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Minimum Wages and Earth Warming – By John Allison of the Cato Institute

Posted on 01. Aug, 2014 by in all, Magazine Articles

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The anti-productive-work mindset of Progressives is stunning.  They celebrate the fact that Obamacare creates an incentive for millions of individuals not to work.  They admit the minimum wage increase they have proposed will eliminate 500,000 to one million jobs (according to the CBO).

However, it will provide a minor improvement in the standard of living for a larger group so it is called good public policy.  Obama then has the audacity to propose a budget based on rapid economic growth.  Somehow, the economy will achieve a superior growth rate while millions of people will not be working and the percentage of the population employed will be rapidly shrinking.

For Progressives, goods and services appear magically.  Greedy capitalists can produce everything needed.  They just hold back production to increase profits and ride on the backs of underpaid workers.  The real goal for Progressives is not wealth creation, but redistribution.  Having been in business for 40 years, I find wealth creation a little more difficult than the Progressives.

There is a deeper issue.  Productive work is of tremendous psychological and spiritual value for most people.  Incentivizing individuals not to work, or even more destructive, denying them the opportunity to work, reduces the capacity of that person to pursue happiness.  Productive work is a critical aspect in earning true happiness.

It is also amazing that there are academic economists who argue raising the minimum wage above the market clearing price will not increase unemployment.  Somehow, the law of supply and demand does not apply to labor.  The demand curve is flat.  Of course, in the real world, there are no flat demand curves.

Only academic economists with PhDs from elite universities can come to this sort of conclusion.  Anyone who has managed a business knows that the number of individuals you employ is impacted by the cost of labor.  For small businesses this is acutely evident.  If an employee only adds $8.00 an hour in revenue, but costs $10.00 an hour, you will not hire him.  If you did, your business would soon fail.

In larger businesses, when wages rise, management immediately looks for labor-saving devices which will reduce overall cost.  This substitution effect is why the CBO’s estimate of job losses is very optimistic.  Also, the impact is to increase demand and, thereby, wages for the highly skilled who are already well paid and are the creators of the labor-saving devices, while eliminating jobs for the unskilled.  And this is exactly the opposite income distribution effect the Progressives claim to desire.

From an ethical perspective, by what moral right do the elite statists keep an individual from voluntarily accepting a job at less than the minimum wage?  Do individuals have the right to their own life?  How can the elitist know the circumstances under which all individuals are making their decisions?

Maybe a recent college graduate who is a theater major is willing to work for $6.50 an hour building a stage set in order to make contacts in the theater business.  His parents have the resources to partially support him while he tries to open some doors.  It is easy to outline many scenarios where it would be in someone’s rational self-interest to accept a lower wage, including the possibility of future opportunities.  The U.S. Constitution guarantees the right of individuals to contract.  One of the most important contracts we make is our work agreement.  A proper interpretation of the Constitution would recognize that minimum-wage laws violate an individual’s right to contract.  Thus, the minimum-wage laws are unethical, unconstitutional and economically destructive.  The fact that minimum-wage laws are popular does not change this reality.  Violations of individual rights are never productive.  [AOA:  the same basic economic laws also apply to rent control.] 

Climate Change?

Since I spend time in D.C., it is tough to admit that I was enjoying the ugly, snowy, cold weather.  Somehow it seems like poetic justice for the politically correct-global warming crowd.  The environmentalists are a little less prone to talk about global warming (excuse me – climate change) when it is bitter cold and snowing.  Cato scholar Pat Michaels pointed out in response to the president’s State of the Union Address that the Earth’s temperature has not changed in 17 years.  This “problem” is discussed in the January 15th issue of Nature, perhaps the world’s most prestigious scientific journal.  An article in the Winter 2014 Cato Journal by Paul Ballonoff points out that one factor potentially causing lower than expected temperature increases is that more carbon dioxide increases the biomass of plants and plants absorb heat. Plants grow better with more carbon dioxide – surprise.

The following is a quote from the Cato book Poverty and Progress from Deepak Lal that struck me:  “The greatest threat to the alleviation of the structural poverty of the Third World is the continuing campaign by western governments, egged on by some climate scientists and green activists, to curb greenhouse emissions, primarily carbon dioxide from burning fossil fuels.”

I believe the claims to certainty about the impact of human activity and its consequences on the environment by politicians, like John Kerry and other academic elitists are both extremely misleading and strongly influenced by political considerations and government funding of climate research.

Since much of the government regulatory policy is based on environmental scientists’ claims, an important role for Cato is to challenge these claims if they are not based on genuine scientific standards, especially if the results are possibly being influenced by government grants.

In a recent response to a question, Pat Michaels summarized the “climate change” issue as such:  “It is becoming increasingly apparent that the sensitivity of temperature to carbon dioxide has been overestimated; one can increasingly rely on market forces that in fact, favor efficiency at low cost – which is the reason why our emissions are dropping.  There’s little doubt modest and drawn out warming is largely beneficial and that economic freedom encourages adaption to the vagaries of weather and ‘climate change’ too.”

The earth is warming and man plays some role.  What the consequences are is unknown.  When it is clear we have a genuine environmental problem, I believe we will act to deal with it.  Reducing the quality of life for poor people based on mathematical projections that have often been proven inaccurate is an injustice.

[AOA:  Two more observations:  1) From an L.A. Times article, one study stated that “glaciers melting could cause sea levels to rise by four feet … within 200 years”.  Another study projected that the “melt could come in as little as 200 years ……… or it could take as long as 1,000 years”.  Guess these guys aren’t worried about being around long enough to be proven wrong.  2)  Al Gore thinks things are even worse and has projected that we may have only 10 years left to save the planet from turning into a frying pan … that projection was made January 27, 2006.  He’s in trouble with his misleading projections but he sure has received the necessary publicity and riches as a result of his “projections”!] 

This article was written by John Allison of the Cato Institute.  The Cato Institute is a public policy research organization — a think tank – dedicated to the principles of individual liberty, limited government, free markets and peace. Its scholars and analysts conduct independent, nonpartisan research on a wide range of policy issues. For more information visit www.cato.org