Sunday, July 13, 2014

Simple is Best: Understanding minimum wage

Advanced concepts give a more detailed and accurate picture of the world around us.  Simple concepts don't provide the same level of sophistication, but are no less true.  When tackling the big questions, simple concepts can be just as useful and much less confusing.  They are less likely to lead you astray.

Let's talk about physics for a second.  If you want to analyze what happens to a rock when you throw it in the air, there are many tools you could use to answer this question.  To start with, you could use basic newtonian physics.  I say basic, but many would not consider F = G*m_1*m_2 / d^2, to be simple.  Even after figuring out what the equation means, you still have to use that to analyze how the rock moves over time.  Hopefully you have recently practiced your integral calculus.

Instead of trying to muscle through newtonian physics and calculus, in many situations, we can live with a lesser level of detail.  The mantra: "What goes up, must come down."  is all we need to know in many real world scenarios.

If you're a mathematician or physicist, you may take great pride in pointing out that the saying "What goes up, must come down." is false.  While saying that would make you technically correct, it would also prove you are annoying and oblivious.  This statement was never meant to perfect, it was meant to be insightful.  "To err is human."  Once you understand that these statements are observations of principles, not assertions of absolute truth, it doesn't make sense to say that it is false.  Instead, we might call it a literary metaphor.

For anyone who has actually taken a basic physics class, you can testify first hand that equations tell lies.  In many cases you may work through the problem, and find that the rock does not come down, but instead has a density of 5000 degrees celsius.  Or was it fahrenheit?  You triple checked your work, so obviously the equations are wrong.  Or maybe the world is just that crazy.

Advanced concepts provide more detail, but require more skill to apply correctly.  Recently, I have been reading a book titled Human Action by Ludwig von Mises.  Even though it doesn't use a lot of Mathematics, it still involves a lot of advanced concepts.

I really feel very strongly that minimum wage is a terrible policy.  I feel it hurts most people on a daily basis and that the people it affects the most, it hurts the most.

For quite some time, I have been trying to figure out how to explain why minimum wage is so terrible.  Why do I feel so strongly about this issue?  I have come up with a lot of claims of what minimum wage does, but building a logical chain between the policy and its effects feels like working through a challenging newtonian physics problem.  And yet at the same time, to me it feels like I am literally trying to convince people not to throw a rock into the air in a crowd of people.

I want to be able to help people see what I am seeing and feel what I am feeling.  I am not wrong about the dangers and risks involved, even if I don't have the tools (data, research, science etc) to assert what the actual effects are.

How do we improve our lives?  The answer is work.  Everything takes work.  If we try to demand things without giving something in return, we will not get the results we want.  Minimum wage demands a perfect world.  It demands a living wage for everyone.

Work is the simple answer.  Minimum wage does not encourage work, it provides more obstacles.  When more people are working for our mutual well being we will be better off.  To the extent which it discourages work, minimum wage harms us.  We need to give before we recieve.  We need to understand before we demand.

The living wage principle is wrong,  Living wage demands that circumstances match our expectations, instead of adapting our expectations matching our circumstances.  Poverty is being solved.  People are enjoying increased freedom.  We can describe what the path out of poverty looks like, and it is not $7.25 or $10.50 an hour.

Poverty starts at $1 dollar a day or less.  1 billion people in the world live on $1 dollar a day or less.  These people cannot afford to own shoes in many cases.

The first step out of poverty is being able to own shoes.

About half the world lives on about $10 dollars a day or less.  These people may or may not be in poverty.  They may own a bicycle or a motorbike.  They probably don't own a car.

Where did I get these statistics?  Google this: "median world income"

Also, I watched some insightful videos on youtube by "Hans Rosling".

Minimum wage is not going to help the poorest billion people in the world and it's not going to help anyone in America.  "There is no free lunch".  Controlling other people economically is not the path to greater economic freedom.  It has the direct opposite effect.

Minimum wage tries to force employers to be "good" by paying a fixed amount per hour.  The problem is, being good is not about a fixed amount per hour.  All employers are not the same, which makes this indiscriminate wage requirement unfair and ineffective.  If you are an employer who is poor yourself, paying too much is actually a bad thing.  Employer, employee, and consumer all directly effect each other and need to be able to work things out in the best way that serves everyone's needs.

We need to empower people to be able to claim their actual economic contribution.  If you are only worth $10 a day, it is wrong to pay you more.  Half the world is apparently only worth $10 a day, so don't consider it a bad thing.  Guess what, the people earning $10 a day are not the ones polluting and destroying our planet, it is the people with big airconditioned homes and expensive cars (having a prius does not save you).

Eliminating minimum wage will remove barriers to work and allow participation in the workforce by everyone on equal terms.  It will reduce consumption of natural resources and help preserve our planet.  It will encourage wealth through frugality and generosity, not through consumption, excess, and control.  Please, please, please help change the public understanding about this policy.

The effects are complex, but the reasons are simple: Minimum wage interferes with work.  Minimum wage interferes with freedom.