Tuesday, February 26, 2013

Reuben Chapple: Poverty Pimps


The usual bunch of economically illiterate poverty pimps recently hit the headlines demanding an $18 - $20 per hour “living wage” based on what they claim people “ought” to be paid. They do not say how this is to be accomplished, but above-market wages can only be achieved by government intervention: either legislating a higher minimum wage, or by raising taxes on those who have earned their money, in order to transfer it to those who have not.
The leftist world view is based on what we could call the “snapshot fallacy.” This effectively freezes a snapshot of where people are in life right now, then deterministically assumes they will stay there forever. Since a number of longitudinal studies show that over time, most people acquire marketable skills and work habits which enable them to move up in the world, this is arrant nonsense.


One side of the problem is a recalcitrant intergenerational underclass of around 15 percent of the population that shows no socio-economic mobility. This class doesn’t value education, but wants all the things those who do value it are able to buy for themselves. The other side of this shoddy equation consists of the politicians and poverty pimps who have worked out that anyone who promises to rob Peter to pay Paul can always count on Paul’s vote.

Leftists hold the mystical view that once upon a time a giant pile of money just happened to be lying around. How this came into being, they don’t know, but some people got there earlier than others, shouldering everyone else out of the way in order to stuff their pockets. The only redress is activist government redistribution of these ill-gotten gains as per Karl Marx’s: “From each according to his ability; to each according to his needs.”

In point of fact, poverty is the natural human condition because it takes no effort to achieve it. Poverty only becomes apparent when wealth is created with which to compare it. It is not caused by those who create the wealth by selling goods and services that people want to buy.

Since it is not a core requirement for a social sciences degree, leftists are fundamentally ignorant of basic economics. They believe you can cut something out of the economy, tinker with it, plug it back in, and it will continue to operate in isolation without affecting anything around it.

The poverty pimps have suggested that an $18 - $20 per hour “living wage” is the difference between just getting by and progressing, between starving and eating.  It’s a difference-maker, all right: between having a job and getting fired, which in most cases is exactly what will happen to those who need work most, once employers feel the prick of government-mandated spikes in labour costs.

Wages in any particular job are a function of supply and demand in that labour market. If a hospital administrator wants toilet cleaners, his qualified labour pool consists of any able-bodied adult willing to work. This means he can pay relatively low wages and still fulfil his labour requirements. Should he seek an electrical manager for the hospital’s electrical plant, the qualified labour pool (an electrical engineering degree and 20 years work experience) is far smaller. To attract suitable applicants, he will have to pay far higher wages than those of a toilet cleaner.

Here’s how markets work. If I offer to pay toilet cleaners $8 an hour, perhaps I’ll only attract flies. They might want $9 or $10 in order to sign on. At this point I get to decide whether or not to employ those workers at the higher wage rate.

It’s none of government’s business what I want to pay workers at my business. If I pay peanuts, I will get monkeys. if I pay too little, I won’t get anyone. If I have applicants for every position, I am offering wages people are willing to take.

The common thread here is individual decision-making, the engine that drives free markets. Workers accepting or not accepting a position. Employers choosing what jobs to offer and what to pay.

This is a perfect marketplace balance. The moment someone accepts a job, we learn the exact point at which employer and employee are satisfied with the transaction.

Government intrusion only screws this up. To stick with the previous example, forcing me to pay toilet cleaners twice the market wage comes with an opportunity cost. As Milton Freedman reminds us: “There’s no such thing as a free lunch.”

There are two ways for me to recoup this additional outlay.

To keep my wages bill at its former level, I could halve the number of workers I employ. The toilets then get cleaned half as much. Since hospitals need to be maintained to high standards of hygiene to prevent disease, this probably isn’t an option.

My other alternative would be to keep everyone on at the government-mandated hourly wage, then ask the Minister of Health for more money. The government can only get this by raising taxes or by increased borrowing. Tax hikes to fund unnecessary government expenditure or repay unnecessary government debt suck money out of the private sector that could better be spent by those who have earned it.

Where the poverty pimps hold up the example of the family living on the minimum wage, call them on it. The minimum wage was never intended as a platform for supporting a family. It is an entry-level springboard from which we are supposed to prove and improve ourselves, preferably before we bring children into the world.

Want a ten dollar raise? Educate yourself. Be prepared to start at the bottom and move up as people used to do.

Earn it.

2 comments:

Lindsay Mitchell said...

"My other alternative would be to keep everyone on at the government-mandated hourly wage, then ask the Minister of Health for more money. The government can only get this by raising taxes or by increased borrowing. Tax hikes to fund unnecessary government expenditure or repay unnecessary government debt suck money out of the private sector that could better be spent by those who have earned it."

In effect this already happens because so many people on low wages are subsidised through government assistance - accommodation supplement, income-related rents, and WFF tax credits. The whole debate around minimum wages needs to take this into account. The 'poverty pimps' as you call them, ignore that workers, especially those with children, receive considerably more. Probably the living wage already. The only lefty I ever heard complaining about government subsidising employers was Sue Bradford. But she couldn't bring herself to ask them to stop.

Enjoyed your post. Hope to read more.

billow said...

This is THE curse of democracy - every successive government (Labour more than National) bribes the voters to get get elected than screws (taxes) the workers to honour their promises. I wonder if this will ever come to an end as there are too many do gooders and social engineers depend on tax payers this will carry on and on till -------