Monday, May 2, 2016

"To understand the arguments of labor union economist in favor of the minimum wage, follow the money."

Labor Unions and the Minimum Wage: "We Got Ours -- Screw You."

By Gary North

Fred Reed wrote a gem of a rhetorical essay, “Capitalism and the Minimum Wage: ‘I Got Mine, Screw You.'” I was so impressed that I stole it, almost word for word, changing only “capitalism” to “trade unionism.”

Reed is a master of rhetoric. When his logic is sound, he is devastating — a model.

The problem comes in this case from his focus on producers: capitalists. This is mercantilist. The free market focuses on consumers. Why? Because they own the most marketable commodity: money. This point was made by Carl Menger in his final essay on economics in 1892. Ludwig von Mises wrote The Theory of Money and Credit (1912) in terms of this principle.

Producers compete with producers to gain consumers’ money. Consumers want lower prices. Capitalists cut costs so they can offer lower prices.

Customers drive the process. They are self-centered. They ask “What’s in it for me?” They ask: “What have you done for me lately?”

The ruthlessness of producers is driven by the ruthlessness of consumers.

When it comes to ruthlessness, I can do no better than to quote Pogo Possum: “We have met the enemy, and he is us.”

So, read Reed’s essay. The read mine. Same rhetoric, different analysis.

He asks us to follow the money. This is correct. But we must follow it all the way back to its source: consumers.

He began with producers: capitalists. I begin with producers: labor unions. They both want deliverance from consumers. They both invoke the state. “Help! Consumers are ruthless!” My advice: trust neither group. Instead, start with consumers. They have the money.

To understand the arguments of labor union economist in favor of the minimum wage, follow the money. In all the thickets of pious reasoning about the merits of trade unionism and economic justice, and of collective bargaining, and of allowing this marvelous mechanism to work its magic, and of what Walter Reuther said, the key is the dollar. The rest is fraud. Carefully ignored is the question that will be crucial in coming decades: What to do about an ever-increasing number of union members for whom there is no work.

There is of course much hypocrisy in the theoretical edifice. For example, unions argue that the minimum wage constitutes a morally necessary interference by the government in the conduct of business–meanwhile sending armies of lobbyists to Washington to make the government ignore laws against union cartels. In fact, unions have no objection to federal refusal to enforce the law. They just want it to be laissez-faire such that it puts more money in their pockets. Nothing more. Ever.

In like fashion they say that they want to protect the worker’s freedom to associate–yes, his freedom, such is the union’s benevolence, the worker’s freedom of association–to keep non-union members from selling their labor at a mutually agreed price. Curiously, in practice, this means the union’s freedom to push wages as close to business bankruptcy as it can get away with. This miraculous congruence of high principle with high wages for union members is among the wonders of the universe.

In every case, without exception, the labor union official’s high principles will lead to more in his pocket. He will be for a minimum wage because he says, it encourages inner city young blacks to stay in school and earn a diploma. You can just tell he is deeply concerned about young blacks. He probably wakes up in the middle of the night, worrying about them. He doesn’t, however, let any of them in the union. Purely incidentally, having a minimum wage saves him . . . competition from scabs. And if he were truly concerned about young blacks, might he not express this concern by letting them into the union, so they can earn a living wage after graduation?


The quest for above-market wages has perhaps caused less misery than war–itself a most profitable business, war–but it is neck and neck. Union leaders used goon squads to keep businesses from hiring anyone who offered to work at a market wage, with disastrous results continuing to this day. Labor union leaders discourage legal immigration from the Latin lands so as to limit market-wage labor. They call for tariffs and quotas against imports that make it possible for poor people to have cheap goods. And now they warn against technologies to produce cheap goods . . . robots.

These will drudge away day and night, making no demands, never unionizing, needing no retirement or medical benefits. Actually, though, union leaders oppose robots because they care about freedom of association and want to help young blacks.

A cynic might see this as intellectual scaffolding for left wing social Darwinism -- called Progressivism -- and accountability to society--see, it's all due to the love of social justice, and the union official is only a bystander. But no. It is about freedom, and justice, and all.

Among the fantastic trappings of--"social justice" sounds nicer than "closed shop," doesn't it?--is that it rewards political mobilization and determination, which if pursued will lead to prosperity. This is both believed and beloved by many who believe it in part because for them it performed as described. The intelligent, healthy, ambitious and--a major advantage--unscrupulous can usually get ahead. And so, talking with others like themselves, they ask, "If I can do it, why can't they?" The underlying notion is that the poor are poor because they are unrepresented and lack mobilization. Some fit the description. Lots don't.

Here we come to Commentator's Disease, epidemic among talking heads and columnists.

A woman of my acquaintance once said, "In Washington, you assume that everybody outside the District is in the 10th percentile and needs bureaucratic representation. We high-IQ people are here to help them" Decompressed from the apothegmatic, it is true. Cognitive stratification is very real, though seldom noticed and never mentioned. The city attracts the highly bright. They hang out together. They date. They marry. They don't know anybody who is not like them. The same holds in many places, and on the web, but Washington is where policy comes from.

By and large they are neither arrogant nor snobs. Since they are all in the same bracket, snobbery would be difficult. They include a great many journalists. It is fun to speak of the press as imbeciles, but, apart perhaps from babble-blonde anchors chosen for their looks, they are not. The duller probably clock an IQ of 120. Even at dismal publications like Army Times and Federal Computer Week, with both of which I was once familiar, you find very smart people.

What has this to do with the minimum wage? A fair amount. People of IQ 130 and up tend to assume unconsciously--important word: "unconsciously"--that you can do anything just by doing it. If they wanted to learn Sanskrit, they would get a textbook and go for it. It would take time and effort, but the outcome would never be in doubt. Yes, of course they understand that some people are smarter than others, but they often seem not to grasp how much smarter, or what the consequences are. A large part of the population can't learn much of anything. Not won't. Can't. Displaced auto workers cannot be retrained as IT professionals.

Few of the very bright have have ever had to make the unhappy calculation: Forty times a low minimum wage minus bus fare to work, rent, food, medical care, and cable. They have never had to choose between a winter coat and cable, their only entertainment. They don't really know that many people do. Out of sight, out of mind.

Cognitive stratification has political consequences. It leads liberals to think that their client groups can go to college. It leads conservatives to think that with hard work and determination . . .

It ain't so. An economic system that works reasonably well when there are lots of simple jobs doesn't when there aren't. In particular, the large number of people at IQ 90 and below will increasingly be simply unnecessary. If you are, say, a decent, honest young woman of IQ 85, you probably read poorly, learn slowly and only simple things. Being promoted, or even hired, requires abilities that you do not have. This, plus high (and federally concealed) unemployment allows employers to pay you barely enough to stay alive. Here is the wondrous working of the market.

As the stock market reaches new highs and the nation's wealth is distributed at the same percentage as it was in 1897 when Vilfredo Pareto first reported on the 20/80 curve of wealth ownership, we hear that a rising tide floats all boats. This is fine if you have a boat. Maybe it only looks as though capitalists flourish while the middle class sinks and the welfare rolls grow and kids have to live at home and they will have no retirement. Well, some boats leak, I guess -- just as they did in 1897, when the rich had a lower standard of living than someone on welfare has today -- no cell phone, no electricity, no TV, no radio, and no free emergency care at a local hospital.

When the theorists of trade unionism imagine that our dim-witted young lady should be paid as much as a high school graduate with ambition, they do not worry that her labor isn't worth enough to feed her. Some who say this simply do not understand what her life is going to be if she is paid what her labor is worth. Others, with the lack of empathy that characterizes conservatives, don't care. If you look at the godawful conditions of their employees in the sweatshops of, say, Bangladesh, you will see that not caring is common. Let them eat cake.

The question arises: What does the country do with the large and growing number of people whose labor is worth nothing? Or, perhaps more accurately, whose labor isn't needed at above-market, union-mandated wages? We see this in the cities today. An illiterate kid in Detroit has no value at all in the market for labor. Assuming that he wants to work, a questionable assumption, what then? Endlessly expanding welfare? What about the literate, averagely intelligent kid for whom there are no jobs at union-secured, National Labor Relations Board-mandated wages? If people working in McDonald's can barely live on their wages, and strike, or the state institutes a higher minimum wage, McDonald's will automate their jobs, is automating their jobs, and conservatives will exult--the unionized bastards got what they asked for.

This is trade unionism in its perfection.


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