Monday, September 26, 2005

Lazy-Faire: Anatomy of the Minimum-Wage Law

In today's edition of the Badger Herald, UW-Madison senior Rob Rossmeissl wrote an op-ed entitled, Laissez-faire policies hurt Americans. In it, he discusses how the policies outlined by Adam Smith, arguably the world's greatest economist ever, and put in action by President Bush are detrimental to America's working class. Mr. Rossmeissl explains:
Americans earning the federal minimum wage have fallen behind the U.S. median income by a record percentage, according to CBS “Marketwatch”. It is an atrocity that the richest nation on earth cannot guarantee its citizens a wage sufficient to simply buy bread or pay the rent.

Even the most adamant proponents of a free market economy must have some sympathy for full-time workers unable to make ends meet. Those living from meal to meal are hardly calling for socialism, but simply a little help to get out of the vicious cycle that is exclusion from economic prosperity. My apologies to Adam Smith, but many people are sick of waiting for the invisible hand to reach out to them.
Well, at least I can say you don't understand a word of Adam Smith's writings. If you in fact knew what he was talking about, you'd find that he would never have called for a minimum wage in the first place, much less asking government to guarantee its citizens decent living wage. If you understood the concept of "laissez-faire" economics, you would further find that it in no way resembles the United States economy, and hasn't been anywhere close in over two centuries.

Laissez-faire simply put is the school of thought that believes "capitalism is left to its own devices; that it will dispense with inefficiencies in a more deliberate and quick manner than any legislative body could. This belief extends to all areas of commerce, most important of which include input prices. When these prices are tampered with through the means of imposing a minimum wage (especially when that wage is higher than what the work is worth to the producer) an organization incurs extra costs that force it to undergo downsizing and "streamlining" in order to offset them. This situation is summed up eloquently by contemporary economist Henry Hazlitt in his masterpiece, Economics In One Lesson.
The first thing that happens, for example, when a law is passed that no one shall be paid less than $106 for a forty-hour week is that no one who is not worth $106 a week to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less.
However, the creation of minimum wage laws is just the tip of the iceberg. Impediments to free trade, the capital gains tax, and the estate tax are all instances where the free market has been slowed down by regulation. There are many more government power grabs that I need not mention for the simple matter that I have not enought time to list them all, but suffice to say FDR's New Deal takes the cake as by far the worst power grab to date. The alphabet soup of federally-controlled organizations he created during the Great Depression (which by the way prolonged the crisis, but I'll leave that argument for another day) remain mostly unchanged and for good reason. The "mainstream" media would have a field day with any president or lawmaker who proposed cutbacks to any one of these organizations because they are OH so vital to the maintenance of a thriving economy. As the father of the Austrian school of economic thinking, Ludwig von Mises (pronounced "Mee-sees" not "My-zes), states in his great economic treatise Human Action:
In our age of passionate longing for government omnipotence the formula laissez faire is in disrepute. Public opinion now considers it a manifestation both of moral depravity and of the utmost ignorance.
As is the case with nearly all government regulations on the economy, they seem so vital to the untrained eyes of the voting public that they will most likely never be cut from the federal budget for fear of political suicide to anyone who attempts it. Hopefully, more politicians will come to power that have the fiscal sense to take it upon themselves to clean up what once was a beautifully engineered free-market economy. However, it has been so mangled by regulation that the American economy would be wholly unrecognizable to our founding fathers who understood the necessity of "laissez faire" principles.

2 comments:

Tim said...

Lol, I am actually in the process of writing a counterpoint to that article. Hopefully I'll finish it tomorrow night and send it in.

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