Coyote Blog

George Reisman at Mises:

When it comes to matters such as the theory of evolution and
stem-cell research, so-called liberals"”i.e., socialists who have stolen
the name that once meant an advocate of individual freedom"”ridicule
religious conservatives for their desire to replace science with the
dictates of an alleged divine power. Yet when it comes to matters of
economic theory and economic policy"”for example, minimum-wage
legislation"”these same liberals themselves invoke the dictates of an
alleged divine power. Their divine power, of course, is not the God of
traditional religion, but rather a historically much more recent deity:
namely, the great god State.

Traditional religionists believe that an omnipotent God came before
all natural law and was not bound or limited by any such law, but
rather created such natural laws as suited him, as he went along. Just
so, today's liberals believe, at least in the realm of economics, that
the State is not bound or limited by any pre-existing natural laws. In
the case in hand, the State, today's liberals believe, is free to
decree wage rates above the level that would exist without its
interference and no ill-effects, such as unemployment, will arise.

Where have I heard that before?  Oh yeah, I remember:

So here is this week's message for the Left:  Economics is a
science.  Willful ignorance or emotional rejection of the well-known
precepts of this science is at least as bad as a fundamentalist
Christian's willful ignorance of evolution science (for which the Left
so often criticizes their opposition).  In fact, economic
ignorance is much worse, since most people can come to perfectly valid
conclusions about most public policy issues with a flawed knowledge of
the origin of the species but no one can with a flawed understanding of
economics....

In fact, the more I think about it, the more economics and evolution are very similar.  Both are sciences that are trying to describe the operation of very complex, bottom-up, self-organizing systems.  And,
in both cases, there exist many people who refuse to believe such
complex and beautiful systems can really operate without top-down
control.

By the way, the author partially addresses the Card and Krueger study on New Jersey fast food that purportedly showed that employment goes up as minimum wage goes up.  Unfortunately, the author does not get into the now fairly well-known problem with this study.  For those who don't know, here it is:

Card and Krueger looked at the employment in fast food restaurants in New Jersey both before and after the minimum wage went up.  Here is the key process fact you need to know -- they did not look at every restaurant, just at some branches of national chains (e.g. McDonalds).  They did not include, say, Joe's sub shop.  The restaurants they studied shared a couple of traits in common:

• They were all far more professionally managed than the average small restaurant
• They all had higher labor productivity than the average restaurant
• They all had far more capital equipment (e.g. automation of labor) than the average restaurant

In other words, they studied the restaurants that were able to incur a wage increase with the least impact on their total costs (and eventually prices).  Follow-up studies have shown that there was probably a real reduction in total restaurant employment in New Jersey in the studied period, but the differences in productivity cited above caused the impact to disproportionately hit small ma and pa operations as opposed to large capital intensive nation chains.  In fact, during this period, the national chains experienced a gain in market share vis a vis smaller shops, as the higher minimum wage made it harder for local shops to compete with the national chains.  So, in fact, what Card and Krueger observed was not an economic miracle on the order of seeing the virgin Mary in your pancakes, but a predictable shift of market share from low capital to high capital competitors in response to higher wage rates.

This theme of regulation, including the minimum wage, advantaging larger competitors is an old one.  I discussed it a while back in the context of Wal-Mart's support for a higher minimum wage:

Apparently, though I can't dig up a link right this second, Wal-mart
is putting its support behind a higher minimum wage.  One way to look
at this is a fairly cynical ploy to get the left off its back.  After
all, if Wal-mart's starting salary is $6.50 an hour (for example) it
costs them nothing to ask for a minimum wage of $6.50.

A different, and perhaps more realistic way to look at this Wal-mart
initiative is as a bald move to get government to sit on their
competition.  After all, as its wage rates creep up, as is typical in
more established companies, they are vulnerable to competitors gaining
advantage over them by paying lower wages.  If Wal-mart gets the
government to set the minimum wage closer to the wage rates it pays, it
eliminates the possibility of this competitor strategy.