Obama’s State of the Union, Minimum Wage: More Bricks with Less Straw

Capitalism is not a system to be promoted or evaded.  Capitalism is a fact.  Capitalism is the way it works.  Capitalism means: when the scale goes up on one side, it goes down on the other.  Our love of law making to fix economics is the obsession with the irrational idea that you can push down on both sides of the scale at once without breaking the scale.

In Tuesday’s State of the Union address, the president said he wants us to raise the federal minimum wage to $9.

Hurray, we can buy more stuff!  Like… apples.

If I have an apple, and you want to buy it, will you be surprised if at the register I tell you, “They’ve raised the price to nine dollars.” You say, “Is that what you want to sell it for?”

No, I say. No one can afford to buy them now. So I am having to throw out all my apples as they go bad.

When two people are trading at a price they negotiate for themselves like grown ups, and the buyer is forced to buy at a higher price, it will hurt the seller. The seller cannot sell $9 apples. Since the buyer is forced to buy them at a high price, he won’t buy, so the seller is harmed. But don’t get confused about the analogy, listen carefully to who the buyer and seller are.

In work and wage – the business owner is the buyer. Stores are hoping to buy some hourly work from a worker.  The worker is the seller. Of course, we are used to thinking that workers are victims.  But they are only victims where they aren’t free.  Like slaves in Egypt. Rather, in a free society, workers are business people who sell labor to businesses that buy the product of work.  Sellers, though, are the ones hurt by the intrusion of a minimum hike. Stores can’t afford as much work so the seller (the worker) is the one who is hurt – and that means higher minimums would hurt workers.  As we said, in non-free societies, workers become victims.  Minimum wage is a mathematical Pharaonic brick policy

It is simple math – more money for the same work equals less work for the same money. They will cut your work.

Suddenly, the business doesn’t have a choice, they have to charge workers nine dollars an hour (if they were to get that hike through congress). But they would have to alter something to deal with the effects of such a change, because they would have to pay more without more income. This means less hours assigned to workers. More bricks… less straw. The extra money has to come from somewhere. It will come from the hours of workers. It will come from the quality of products they can afford to buy from vendors to sell to the public. The higher minimum will obstruct the people who have jobs to offer; it will starve the people who are hungry for jobs. Companies will offer less jobs. The higher minimum wage hurts the very workers it purports to protect.

When the scale goes up on one side, it goes down on the other.

By the way, we are promised you would have more cash in your pocket. But those dollars would be spent by you in some store that now would have to comply with a higher minimum.  Stores don’t just pass on these “savings” to their workers – they also pass them on to their customers.  The most logical place for the business to recoup the difference in P&L is from you.  The prices will go up.  The hours worked by workers will go down. (So customer service will incidentally hurt as well).

And this movement is understandable, because the market IS free in a way, even under duress of big government intrusion. Capitalism is a fact. The market may get told what to do, but it will retain a mathematical balance on its own.  Bernoulli tells us that if you squeeze the back end of the toothpaste tube, paste will come out the other. You may call that tightening up the system.  But you could just as well call it bleeding the system. When the scale goes up on one side, it goes down on the other.

Listen, friends. If you make hourly wages, and if you make minimum, then I hope you can do better and better for yourself. But know that pushing down on businesses is not going to hurt the businesses.  It will hurt you, the worker.  If you make minimum wage, you need to know that raising the minimum wage is one of the worst things that could happen to you.  You will get a bump, but then you will get laid off.  Or just cut back.  And then the prices will rise against your cut-hour paycheck.

We could stop voting for Pharaoh’s mathemagicians.  But that would mean finding the candidate who promised less stuff.  And since we don’t understand the scale, we think that promising less government enforced and funded stuff means we would get less stuff.  But less intrusion means more freedom.  Less intrusion means improvement of general welfare.  And we love to hear big promises.

Pharaoh makes big buildings. And he promises big promises. But whenever you hear Pharaoh promising you so many more bricks, remember that you’re the one making them.