Tag Archive for: Economic Freedom

The New York Times Explains Why the Minimum Wage Should Be $0.00

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The minimum wage is the Jason Vorhees of economics. It just won’t die.

No matter how many jobs the minimum wage destroys, no matter how many times you debunk it, it always comes back to wreak more havoc.

We’ve covered the issues at length at FEE, and quite effectively, if I do say so myself. But I have to admit that one of the greatest takedowns of the minimum wage you’ll ever find comes from an unlikely place: The New York Times.

There are many reasons people and politicians find the minimum wage attractive, of course. But the Times, in an editorial entitled “The Right Minimum Wage: 0.00,” skillfully rebuts each of these reasons in turn.

Noting that the federal minimum wage has been frozen for some six years, the Times admits that it’s no wonder that organized labor is pressuring politicians to increase the federal minimum wage to raise the standard of living for poorer working Americans.

“No wonder. But still a mistake,” the Times explains. “There’s a virtual consensus among economists that the minimum wage is an idea whose time has passed.”

But why has the idea “passed”? Why would raising the minimum wage not help the working poor?

“Raising the minimum wage by a substantial amount would price working poor people out of the job market,” the editors explain.

But wouldn’t the minimum wage increase the purchasing power of low-income Americans? Wouldn’t a meaningful increase allow a single breadwinner to support a family of three and actually be above the official U.S. poverty line?

Ideally, yes. But there are unseen problems, as the editors point out:

There are catches…[A higher minimum wage] would increase employers’ incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired.

But if that’s true, why would progressives support such a law? What’s their rationale for supporting a minimum wage if it does more harm than good? Is it sheer political opportunism?

Not necessarily. The Times explains:

A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable.

There’s just one problem with this logic, the editors say:

The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

It’s a compelling, reasoned, and erudite argument. But it’s not exactly what one expects to see in The New York Times these days. (A naughty person might say the same about reason and erudition in general in the paper.)

So what gives? Alas, the editorial is a relic. It was written way, way back in 1987. A lot has changed since then.

We’ve had a couple wars. The internet was introduced to the masses. There was 9-11. We elected the nation’s first black president. The Cubs and Red Sox won the World Series. There was even a female reboot of Ghostbusters.

At least one thing, however, did not change. That would be the laws of economics. They hold as fast and true in 2018 as they did in 1987.

The Times’ editorial board might have changed. The perception of the minimum wage certainly changed. Relatively recent polls show seven out of ten Americans support raising the federal minimum wage. Several cities—Seattle, New York, and Minneapolis, among them—have passed laws that raised (or will soon raise) the minimum wage to $15 an hour.

So it’s safe to say the minimum wage laws have become more popular, no doubt in part from campaigns promoting them and an education system sympathetic to them. Still, economic laws do not change based on how popular humans find them. They remain true and constant whether they are popular or not.

In fact, some have observed that economic laws are inherently unpopular.

“In economics, the majority is always wrong,” John Kenneth Galbraith once allegedly quipped.

Now, there have been a lot of complaints directed at corporate media in recent years, but I believe in giving credit where credit is due. So let’s give the Times a hand.

The paper was right in 1987. And if politicians are genuinely interested in helping the poor, they’ll stick a stake in the heart of the minimum wage once and for all.

Jon Miltimore

Jon Miltimore

Jonathan Miltimore is the Managing Editor of FEE.org. Serving previously as Director of Digital Media at Intellectual Takeout, Jon was responsible for daily editorial content, web strategy, and social media operations. Before that, he was the Senior Editor of The History Channel Magazine, Managing Editor at Scout.com, and general assignment reporter for the Panama City News Herald. Jon also served as an intern in the speechwriting department under George W. Bush.

EDITORS NOTE: The featured image is provided by FEE and is republished with permission.

What Killed Economic Growth? by Jeffrey A. Tucker

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Debating why the economy is so sluggish is an American pastime. It fills the op-eds, burns up the blogosphere, consumes the TV pundits, and dominates the political debates.

It’s a hugely important question because many people are seriously frustrated about the problem. The recent popularity of political cranks and crazies from the left and right — backed by crowds embracing nativist and redistributionist nostrums — testify to that.

Sometimes it’s good to look at the big picture. The Economic Freedom of the World report does this with incredible expertise. If you believe in gathering data, and looking just at what the evidence shows and drawing conclusions, you will appreciate this report. It sticks to just what we know and what we can measure. The editors of the report have been doing this since 1996, so the persistence of the appearance of cause and effect is undeniable.

The report seeks measures of five key indicators of economic freedom: security of property rights, soundness of money, size of government, freedom to trade globally, and the extent of regulation. All their measures are transparent and heavily scrutinized by experts on an ongoing basis. If you question how a certain measure was arrived at, you are free to do so. It’s all there, even the fantastically detailed data sets, free for the download.

The report examines 157 countries with data available for 100 countries back to 1980. A total of 42 distinct variables are used in the index.

The big takeaway from this report: freer economies vastly outperform unfree economies by every measure of wellbeing.

The countries in the top quarter of the freest economies have average incomes more than 7 times higher than those countries listed into the bottom quarter (the least free). This is even true for the poor: the average income of the poor in free economies is 6 times that of the average in unfree economies. The lowest income group in free economies still 50% greater than the overall average is least free economies.

Life expectancy is 80.1 years in the top quarter as versus 63.1 in the bottom quarter.

The report further shows that civil liberties are more protected in freer economies than less free economies.

It’s a beautiful thing how this report puts to rest of a century of ideological debates. Indeed, these results are not generated by political ideology. They are generated by facts on the ground, the real conditions of law, regulation, institutions, legislation, and policy.

The implications are screamingly obvious. If you want a country to grow richer, you have to embrace freedom in economic life. If you want to drive a country into poverty, there is a way: grow the government, destroy the money, shut down trade, and heavily regulate all production and consumption.

One leaves this report with the question: Why are we still debating this?

What about the United States?

Everyone knows that the US has a problem. Despite living through the greatest explosion of technology and communication in the history of the world, a transformation that should have set off a wonderful economic boom similar to what we saw in the 19th century, we’ve seen pathetic results in growth and household income.

A quick casual look shows what I mean. Here’s percent change in GDP from the end of World War II to the present.

And here is real median household income from 1984 to 2013:

From those two pictures alone, you can discern the source of voter frustration, and also the general atmosphere of angst.

People want to know why, and whom to blame. The Economic Freedom Index gives you a strong hint.

From 1970 to 2000, the United States was generally listed as the third freest economy in the world, behind only Singapore and Hong. Starting in 2000, the US began to slip. Over the period between 2000 and today, the summary position in the index slipped 0.9%. This doesn’t sound like much, but “a one-point decline in the EFW rating is associated with a reduction in the long-term growth of GDP of between 1.0 and 1.5 percentage points annually,” says the report, and this adds up, year after year.

Relative to other countries, listed most free to least free, the US has slipped from the number 3 spot all the way to number 16. Countries that are ahead of the US include Australia, Chile, Ireland, Canada, Jordan, Taiwan, New Zealand, Hong Kong, and Singapore.

And here is a fact that I found incredible: The former Soviet state of Georgia ranks at number 12. And can you guess which country is just behind the US at number 17? The formerly Communist nightmare of Romania. That Romania is only slightly less free than the United States is great progress for Romanians, but should be an embarrassment for Americans.

The fall in economic freedom in this country has been precipitous. The authors of the report further note that this decline is highly unusual. Most all countries in the world are getting freer, which accounts from the thrilling fall in global poverty.

But the US is going the opposite direction, fast: “Nowhere has the reversal of the rising trend in the economic freedom been more evident than in the United States.”

What in particular accounts for the largest portion of this slide? It’s about the security of property. The drug war, the bailouts, the rise of forced transfers to political elites, eminent domain, and asset forfeiture all contribute. There are other problems with regulation and taxation, but it is the lack of security in what we own that has been decisive. This is what kills investment, confidence in the future, and the ability to accumulate capital that is so essential to prosperity.

What’s strikes me when looking at all this data, and the crystal clear connections here, is the strange silence on the part of the opinion class. People are flailing around for answers. Where’s the growth? Who is stealing the future? Maybe it’s the immigrants, foreign nations, and the rise of inequality. Maybe technology is taking jobs. Maybe people are just lazy and incompetent.

Or maybe we should look at the data. It’s all about freedom.

Jeffrey A. Tucker
Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook.