences. However, that is manifestly untrue. He may have to lay off his least productive workers to make up for it (and how are they going to find a job now if their labor is worth less than the minimum wage?) or he might go out of business altogether as a result of the comparative disadvantage the state has put him at.

  And with all that, you still haven't addressed the problem of determining the "minimum standard of living"... It can't be the minimum necessary for survival (Jose and Pedro survive on much less), so what is it, and how do we determine it?

  Published: January 19, 2009 9:49 PM

• Francisco Torres

  
  But when the physical survival is at stake, the rules change dramatically: [...] The hungry man cannot say "no" to ANY job offered. So this artificially lowers the compensation expectation of the workforce.

  Wait, you're first talking about some guy (the "hungry man"), and now you bring out the workforce. Why would one concept equal the other? Just because ONE hungry man may take ANY job does not mean ipso facto the whole damned Workforce is being exploited - there will be those LESS hungry than the putative hungry man.

  Employment relationship where the employee faces the choice between below-the-living-standard compensation and starvation I define as extortion or exploitation.

  I define it as begging the question. What IS below-the-living-standard? According to whom? Would a dude living with his parents be in the same "peril" as, let's say, a parent of 4 receiving the same wage?

  And also, what is to force the employer to think about safer work environment, if the minimum requirements are not enforced?

  Oh, I don't know . . . . Maybe the cost of downtime?

  By the time the free market forces a particular entrepreneur to come up with better safety regulations a lot of people may get injured or suffer, and it may never even become adequate enough due to cost versus profit considerations and availability of labor for such conditions.

  Again you're begging the question - you're already assuming the existence of an "adequate" amount of protection that cannot be affordable in order to argue that employers may not afford it. In my experience as a procurement manager, there is NO such thing as unaffordable personal protection, and in 99% of the cases, people just need to follow procedures so they do not get hurt, and that is ALWAYS affordable.

  Now, if the minimum wages were enforced, Jose and Pedro, who did not even speak English, could NOT have used their relatively lower cost of labor as a competitive advantage in competing for labor against the local guy, since the farm owner would have had to chose between relatively safer local guy and the unknown aliens, whom he HAD to pay the SAME amount of money...

  Or, more likely, in the face of an artificially increased cost, would have simply learn to fix his equipment himself, still leaving the local guy destitute . . .

  Maybe you should advocate for the penalization of DIY, while you're at it.

  Published: January 19, 2009 10:02 PM

• Francisco Torres

  There is also a high degree of chauvinism in pbergn's posts, whenever he brings up illegal immigrants and how they make locals "destitute", as if locals were really lining up to pick up tomatoes.

  Published: January 19, 2009 10:10 PM

• pbergn

  RE: To all critics of my way of thinking about the justification for the minimum wage, or the necessity of minimum standards in general.

  Guys, is it too difficult to comprehend a simple idea that the employers will pay the absolute minimum wage as long as there are workers available to do the same quality and quantity of labor for that compensation?

  My point is trivially simple: what I am saying is give the workers enough money to survive then play the wages game, since only then you can determine the true price of labor, for no one will be "forced" to agree to work for less, as long as there is no imminent threat to the physical existence.

  The minimum wage is very easy to determine on common sense basis, and it is regularly being determined as consumer price index...

  Again, to ensure fair competition you have to give at least some kind of leverage to the workers so that they "do not sell themselves cheap" out of despair.

  Is it too difficult to grasp? I thought the idea is intuitive...

  Let us take my own example. I am a Software Engineer. I would like to be paid $35/hr. But in the recession people are NOT willing to pay that much. So they say you have to work for $25/hr.

  Now, If I knew that my physical existence in terms of paying rent and buying basic food were not at stake, I would have flirted with the market, and maybe could have landed a $30/hr job.

  But if I am starving, I have no place to go, nothing to eat, I would work for ANY wage, as long as it pays my studio apartment rent and buys me some cheap food from a Chinese place and some basic clothes. This means the market brought me to my knees. What makes you feel that the wages will ever go up? If there are plenty of guys willing to work practically for food, then the employers will never raise the wages, and there will always be a downwards pressure on wages, gradually pushing the workforce to the level of survival, which is the absolute minimum in the free market society for which anyone would do anything.

  This example clearly shows that the wages always will be pushed to the absolute bottom if permitted, since whoever controls the investment capital practically has upper hand in setting the labor prices.

  The minimum wage barrier levels the plane a bit, and does not allow the employers to simply play the labor cost game, but rather, now they have to rely on some other criteria as well in choosing the employees, such as efficiency, quality, etc. The minimum wage serves as the lower barrier to downwards pressure on wages, which allows the productivity and the efficiency to rise, since the employers cannot pay less then a certain amount of money, theu have to hire the smartest and the best among the same-wage workers, which in turn, will increase the productivity and the overall standard of living, or at least will not allow it to slide further down.

  The absence of minimum wage is exactly what is driving all the jobs oversees today. This is the exact reason why the quality of all products and services is deteriorating (the cheaper, the better logic; no bottom is set). The absence of minimum standard of living is exactly what kills the Capitalism as we know it in the good old US of A. today, since the population does not earn enough to buy the products, since there are 10 other guys in China or India that get 10 times lower salary, and can outcompete anyone here 10 to 1 on any day...

  Hope this clarifies things a bit...

  Published: January 20, 2009 12:06 AM

• Gil

  Come on now phergn - an employer has a duty to get the most bang more his buck. If José will work for half as much as Joe for the same amount of production then Joe thinks "What the hell! This guy is undercutting me!" whereas the employer thinks "What the hell!! Joe's been charging twice as much as he's really worth!" Likewise I'm surprised no one here has used a line to the tune of "well I'm sure there's many a literally starving African who'd be happy to work in exchange for a full belly".

  Published: January 20, 2009 2:09 AM

• lukas

  Guys, is it too difficult to comprehend a simple idea that the employers will pay the absolute minimum wage as long as there are workers available to do the same quality and quantity of labor for that compensation?

  No one disputes that. But at some wage level there just won't be any more workers available to do the same quality and quantity of labor. This is why you are getting paid $25 an hour, after all...

  Your argument is that at some point this process becomes inhumane and needs to be stopped. You see people working for, say, $7 an hour, and argue that they can't possibly subsist on less, so no employer can be allowed to pay his workers less than $7 an hour.

  So far, so good. However there is another group of people out there, and that is your "workers available to do the same quality and quantity of labor for that compensation". What about them? You have just, with the stroke of a pen, thrown them into unemployment: they are not allowed to compete for jobs, for doing so would require that they offer to work for less than the mandated minimum wage.

  What shall they do? Are you going to put them on welfare -- for life? Wouldn't it be better for everyone, even from a progressive point of view, to allow them to work, for whatever wage, and ensure a "minimum standard of living" through some other mechanism, like Friedman's negative income tax? In the hands of a well-meaning social engineer, a minimum wage is still a blunt and inadequate tool that does nothing but destroy wealth and jobs.

  Published: January 20, 2009 3:25 AM

• Gil

  Likewise phergn I have also asked before why have any rules or regulations for anything? Some would agree with Plato's "good people don't need rules, bad people will break them anyway". After all, the vast majorities of murders happens 'at the heat of the moment' between two acquantances and hardly ever between random strangers.

  Published: January 20, 2009 6:43 AM

• P.M.Lawrence

  Inquisitor writes 'Sounds more like someone making up a term, then saying everything and anything under the sun comes under it, sort of like certain definitions of "monopoly". And how, prey tell, would a MW increase employment for a monopsony...? Talk about ideology-driven garbage.'

  You'll find this covered quite well in Lippsey's Positive Economics. It's a special case that occasionally comes up in some industry sectors. He also points out that when Trade Unions achieve that sort of minimum wage in sectors like that, they usually take it past the point where the special case works out and end up with lower employment in the sector after all. But it's still a real effect.

  Tudor writes "I had to write an essay on a related topic a while ago, and from what I remember, minimum wage was first introduced in Australia, in the early XXth century (or late XIX). Miners at that time had very low wages, and a bunch of judges decided to set a minimum standard, that mining companies would be allowed to pay."

  That sounds like the Harvester decision.

  "When setting this salary level, the judges considered what amount would suffice a decent living. What they did not consider, however, was the amount that employers could actually afford to pay, so the result was that part of the workforce had to be laid off."

  Actually, in that time and place there was a genuine labour shortage, so the adverse effects did not occur. Of course, this set a very bad precedent for later.

  "Minimum wage might seek to enforce social justice, but its effects are exactly the opposite. Had the workers who got laid off the chance to work for a lower pay than what the law said was right, would they not take it?"

  There is a real problem involved, and it is true that minimum wages through regulation generally make things worse - but that doesn't mean that simply getting rid of them is right either, it means that something different needs to be done to address the underlying problem. This problem is that, unless people have private resources to fall back on, beyond a certain point the going wage will pay worse than people turning to crime - so, at the margins, some people will, preying on others. These costs are externalised, even if you deal with them through effective policing as that still has spread costs (either sort are "Vagrancy Costs"). It's better to head these off through unemployment benefits, which is why the Elizabethan Poor Law was introduced and Bismark brought in the beginnings of the Welfare State (it was hardly a matter of sympathy for him, just cost-effectiveness). But you still get an externality paying for that.

  Relevant to that, Lukas suggested 'Wouldn't it be better for everyone, even from a progressive point of view, to allow them to work, for whatever wage, and ensure a "minimum standard of living" through some other mechanism, like Friedman's negative income tax?'. Myself, I prefer a Negative Payroll Tax of the sort Professor Kim Swales and his colleagues worked on, a virtual subsidy to deal with the externality in a Pigovian way, as it is faster acting than a Negative Income Tax and has no transitional funding problems although they are equivalent in the long run. It actually achieves a minimum wage, only with a cost structure that encourages employment instead of unemployment (and it raises GDP too, by about half the percentage that employment rises according to Professor Swales's research). It is also long run equivalent to a Guaranteed Income/Basic Income set at an optimal level (which turns out to be less than enough to survive on) or to Distributism. The idea is that people can't opt out of productive work but can survive on a top up wage that isn't enough by itself - and, without that, with globalisation, some of them will eventually (soon?) be unable to price themselves into work they can survive on as they will be competing with outsourced overseas labour that can go lower as people there still have some private subsistence resources around. And that brings back the Vagrancy Costs externality problem with a vengeance.

  Published: January 20, 2009 7:42 AM

• Inquisitor

  I'm aware of what monopsony is, I stand by what I said though - i.e. that it's another term that can be manipulated to apply to anything and everything, so that economists eventually see it "everywhere". To the extent that it is a problem (and one can imagine why it is...), unionization is an option. The state hinders this, but again we're arguing against state intervention, so what the state can do is butt out. Unions of course do achieve an effect similar to a MW, but so long as it's through voluntary means, there's no issue aside from economic inefficiencies...

  Rather than relying on the anachronism known as the state, the rehabilitation of friendlies, charities, mutual societies and proper unions would be a step forward. Not some idiotic, half-assed "standard" imposed by ignorant bureaucrats. I guess whilst there is a state the negative payroll tax makes sense, but voluntary means of substituting it eventually would be preferrable...

  Published: January 20, 2009 8:23 AM

• newson

  for those of longer memories, ravi batra wrote a book i purchased shortly after the 1987 crash "the great depression of 1990". full of keynesian claptrap. the recession of the early 90's was followed by golden years on both main st and wall st.

  a stopped clock marks correct time twice a day.

  Published: January 20, 2009 9:14 AM

• geniusiknowit

  But if I am starving, I have no place to go, nothing to eat, I would work for ANY wage, as long as it pays my studio apartment rent and buys me some cheap food from a Chinese place and some basic clothes. This means the market brought me to my knees. What makes you feel that the wages will ever go up? If there are plenty of guys willing to work practically for food, then the employers will never raise the wages, and there will always be a downwards pressure on wages, gradually pushing the workforce to the level of survival, which is the absolute minimum in the free market society for which anyone would do anything.

  That may be the minimim for survival... for you. However, others may be fine getting by with 3 people sharing a studio apartment, eating discount ramen, and buying the cloth with which to make their own clothing. Who are you to determine what qualifies as "the minimum" permissible amount of compensation?

  Why should wages go up? If everyone is of equal ability and all jobs are of equal desireability, then they would not. But some people are more capable or productive than others. Employers, who are competing with each other for a piece of the money available in the economy, will also compete for these more productive workers. They'll do so by offering better compensation. Also, not all jobs have the same level of desireability for workers. A farmer may have no trouble finding productive workers who can pick tomatoes, but may have difficulty finding productive workers willing to shovel manure. To get a more productive manure shoveler, that farmer would have to offer higher compensation.

  Published: January 20, 2009 11:25 AM

• pbergn

  I am amazed:

  Has zealotry prevailed over the common sense?!

  Is it too hard to understand that if you do not draw the line somewhere the market forces will tear the markets apart, and will doom their very existence?

  Is it too much to ask to forget all the theories in the world, and just think logically for a brief second?!

  Don't you see that the logical outcome of free market system is extreme polarization of the society, deflation and depression?

  You can clearly see it from the Game Theory, where the successful players hoard all the tokens (cash) and sit on it, and the game is over!

  Don't you see if unrestrained, and without any regulations such as antitrust laws, the biggest companies will eventually become even bigger, and will swallow (by buying, outcompeting or by simple intimidation) all the other smaller ones?!

  And sooner or later this unrestrained march of free markets will lead to dictatorship of the private monopolies (err... corporations?!), which will de facto own everything that is to be owned, own everything that has modicum of value to anyone...

  Is it not what is happening right before our very eyes?!

  Now, I am NOT advocating Socialism, Communism or Fascism!!! These are other extremes.

  But stop, and think for a second: what IS the logical outcome of the unrestrained, unregulated, pure Free Market System?

  Think about it, and remember, being a Zealot is NOT a good thing, even if you are a Zealot of Free Market System!

  The Truth is out there (somehere in the middle, I should say)!

  Published: January 20, 2009 1:33 PM

• Inquisitor

  Wow, talk about a disconnected rant. :S Filled with silly platitudes and cliches, to boot!

  Published: January 20, 2009 2:06 PM

• pbergn

  Re: lukas

  Lukas,

  You seem like an intelligent man, and I respect and even agree with most of your arguments. But here is a bit of a clarification on my side regarding some of your statements.

  You wrote, and I quote:

  "... However there is another group of people out there, and that is your "workers available to do the same quality and quantity of labor for that compensation". What about them? You have just, with the stroke of a pen, thrown them into unemployment: they are not allowed to compete for jobs, for doing so would require that they offer to work for less than the mandated minimum wage."

  Lukas, you nailed it! That is EXACTLY my point!

  You have to draw some reasonable line somewhere (preferably that would allow the laborer earning the wages to stay on the poverty line, and NOT below it), and not allow the rest of the laborers to compete on the basis of price!

  It is much like when a submarine or a ship is sinking, or an elevator is overloaded, you shut down the access or segments of the overloaded entity, to enable the rest who are inside the safe areas to enjoy some standard of safety.

  This is a safety shut-down mechanism, is it not obvious?!

  Think about it: in my previous example the workers who were willing to work day and night for a wage below the minimum survival wage, they brought the whole system down by rendering the whole notion of earning as useless exercise. They have overloaded the system, and brought even those, enjoying some level of prosperity down, at the cost of extreme polarization of the capital. The employer who employed them made even more profit, if he could not make a profit by employing minimum wage workers, then it is unfortunate - so be it. The guy is not viable and has to close his shop, or fine better ways to improve productivity NOT by reducing the labor costs further (beyond the poverty line), but rather by investing in new equipment or some other capital, that will raise hic competitive edge...

  Published: January 20, 2009 2:11 PM

• pbergn

  RE: Inquisitor

  Inquisitor,

  What is your logical argument to refute my statement that the free market is much like any game, and according to the Game Theory, the game ends as soon as some of the players accumulate sufficient competitive advantage to deny others any chance of victory or participation (in a form of accumulating the critical amount of exchange tokens, or other advantages or other assets essential to the game's objective)?

  You did not make any logical arguments to refute my claim that the unrestrained and unregulated Free Market will lead to deflation, depression and public unrests...

  That's the exact definition of a Zealot, who hides behind the statements, and well-known paradigm, for fear of being exposed as shallow..

  Published: January 20, 2009 2:25 PM

• Larry N. Martin

  pbergn, I don't see how it is zealotry to say that people should not interfere in voluntary exchanges. If you want to say that the current system is based on interference, fine, but the solution is not more interference but less interference.
  
  If economics shows us anything, it is that there are economic laws that cannot be violated, and that's as true for employers as it is for employees. Sure, employers want to pay as little as necessary for labor, but what counts as "necessary"? Underpaid employees also tend to be less productive employees, and that affects the company's bottom line. Competition helps ensure that there isn't a "race to the bottom" for employee wages. Not enough competition in the current situation? Remove the restrictions to competition. The simple facts are that large companies tend to benefit by government regulation, at the expense of smaller compnanies and employees.
  
  A minimum wage seems like a fair and reasonable thing to do, but the reality is that it hurts employees, violates freedom, and interferes with the workings of the economy. Employers can't change the laws of economics, and politicians can't either.

  Published: January 20, 2009 2:26 PM

• Marcelo

  Is it too much to ask to forget all the theories in the world, and just think logically for a brief second?!

  Then a sentence later you start praising Game Theory.

  You can clearly see it from the Game Theory, where the successful players hoard all the tokens (cash) and sit on it, and the game is over!

  Published: January 20, 2009 3:37 PM

• Francisco Torres

  What is your logical argument to refute my statement that the free market is much like any game, and according to the Game Theory, the game ends as soon as some of the players accumulate sufficient competitive advantage to deny others any chance of victory or participation (in a form of accumulating the critical amount of exchange tokens, or other advantages or other assets essential to the game's objective)?

  The logical objection to your argument is that it begs the question - you tend to do that a lot, you know.

  You already assumed that markets are like a game in order to conclude the awful result according to Game Theory. The refutation of this is that the market is not a simple Game Theory scenario, but a spontaneous network of human decisions and actions that are very diverse. Game Theory helps explain certain outcomes but not every outcome, and most Game Theory scenarios do not apply to market decisions when property rights and contracts are enforced.

  On the other hand, your conclusion just does not jive with present Game Theory - what supposed scenario are you applying to conclude that the outcome is to have enough comparative advantage to lock anybody else out? What you're describing is what in real life is simple competition, and in that case, saying that there are winners and losers would indicate that the participants all have an equal stake, which is NOT the case.

  If we start from the premise that NOBODY is ENTITLED to a job, then the only participants in any employment relationship are two individuals: The employer and the employee. That's it. Saying that the mutual agreement they reach would NEGATIVELY affect a third party is implying the third party HAS a stake in the agreement, when he clearly does not. If that were the case, then any of my wife's old boyfriends could come and make a case out of me being married to my wife because she agreed to marry me(!!)

  So, fallaciously, you are starting from the premise that, somehow, locals are: 1) Entitled to the job being offered locally, and 2) They are entitled to a wage THEY feel (or maybe YOU feel) is the right one. The premise is wrong, for the reasons I mentioned above.

  Published: January 20, 2009 3:55 PM

• gene berman

  pbergn:

  YOU ! are the one making the repetitive, illogical statements. Except for a few trolls, I've rarely seen a better example of complete ignorance.

  The fault of (your) other responders is that they've been unwilling to call a spade a spade. The reason that they're unable to answer your many unfounded objections is, quite simply, that they're more complicated than can be addressed in any short, simple way; some even require familiarization with other, seemingly unrelated topics.

  Neither do I want to argue with you; there's no point to it. But, I think it would be good, both for your own knowledge and for your own social value as an individual and a citizen, to put in some time (which you'd otherwise waste anyway with similar commentary) learning something of economics.
  Naturally, I'd recommend something in the Austrian tradition and, since Mises' HUMAN ACTION is rather daunting both in size and density, my pick would be ECONOMICS IN ONE LESSON by Henry Hazlitt. At least after such reading, you'll be in better shape to pose those questions or objections still remaining. And, who knows? After you've tried it, you might like it!

  Published: January 20, 2009 4:01 PM

• pbergn

  RE: Larry N. Martin
  
  Larry,
  
  I agree. I am against any significant interference with the Free Markets. In fact, I am the strongest proponent of Free Market System!
  
  My worry is that like with any system that I know of in existence, there should be some self-preservation mechanisms in place for that system to endure through critical points.
  
  For example, all elevator cars have safety brakes, the automobile have airbags and seatbelts, etc. etc. You got the point.
  
  Now, the Free Market is also a system, as you would agree, I assume.
  
  To preserve its integrity, it too needs safety mechanisms, such as antitrust laws, reasonable minimal wages, minimal environmental and workplace safety regulations. Without those, the system may overload and destroy itself...
  
  You need the circuit-breaker, don't you agree?
  
  Why should Free Market System be immune to the notion of self-preservation?
  
  Now, regarding the whole zealotry tirade:
  
  I define as "Zealot" any person, who makes a claim based on some well-known theory or paradigm, and refuses to bring any logical argumentation to defend it in the face of countering logical arguments.
  
  If this defies the conventional definition of a "zealot", I do apologize to the readers of this blog.
  
  I am a strong proponent of logical reasoning in argumentation, and in establishing civil and intelligent dialog between the disagreeing parties.
  
  After all, you would agree, that the rules of civility shall be upheld no matter what, otherwise there will be no distinction between arguing intelligent human beings and savages...

  Published: January 20, 2009 4:10 PM

• Inquisitor

  pbergn, I don't waste time on idiotic assertions. You say it's like any "game"? Zero sum game? THEN PROVE IT.

  Published: January 20, 2009 4:18 PM

• Inquisitor

  Perhaps Gene is correct. Apparently positing a doctrine by assertion is "pbergn"'s idea of a "logical" argument.

  Published: January 20, 2009 4:22 PM

• pbergn

  RE: Marcelo

  My bad. You are right, I contradict myself, I meant "put aside all the economic theories", and not just all possible theories...

  Good catch, Marcelo! At least someone is reading attentively what I am writing...

  Now, that's a start!!! :-))

  Published: January 20, 2009 4:23 PM

• Inquisitor

  Why should we? Why don't you put aside "game theory"? Cut the crap, troll.

  Published: January 20, 2009 4:23 PM

• Joe Stoutenburg

  pbergn:

  Please respond to the post by Francisco Torres dated 1/20/09 @ 3:55 PM. He is not the only person to "bring... logical argumentation to defend it in the face of countering logical arguments". He is only the most recent.

  I won't bother to raise my own arguments when you fail to even acknowledge the most effective ones used against your position.

  Published: January 20, 2009 4:44 PM

• pbergn

  RE: On "Joe Stoutenburg"'s request to respond to "Francisco Torres dated 1/20/09 @ 3:55 PM".

  
  Francisco wrote:

  "... You already assumed that markets are like a game in order to conclude the awful result according to Game Theory. The refutation of this is that the market is not a simple Game Theory scenario, but a spontaneous network of human decisions and actions that are very diverse. Game Theory helps explain certain outcomes but not every outcome, and most Game Theory scenarios do not apply to market decisions when property rights and contracts are enforced."

  Now, to answer to Francisco's argument that the free market is NOT a simple or any game at all, one has to answer the question of "what is a game?" first.

  Here is one of the standard definitions of the word "game" that I could find on dictionary.com:

  "a competitive activity involving skill, chance, or endurance on the part of two or more persons who play according to a set of rules, usually for their own amusement or for that of spectators."

  Now, the definition above has striking similarity to what we understand under "Free Market" paradigm, except under the term "amusement" we understand "survival" first, with possibility of being amused, later on (when you have too much money so that you simply do not know what to do with it).

  Any reasoning man would agree that Free Market is a game of change, certain rules and skills, with the final objective of accumulating as much of tokens of exchange (call it gold, fiat money, bonds, diamonds, rabbits, etc...) as possible.

  Like in any other game, when a group of players gains strategic advantage over the others by accumulating critical amount of aforesaid tokens, or positioning his/her assets in a certain manner, this is called "watershed moment" in the game, starting from which, the other players stand no chance of winning the game, and any move done by them henceforth only will further exacerbate their position as players in term of achieving the goals of the game.

  By the same token, it is hard to disagree with a statement that Human Life in general, is a game on its own, where the ultimate objective is pursuit of happiness...

  Now, I have to agree only with one thing that Francisco wrote: I cannot scientifically prove that the Free Market in particular, and Life (Conscious Existence) in general are a form of a Game in a sense defined above...

  [Also, I noticed that some bloggers use offensive epithets such as "troll", etc. which is also a good sign of an emerging Zealot, who resorts to expletives and offensive epithets to further emphasize his points, which he/she vehemently believes in, and feels has to defend by all means...

  I would like to state here, that to resort to such epithets should be beneath the high civility standards set on this web site (as a side note)...]

  Published: January 20, 2009 5:08 PM

• lukas

  Lukas, you nailed it! That is EXACTLY my point!

  You have to draw some reasonable line somewhere (preferably that would allow the laborer earning the wages to stay on the poverty line, and NOT below it), and not allow the rest of the laborers to compete on the basis of price!

  Again, tell me, what are the rest of the laborers to do now? They are unemployed, unemployable, because of the very minimum wage you propose. What is your plan for them? You're only addressing half of the problem, and in doing so, make matters worse for those in society that are the least productive.

  Published: January 20, 2009 5:09 PM

• pbergn

  RE: Lukas

  Good question, Lukas... I guess they have to starve. So said!!! But at least, those who made it will enjoy the life at some level of comfort, rather than becoming slaves of the system together with the unfortunates dragging them down.

  That is why you need safety mechanisms, or a circuit breaker, when the system is overwhelmed...

  [I feel I am repeating this simple idea over and over again. At the university, I would have gotten a grade "F", if I were asking my professor the same question again and again...]
  

  Published: January 20, 2009 5:13 PM

• Francisco Torres

  pbergn ,
  Here is one of the standard definitions of the word "game" that I could find on dictionary.com.

  Again, you are assuming that the market is a game. By your definition, a game is a competition between two or more participants where one tries to become the winner through skill or chance. Unfortunately for your argument, market interactions are not based on skill or chance but on mutually advantageous trades or interactions. Both parties to a market transaction expect to benefit from the transaction itself, otherwise they would not participate. When I go to the store to bet tomatoes, I do not go to the front cashier and try to get the tomatoes by winning a coin toss or three chances of scissors, stone and paper. I GIVE my money in EXCHANGE of the tomatoes, because I benefit MORE from the tomatoes than from the cash i am holding, whereas the store benefits more from my cash than the tomatoes.

  Any reasoning man would agree that Free Market is a game of change, certain rules and skills, with the final objective of accumulating as much of tokens of exchange (call it gold, fiat money, bonds, diamonds, rabbits, etc...) as possible.

  Depends on what the reasoning man was taking when he made such an ill conceived notion. The market is not about accumulating stuff. "Market" is actually the name economists (and most people) give to the spontaneous system that people themselves create by interacting with one another. If someone is out to accumulate lots of stuff, he has to first give something in return that others will be willing to accept in exchange for the goods he desires.

  By the same token, it is hard to disagree with a statement that Human Life in general, is a game on its own, where the ultimate objective is pursuit of happiness...

  It isn't THAT hard. There, I disagree with it, because the concept is simply being wrongly defined by you. Whether a person regards the pursuit of his happiness as a game, or not, it is immaterial, irrelevant. That is that person's own view, his own problem. It does not affect the concept of "Market", nor does it give it the character of a "game" (thinking that a market is a game because some people regard it as a game is a classic fallacy of composition).

  I cannot scientifically prove that the Free Market in particular, and Life (Conscious Existence) in general are a form of a Game in a sense defined above...

  I don't ask for scientific proof, only for non-fallacious argumentation. If you begin by defining the concept wrong, then your proof will be worthless. That is what I am trying to tell you.

  Published: January 20, 2009 5:28 PM

• Francisco Torres

  Sorry, it's "buy", not "bet". I don't know why I even wrote it that way.

  Published: January 20, 2009 5:32 PM

• pbergn

  RE: Francisco Torres

  Well then, Francisco.

  Now we can clearly see why we disagree - we have deep notion definition discrepancies...

  All that I have said is ONLY true if you regard the Market as a form of the game where the players have certain objectives.

  Quoting your own example, if I go to a store and by tomatoes my tactical goal is to eat, but my strategic goal is to stay alive and be happy by doing as little harm to my environment and other players as humanly possible...

  I regard the "spontaneous exchange of goods and services" as you stated it as a form of game activity, where the participants have some strategy of survival, and voluntarily co-operate to achieve their strategy.

  Now, you would agree that the ultimate goal of any enterprise is to generate as much profit as it is possible, in other words, in my "game" world this is called accumulation of exchange or strategic tokens to achieve the ultimate subjective goal of the owners of the enterprise which is pursuit of happiness as they understand it...

  Now, I personally do not understand why a "spontaneous exchange" cannot be adopted as a tactical move in a certain game...

  But know, this, I do NOT claim anything, I do not even claim that I am right. It may well be that my mental limitation does not allow me to see the whole truth about Life. I admit that I am mortal, and human, and it is human to err...

  I am simply trying to state my world-view on the social-economic matters as an alternative to the well adopted and adhered to theories.

  I am open-minded, and again, by no means I am claiming that my point of view is right or is better than anyone's...

  I just came up with this world-view after years of analysis and mental experiments; I came up with this based on my own, personal observations of Human Life as I know it...
  

  Published: January 20, 2009 6:05 PM

• Francisco Torres

  I also wanted to address this point, if I may:
  To preserve its integrity, it too needs safety mechanisms, such as antitrust laws, reasonable minimal wages, minimal environmental and workplace safety regulations. Without those, the system may overload and destroy itself...[ ...] You need the circuit-breaker, don't you agree?

  It is difficult to see why a spontaneous system like the Market (not designed, not managed) would require a "safety mechanism" like those you mention. When I mention that you beg the question is because you indulge in circular thinking. In this case, since those mechanisms are already in place for different reasons (anti-trust laws, minimal wage regulations, environmental regulations, workplace safety regulations, et cetera), you simply assume they were needed IN ORDER to conclude they are required safety mechanisms for the market. This is circular thinking.

  However, I can show you how this conclusion is incorrect by addressing each.

  a) Anti-trust laws: These are not needed - even if you get company a, b, and c to agree on a price, companies d, e or f will simply undercut their pricing and grab their market. This is a reason why OPEC countries can never agree on a price themselves. Anti-trust laws are actually used by companies to stymie their competition whenever it becomes more successful than them. This was the case of Alcoa, a very successful Aluminum maker that helped win WWII and had a great market share, attacked by the government when its competition filed an anti-trust grievance, because they could not compete.

  b) Reasonable minimum wage: Reasonable for whom? Who decides what's reasonable? Minimum wage laws are nothing more than price floors, i.e. price controls, and like any other price control, they lead to shortages - in this case, shortages of jobs.

  A wage is a price like any other, and as such, it is an agreement between buyer (employer) and seller (employee). Interference in these mutually beneficial trades end up creating unintended consequences like making certain labor (unskilled, inexperienced) too costly to be employed, leaving people without the option of at least accepting a lower wage, which should be their right. It is no different than the government imposing on me a restriction on the type of car I want to buy, or the size of my home - it is just as unethical and just as immoral.

  3) Environmental Regulations: These are unnecessary. Strict enforcing of private property rights can perfectly take care of environmental issues. Besides this, most regulations are either too sweeping, negatively affecting people and businesses that do not harm the environment, or are too lenient, allowing some polluters to get away with property rights violations. There is not going to be a middle ground because regulations are legislated by people that always have too little information, i.e. cannot know everything.

  4) Workplace safety regulations: Again, not needed. The cost of downtime makes it cost effective to implement, and like I told you a few posts before, just following procedures guarantees 99% safety. Most regulations are redundant, and worse, subject to interpretation.

  All above notwithstanding, I fail to see how these issues can have an impact on the market, considering the market is created by people through their interactions with each other. Why would minimum wage laws or having the proper Personal Protective Equipment be a "safety mechanism" for the market is beyond me, and why such unnecessary impositions like anti-trust laws are to be considered essential for my trades or someone else's really stresses my imagination. All of those so-called mechanisms are after-the-fact impositions in most cases, indicating that the people legislating them were not clever enough to see their need before, and I can say without hesitation that just through pure profit motivation, businesses will implement safeguards themselves, since downtime IS expensive. The market can take care of such issues faster than legislators can place in the Book of Regulations.

  Published: January 20, 2009 6:27 PM

• P.M.Lawrence

  Inquisitor writes 'Rather than relying on the anachronism known as the state, the rehabilitation of friendlies, charities, mutual societies and proper unions would be a step forward. Not some idiotic, half-assed "standard" imposed by ignorant bureaucrats. I guess whilst there is a state the negative payroll tax makes sense, but voluntary means of substituting it eventually would be preferrable...'

  I agree, and indeed I would like to use a Negative Payroll Tax as part of just such a transition. The first step would be to implement it using anonymous transferrable vouchers given to actual and potential employees for employers to hand in to claim their tax breaks, rather than through what bureaucrats would no doubt go for unthinkingly, some central register. That would soon transition to the Basic Income approach, and then it could be detached from a particular carying tax and paid from an endowment fund that would start off with government bonds (perhaps after another transition away from funding governments with tax towards an endowment pool or "domain" of revenue yielding assets, diversifying away from and eliminating the bonds). Later, that could in turn be liquidated and its revenue yielding assets - possibly still including government bonds, if the other transition were still incomplete - could be parcelled out to individuals, once back stop private institutions were in place to stop them eroding from generation to generation.

  Published: January 20, 2009 6:43 PM

• Francisco Torres

  All that I have said is ONLY true if you regard the Market as a form of the game where the players have certain objectives.

  Having objectives in mind does not make the market transaction a game any more than having objectives makes my relationship with my wife a game.

  Quoting your own example, if I go to a store and by tomatoes my tactical goal is to eat, but my strategic goal is to stay alive and be happy by doing as little harm to my environment and other players as humanly possible...

  See, this is the problem, pbergn: You are arguing from intentions. Who cares if you believe you are fighting a war of survival in your mind when you go to the store? It is immaterial. The Market does not care about your intentions or reasons; it only cares about your actions (and with Market, I mean the acting people surrounding you.)

  I could go to the store to buy tomatoes just to have them sit in my table and watch them rot. Maybe I do this as a bet - who cares? It's irrelevant. What matters is that I traded my money for the tomatoes in a mutually beneficial agreement between the store and me. What matters is that I traded, and that I did not try to steal them. There is no game here - just a trade; no points to win, no prizes, no trips to Cancun.

  I regard the "spontaneous exchange of goods and services" as you stated it as a form of game activity, where the participants have some strategy of survival, and voluntarily co-operate to achieve their strategy.

  You may regard it as whatever you want if that makes you happy, or keeps you sane. The fact of the matter is that intentions are meaningless - it is ACTIONS that count. The market is about actions, not intentions. I could have the sleaziest, most disgusting intentions in my mind when buying tomatoes, but as long as I don't steal them, then the outcome cannot be one of a game, since both the store and me came out as "winners" - both benefited. In a game, there can be only one winner.

  Now, you would agree that the ultimate goal of any enterprise is to generate as much profit as it is possible, in other words, in my "game" world this is called accumulation of exchange or strategic tokens to achieve the ultimate subjective goal of the owners of the enterprise which is pursuit of happiness as they understand it...

  I agree that the goal of a business is to obtain as much profit as possible, in the same manner that consumers try to get more bang for their buck. Whether you regard this as a game or not seems to be your preference, but that does not make the process itself a game. By the same token, if the owner of a business sees himself as being in a game, that may be his preference and may make him happy, but that does not make what he does (exchanging goods or services for money) a game in itself.

  Now, I personally do not understand why a "spontaneous exchange" cannot be adopted as a tactical move in a certain game...

  You can adapt it. Nobody should stop you from doing it. What you cannot do is call the market "a game" just because you want to adapt it and then ask people to accept it just because you said it.

  I am simply trying to state my world-view on the social-economic matters as an alternative to the well adopted and adhered to theories.

  The problem, and it has been pointed out to you oh so many times, is that you start from false premises. You can have the world view you want, you are free to do so. What you cannot expect is for people who understand and have a love for truth and economics to agree with you. With that being said, I do not believe you have made your case that the Market is a game. You actually have conceded that you are trying to adapt the concept of market into a concept of gaming, which is different from asserting that the Market IS a game. I can try to use game theory as well to explain certain things or even believe that a trip to the store is like a trip through the maze of Dungeons and Dragons, but that does not make the market a game.
  

  Published: January 20, 2009 6:55 PM

• lukas

  Good question, Lukas... I guess they have to starve. So said!!! But at least, those who made it will enjoy the life at some level of comfort[...]

  Please tell me you are not serious.

  Published: January 20, 2009 7:44 PM

• Inquisitor

  Mises actually addresses the whole game/market analogy in The Ultimate Foundation of the Economic Science.

  Published: January 20, 2009 8:08 PM

• Larry N. Martin

  Now, the Free Market is also a system, as you would agree, I assume.

  To preserve its integrity, it too needs safety mechanisms, such as antitrust laws, reasonable minimal wages, minimal environmental and workplace safety regulations. Without those, the system may overload and destroy itself...

  You need the circuit-breaker, don't you agree?
  
  The market is indeed a system or process, but it is one composed of thinking, feeling human beings, and not a mere mechanical system. The only "circuit-breaker" the market needs is a system of rights-protection. As long as all transactions are voluntary transactions, then each participant is free to make an exchange if they want, or not make the exchange if the don't want to. Every market participant is thus also a "circuit-breaker", and can choose not to make a particular market "connection". As such, the market can't overload (at least, not without the full agreement and willingness of every participant), and market problems tend to be localized and minimized, instead of being fundamentally pervasive problems affecting larger society.
  Antitrust laws, minimum wage laws, environmental and workplace safety regulations tend to violate rights instead of protecting them, and require involuntary transactions. They tend to exacerbate problems and cause unintended consequences insteado of helping, regardless of the intention of such laws.
  

  Published: January 21, 2009 10:33 AM

• Joe Stoutenburg

  pbergn:

  Thank you for responding to Francisco. His arguments are cogent and I will be happy to follow your exchange. I do have some analysis to add regarding your characterization of the market as a game.

  A game is generally a closed system. The "tokens", as you call them, are of limited quantity. At the end of the game, you count up the score and declare a winner. In contrast, market activity is focused upon increasing the total number of tokens.

  There are natural limits on the number of "tokens". Resources are scarce in nature. This leads to competition and cooperation. Advocates of the market stress cooperation. When people voluntarily exchange, they are not engaged in a zero sum game (at least ex ante). They exchange because all parties expect to benefit, otherwise they would not do it.

  A wealthy person is not the recipient of perpetual wealth. If the supply of "tokens" is not replenished, his wealth will eventually run out. He must either seize wealth (which will decrease the total amount of wealth), or he must employ his capital cooperatively with others to produce wealth. The later approach will make everyone wealthier. The opponent of free markets may only object that the talented capitalist is made relatively wealthier than his customers and business partners. Their only response is to level the playing field, thereby reducing the wealth of all.

  You demonstrate the conflict side of competing for scarce resources. You baldly admitted that some people might have to starve to act as "circuit breakers" for the rest who "will enjoy the life at some level of comfort". But the fault in your reasoning is to believe that the amount of wealth is fixed at current levels.

  If wealth was so constrained that life was a matter of struggling to feed ourselves, then I would be quite forgiving of a person who voiced your view. Indeed, I pity the people who are reduced to that situation by restrictions to their liberty and can understand why they turn to crime. Not willing to go quietly as your circuit breakers, they extract their living through crime. We might have had their contribution (small though it may have been) in production. By denying them that dignity, we still pay their support through destructive crime.

  "The art of economics", as Hazlitt once wrote in the widely read (and previously suggested to you) "Economics in One Lesson", "consists in looking not merely at the immediate but at the longer effects of any act or policy." You focus on the people who are now employed at a higher wage than they might otherwise have been. You ignore the people who are now banned from working at a wage at which they could reasonably be employed. Furthermore, you suppose that they will starve in silence. You neglect the readily available proof that they will not play your "circuit breaker" roles willingly. Their crime (now their only option) is an added expense that we must pay in lieu of relatively small wages that we might have received along with some production, or at least less incentive to turn to destructive crime. What's more, some of them surely might better themselves, thereby commanding higher salaries and increasing their productivity -- the latter would have been a boon to the rest of society.

  Minimum wages are indefensible. Other regulations follow similar analysis as outlined in the article and by comments here.

  Published: January 21, 2009 11:38 AM

• pbergn

  RE: Joe Stoutenburg

  Thanks Joe for the recommendations.

  I am pretty well aware of the free market fundamentals, and I know exactly what you are talking about, in terms of laissez-faire policies resulting in a better world, by allowing the natural market processes balance the market and determining each individual's or resource's place in the market based on their current market demand.

  Again, I am not against these policies...

  But the blind followers of Free Market theories are forgetting one fundamental thing, that the main idea of a business is to generate profit. I would like to underscore this idea. If you agree on that, then there is a chance that I can convey my reasoning which is unobstructed by the main socio-economic theories, 'cause I prefer to think of me as a free thinker...

  Look, if the goal is profit then you would agree that the car company that manufactures the automobiles does not do it due to some spontaneous whim or need, it does it because there is demand for automobiles by the consumers. Now, why would someone try to satisfy that demand? Of course, only to profit!

  In my "game theory" world the desire of profit is considered the main objective of the game (assuming that the profit can later be translated into pursuit of happiness).

  The market is not strictly speaking a zero-sum game, but that does not change the essence that this is nevertheless is a game.

  We all compete for the limited physical resources and want to be happier by making our life more and more comfortable. In order to achieve that we have to constantly innovate our strategies and techniques in terms of accumulating more and more assets that are either of personal value or can be exchanged for the same.

  Now tell me this, why would super rich drive the progress? They already have a car, a boat, big houses, in short, all sorts of stuff one may need to make him/her happy. Those who have already relatively satisfied their needs in pursuit of happiness are not interested in consuming even more. In other words, with the polarization of the capital in free markets, which will eventually happen, as you would agree, since the best, the luckiest and the smartest will eventually accumulate significant part of the resources or simply wealth, and will not have the capacity or need to consume all of it. This will automatically create deflatory environment causing depression and public unrest...

  This is exactly what is happening with the further polarization of wealth in the Western countries. The largest corporations are becoming even bigger, by simply buying out and destroying the competition.

  Again, we have reached a watershed moment starting from which no-one stands a chance to compete in seemingly free market. Don't you know that majority of all the companies that we interact with in our everyday life, such as food chains or retail store chains are owned by a very small number of corporations. What makes you feel they will ever loosen the grip on the market? Why do you think that the top 2% controlling the 90% of market assets will ever loose control over it or try to share it with other 98%? It's much like te winner in the board game Monopoly trying to share his/her tokens with other, "loosing" players (pardon the game analogy again; it seems I can't shed the habit).

  The unregulated market will result in an extreme polarization of the society, where the rich will become ever richer by easily overcoming any resistance on their path, and the poor, will have to work for lesser and lesser, until the de fecto labor cost will be the price of physical survival.

  Is it not what is happening with exploitation of Chinese and Indian workers? Is it not the cause of people massively loosing their jobs here in the West due to the simple fact that they are too expensive of a workforce?

  Listen, I think it is very inhumane to force a man to toil like a slave for some wage that can only allow him to preserve his physical existence, and claim that the guy is much better off, than he would have been if the "generous" entrepreneur did not hire him at all..

  This is the slave-owner mentality that is embodied in some of the current theories of what a Free Market should look like.

  A bogger named Lukas on this blog effectively advocates slave labor as being a better alternative to not being employed at all, which I completely and categorically disagree with! If everyone refused to work as a slave, the employers would have to come up with some higher wages or hire only a few, but pay them enough to allow some sort of decent existence, rather then self-proclaiming themselves as benevolent saviors of otherwise starving men, whom they practically exploit...

  Again, I am a strong proponent of Free Markets, It is common sense that only competition will force the producers to produce better and more affordable products. This is trivial. I am strictky AGAINST of any significant government interference.

  What is NOT trivial to me, is how to safeguard the Free Market system, so that it truly stays as free, rather than deteriorating into a simple paradigm, where only the select few control and own everything, and the "free" part of the "Free Market" is merely a taunting and hallow word for the rest of the participants in the labor-sharing society...

  Published: January 21, 2009 1:43 PM

• Michael Clem

  But the blind followers of Free Market theories are forgetting one fundamental thing, that the main idea of a business is to generate profit.
  The unregulated market will result in an extreme polarization of the society
  
  The second statement is mere assertion, based upon a faulty idea of how profit is made. In an "unregulated" market, assuming you mean a free market, and not a market of government license without responsibility, there are no barriers to competition--new companies can freely start up and expand to keep the "evil exploiters" at bay, and take away the better employees if they don't behave.
  
  So the first part is how is profit made by a company? By providing a product or service that people want at a price that people are willing to pay for, while providing it at a high enough productivity to keep their costs down. While naturally, you want to minimize costs where you can, there are significant limits to how much cost-cutting can be done by mere frugality and corner-cutting. It is largely through productivity gains that costs are controlled, not through cost-cutting. And, has been mentioned before, low employee morale is a drag on productivity.
  
  By contrast, authoritarian, coercive laws to "regulate" businesses are a surprisingly effective way to limit competition. Big companies love to work with politicians to craft laws, because getting government to restrict your competition is much easier than trying to out-compete the competition.

  Published: January 21, 2009 2:12 PM

• pbergn

  RE: lukas

  I am serious, Lukas. You have to draw a line somewhere (why do I have that nagging feeling again that I am repeating myself ?! Dah... maybe because I am)...

  Let me bring you an example from my personal life. I was born in the former USSR. And I have seen the worst of Socialism and Communism. So, you cannot hold me as a Communist ('cause I've actually have seen it in action, and what it can do to a working man, by turning him into a slave of the system...).

  When the USSR broke apart, the dawning era of Capitalism and Free Market ideology has proudly made its debut...

  Now what do you think happened? Everybody became better off? Nope, wrong answer.

  Here is what happened:

  All sorts of rich folks and corporations poured in, and together with the local nouveau riche, they have bought everything that could have been bought, including the local corrupt government and its army of bureaucrats...

  You think there was competition or any free market that has ensued with the pseudo-democracy which was established as a rule of the land?

  No. What happened was, the guys who bought everything they started offering the lowest possible wages for any labor. The philosophy of the corporations was "either you take the bone I throw you, or die like a dog from hunger". The workers did not have any chance, since every time they asked for higher wages they have been accused of being Commies or socialist leftists or unionists. The minimum wages, the environmental protection and workplace safety regulations were repealed by the new democratic government. Do you know what happened? People started working like slaves, and would get much less compensation then even during the Soviet era. Anyone who would as much as whisper the word "raise" would risk a chance to be fired. There were several European and US companies, but would they compete in terms of higher wages. The answer is still "no". Why? Because they had plenty of supply of hungry men willing to work for mere price of their food. Why give more meat to a dog, if he does the job for a bone? No incentives. These guys came in, polluted all the environment, extracted everything they could extract from the natural resources and people, without a regard to the injured or worker safety or working hours, and some of them left, once they figured that there is no more profit to be made, since the population is so poor that they cannot even buy what they produce...

  This is a sad story that I heard from many ex-republics of former USSR, form people in China, Vietnam, India, etc., etc.

  Now you look into my eyes and tell me that this was Free Market in action, and that I, as one of the slaves, was a much happier man, then I could other wise be! I would rather be dead then work for pennies and thank for that!

  Look, I refuse to believe that the true Free Market can become a mere exploitation tool in the hands of the few... How's that was better that what the Communists did to us?!!!

  I don't know. I am lost in all this economic theory crap!!!!!

  "You can't trust freedom when it's not in your hands..." as in the Guns'n'Roses song "Civil War"...

  Published: January 21, 2009 2:15 PM

• Inquisitor

  My what a troll! Right down to the imputation of advocacy of "slavery" to anyone who disagrees with his absurd, mindless dicta. Of course the troll itself is fine with people being unemployed due to the boneheaded regulations put in to remove them from work...

  Published: January 21, 2009 2:23 PM

• Larry N. Martin

  All sorts of rich folks and corporations poured in, and together with the local nouveau riche, they have bought everything that could have been bought, including the local corrupt government and its army of bureaucrats...

  You think there was competition or any free market that has ensued with the pseudo-democracy which was established as a rule of the land?
  
  My sympathies, pbergn, but as your own statement shows, there wasn't a free market after the collaps of Communism. You had a "corrupt government and its army of bureaucrats." Instead, they merely reverted to corrupted, Western Democracy, where "unregulated" means government provides businesses the license or privilege to do things without the corresponding responsibilities for their actions. This is the "soft-core" socialism that free market proponents have been struggling against in "Capitalist" USA and other Western liberal democracies.
  
  Even though outright control by government has been discredited (or has it?), government control through the backhanded means of "regulation" is still popular and accepted. But giving some people control over other people is still the road to tyranny and poverty, no matter how it is done, or how good one's intentions are in doing it.

  Published: January 21, 2009 2:32 PM

• pbergn

  RE: Michael Clem

  Hey, Michael, you sound truly wise, I must admit.

  I know exactly what you are talking about...

  Then tell me this: Why do the Western companies hire hundreds of much cheaper workers in third world countries to do the same work as a few more productive but more expensive ones could do right here in the US, or use more advanced but more expensive technology?

  Don't you see that if you do not draw a bottom-line on the wages, this will undercut the productivity, for the employers would simply hire greater number of less-productive workers which collectively would cost much less in terms of labor costs, rather than hiring fewer more productive ones or invest in new
  technologies that could raise the productivity?

  A brilliant example is the slavery in the United States in the 18th - 19th century. Why do you think the Civil War broke out? Because more industrialized North was relying on more productive manufacturing resources such as free men, new machines, whereas the South was happy with their slaves, that would do the same without the new technology or hassle of paying to free men or making new investments... So they did not want to give up their slaves which they regarded as production means...

  One cannot outcompete the plantation owner, since the guy has relatively abundant supply of cheap labor. The plantation owner is NOT interested in new technology or investing in new techniques for as long as he makes profit the old-fashioned way...

  My point is that you can only start seeing some progress when the cheap labor dries up, which is unlikely in the near future given the rate of population growth and the economic conditions in most of the parts of the World...

  That is why to avoid systemic failure, you have to draw some artificial lines, that would serve as dams against the influx of super-cheap labor, which will ultimately destroy the way of life in the West, and further polarize the wealth distribution among the participants in the labor-sharing society...

  Published: January 21, 2009 2:43 PM

• Inquisitor

  "My point is that you can only start seeing some progress when the cheap labor dries up, which is unlikely in the near future given the rate of population growth and the economic conditions in most of the parts of the World..."

  Why don't you state EXPLICITLY what you mean by this? :)

  Published: January 21, 2009 2:53 PM

• pbergn

  RE: Larry N. Martin

  Larry, then this beggs the question of "what IS a Free Market"? You had all teh conditions: Many companies competeing with each other for the post-Soviet market. They had the most unregulated market one can possibly wish for (unlike here in the US). Practically no rules, no regulations. ANd they were competeing with each other for the post-Soviet space...

  If this is not a Free Market in its purest form, then I do not know what is....

  [One cannot please you Free Market guys: when I shout more regulations you cry fault; when I say no regulations at all (since the corrupt government means exactly that - you can do practically whatever you want in the country) you still cry out "fault". So, tell me what am I to suggest to meet the "true" Free Market conditions?!!!]

  Published: January 21, 2009 3:03 PM

• pbergn

  RE: Inquisitor

  Inquisitor,

  I am not sure whether you will indulge a troll like me, but here is my two cents on this:

  The employers will start offering higher wages ONLY when there will be no one that would agree to work for that wage. There is nothing ingenious in this, of course. It is common sense.

  So my point was that the employers will only have the incentive to raise the wages only if the cheaper labor dries up. But since you have such a great disparity in the economic situation in the World, that means that the cheap labor is NOT scarce.

  So, in order to protect at least some part of the population that is enjoying relatively higher standard of living you must artificially isolate the markets from super-cheap labor (by this term I mean anything that pays less than the accepted minimum standard of living in the given locale, enjoying higher standard of living)...

  I thought this idea is trivial... But, hey, I am a troll, how would I know...

  Published: January 21, 2009 3:10 PM

• Inquisitor

  Seems the comment didn't post... anyway:

  It's anything but trivial. Do you even ask WHY some workers earn (esp. in 3rd world countries) earn such low wages, particularly in the case of countries like China? It ain't because of the market... Anyway, let's assume two mutually exhaustive scenarios: either the low wage workers earn wages at the level of their discounted marginal value product, or they earn less. In the first case their wages are a function of labour supply plus the quality of labour, and thus the only way to earn a higher wage without sending some into unemployment is to get a new, more valued skillset OR unionize voluntarily (though this might end up having effects similar to a MW) On the other hand, if said workers earn less than they're worth, any entrepreneur can enter the market, bidding up their wages to reap higher profits, until profits level off. Clearly you're referring to the former scenario, which is more or less near equilibrium (otherwise there'd be no "problem".) Why should some of the workers sacrifice themselves so others can live "better"?

  Re the USSR, as I recall its dissolution involved substantial cronyism and economic chaos... whereas laissez faire is not so much "anything goes" as it is "all voluntary transactions go"...

  Published: January 21, 2009 3:55 PM

• lukas

  pbergn: Well, so you would rather have half of the population starve so the other half can have a decent life? Don't you think there has to be a better solution? The economic arguments show that a minimum wage is a poor way to ensure a minimum standard of living, even compared to other policy options.

  What happened after the "collapse" of sovietism in Russia was not a transition to a free market... it was more of a free-for-all. The old elites (party officials/the nomenklatura) still retained control of all the capital ("means of production" if you will), and through corruption most of it was bought up by a few well-connected men for ridiculously small sums.

  This is not privatization, it is prikhvatizaciya... And thus, the people that had slaved away for decades under Soviet rule were deprived of the fruits of their labor. It was theft, pure and simple, engineered by the collusion of government with private interests.

  Other countries, like the Baltic states (and especially Estonia), managed the transition better, though not perfectly either.

  Published: January 21, 2009 6:26 PM

• Gil

  Perhaps pbergn the West 'did take one for the team' by having fewer babies in the 20th century. Fewer people / same amounts of job = more money per job. The work done in the third world may be reasonably similar to the work done in the West but is bidded down because the large potential workforce.

  Published: January 21, 2009 9:06 PM

• pbergn

  RE: lukas

  But what is the alternative, Lukas? Allow everyone exist on the subsitence level? This was called Communism last time I found myself in that kind of situation...

  Look, the resources are limited, but it doesn't mean that you have to allow the economic entities having enormous economic differential to get in contact with each other with no safety mechanisms in place.

  It is much like opening a hatch on a submarine submerged under thousands of feet of water...

  Think about it. You can't simply implement classic Free Market theories here. You need to protect the Free Market forces from themselves, otherwise the whole system will blow...

  Can't you see this is what is happening right before our eyes?! This is no time for Purism. Something must be done to stop the destruction of a better world, even if it means tweaking the well-known theories a bit...

  Published: January 21, 2009 10:30 PM

• pbergn

  RE: Inquisitor

  Inquisitor, using some of the language used by Free Market proponents, and I am one of them, by the way, it is immaterial as to WHY the labor in China is cheap. What is relevant to our discussion is the fact that it is cheap, and it is destroying the Western civilization as we know it, since it drags us all down into the same abyss (by the way created by the Totalitarian Regimes)...

  By the way, the wages in the third world countries such as China are low, because the workers have simply no choice. They have either to toil for that rich western entrepreneur through their Party boss serving as the intermediary, or face starvation...

  These poor people are simply viewed as the extension of means of production, just like any tool that can be used to that effect...

  Again, I am FOR the Free Market theory NOT against it. Otherwise I would not have been blogging on this site which I like very much (one of my favourite web sites [no flatter intended])...
  

  Published: January 21, 2009 10:51 PM

• RWW

  You need to protect the Free Market forces from themselves, otherwise the whole system will blow...

  If you want to start bossing people around, the burden of proof is on you.

  ...even if it means tweaking the well-known theories a bit...

  You speak of economic theory the way a young-earth creationist speaks of the "theory" of evolution. The economic theory you refer to is a set of laws, no more open to "tweaking" than the theorems of mathematics.

  Published: January 21, 2009 11:30 PM

• Vanmind

  "Check the UN development Index..."

  Brady, you do realize, right, that the UN is quite possibly the vilest institution on the planet?

  Published: January 22, 2009 1:50 AM

• Gerry Flaychy

  What is a free market ?

  For Ludwig von Mises "The market is free; [when] there is no interference of factors, foreign to the market, with prices, wage rates, and interest rates."

  http://mises.org/daily/2979#part3

  But it is only an imaginary construction, a tool to try to better understand what is going on in the real world.

  There is no such thing as a free market in the real world.

  Published: January 22, 2009 8:43 AM

• Joe Stoutenburg

  I think that we need to clarify what is a free market. A free market is dominated by mutually voluntary, honest associations. Many institutions fall short of this yet are often labeled "free market" because they strive for profits.

  A perfectly free market is a myth that will never exist. I think that the more thoughtful readers here will agree with me on that. It is overly simplistic to assert that markets will be free once government is restrained or abolished. Because of scarcity, there will probably always be individuals who choose expropriation over violence. We should be mindful to oppose these people for who they are -- enemies of liberty -- whether they are government officials, executives of corporations or petty thieves.

  Published: January 22, 2009 8:55 AM

• lukas

  Do you really think that without a minimum wage, everyone would exist at a subsistence level? That is nonsense, both in theory and in practice. Case in point: Germany does not have universal minimum wage laws (yet :-( ). Yet most people there have quite a decent standard of living... and even those who earn little only start out that way, as they become more experienced, their productivity rises and so do their wages. Take that opportunity away, and you will entrench social differences, creating a permanent underclass of young, unemployed, and angry people. Now that's a recipe for unrest and violence (see: US inner cities).

  Published: January 22, 2009 5:24 PM

• Gerry Flaychy

  Art Carden wrote: "One of the unintended consequences of the minimum wage and workplace regulations is that they perpetuate inequality."

  Are you saying that if there were no minimum wage and no workplace regulations, the inequality would not perpetuate, and therefore, progressively disappear?

  Are you equally saying that before the introduction of minimum wage and workplace regulations, there were no perpetuation of inequality, that is to say, there were no inequality, and that inequality and its perpetuation is only due to the introduction of minimum wage and workplace regulations ?

  Published: January 22, 2009 7:15 PM

• P.M.Lawrence

  You may be interested to read about the Iron Law of Wages. This applies under certain combinations of population, resources, property and other institutions, and starting resource distributions. I think the contention is that those combinations would obtain in the modern western world if things like minimum wages and unemployment benefits were removed.

  Published: January 22, 2009 7:16 PM

• lukas

  P.M.Lawrence,

  Can you cite someone who thinks that the premises of the Iron Law of Wages (especially with respect to demography and capital accumulation) are true in the modern Western world?

  Published: January 22, 2009 10:09 PM

• pbergn

  RE: lukas

  Lukas, I am tired of repeating myself on the issue of minimum wage...

  The minimum wage is a necessity in a certain geo-political entity to uphold a certain minimum living standard...

  You are quoting Germany. The reason why they do not have an offical minimum wage set is that they do not have a relatively lurge influx of cheap foreign labor or significant enough outsourcing (yet)... And the young are given a decent minimum wages for theentry-level positions, since if offered less, they simply can survive on the unemployment benefits and other social hand-outs... The moment the flow of free governmental money and subsidies dries-up, you will how soon those nice young germans will turn into the most rigorous rioters and uninists, since their very physical survival will be at stake...

  I am amazed that this seemingly libertarian and openminded community is so dense on getting simple truities about real life...

  Oh, well, I give up (don't tell me I didn't warn you when a Chinese or an Indian guy will start writing your blogs sometime soon, and you will be competing with them for a bowl of rice generosely offered to you as a charity (or maybe as "scientifically" determined current market rate for your not-so-productive servcies) by the financial elites, or present you with yet another generous opportunity to re-educate yourself as a more productive plumber...)

  Published: January 23, 2009 2:57 PM

• filc

  @Umair

  "In other words if you don't have regulations for a minimum wage then the workers will not be paid enough to buy the very things they are producing. "

  Your assuming that what they are producing is of value, you also fail to note who recognize's this value. It is not the producer but the consumers as a whole. Your argument supports a shop of employee's painting rocks at $100 an hour. The idea that their rocks are worth $1000 a piece. Sadly no one buys them, so you blame the free market.

  Also it's a chicken and egg argument.
  Wages need to raise to support the poor?
  Or is it
  Prices/wages need to drop to support the poor?
  The prior argument actually causes far more exploitation.

  @ Pbergn

  You've posted on this topic before. Sometimes your argument is legitimate but you misblame flaws. Many of your arguments which may represent extortion and exploitation of employee's you accredit to free market functions. A kind of "comes with the territory" attitude. Almost in a zealous fashion that all free-markets will always bring about evil company's. As if free-trade always equates to corporate fascism. The truth is, if an example is provided where an employee was legitimately taken advantage of it was probably in violation of his/her personal private property rights. All libretiarian's hold this value as one of the highest ideals which need to be upheld and protected. There are legal avenue's to protect citizen's in this way. The failure is when instead of enforcing existing Private Property rights out there, we constantly make up new ones. Instead of enforcing what we have we bury ourselves in constant new legislation.

  I do not believe free-trade will equate to poverty stricken employees. I believe it's a historical political mindset that man is entitled to a job. He is entitled to stay at that job inevitably and he is entitled to constantly get an increase in compensation regardless of whether or not his production reflects the raise. Men who know that they are a function of the market are much more intellectually equipped at finding work on the fly and keeping jobs. While getting real compensation raises because they are motivated to constantly improve their performance.

  You've spent enough time on this site by now I hope to know what type of ideal Private Property is held to. We've heard your arguments many time parading the guise of free market but arguing the points of wage/price controls.

  Have you ever stopped to wonder how the minimum wage amount is arbitrarily decided upon? If the idea of minimum wage worked why don't we just force everyone to earn 100k a year? How can you not see the flaw in this logic?

  Published: April 15, 2009 2:00 PM