Wednesday, February 25, 2015

A Helpful Analogy

What is minimum wage?

Question: What is the minimum wage and how does it affect the economy?

I think that everyone should be able to answer this question accurately and concisely.

Minimum wage is one of our most impactful economic policies. It applies to every economic activity that we engage in. It applies to every person who participates or who wishes to participate in the economy.

But the effects don't end there.

Minimum wage is not merely a social program or a form of assistance, rather it is a cultural norm enforced by law.

Minimum speed limit analogy

To illustrate the arbitrariness of minimum wage, and examine its unexpected cultural impact, it is helpful to use an analogy.

Instead of talking about economic activity, lets pretend we are talking about transportation.

Everyone uses different forms of transportation. Some people drive cars, others ride on buses, some people walk or bike, others take private jets, and a few people even orbit the earth in space craft.

The biggest predictor of how fast you are traveling is what form of transportation you use.
  • Walking: 3 mph
  • Running: 6 mph
  • Sprinting: 12 mph
  • Biking: 15 mph
  • City driving: 30mph
  • Freeway driving: 65mph
  • Commercial Airline: 500mph
  • Private Jet: 600mph
  • Space shuttle orbit: 18,000mph
  • Apollo 10 record: 24,000mph
Each activity serves a different purpose and each activity covers a different amount of distance in a different amount of time.

Now let's pretend, for a moment, that you want to improve people's access to efficient transportation.

You decide to create a minimum speed limit of 7.25mph on all city streets, roads, and walkways.

Most modern transportation activities will be unaffected. Cars rarely drive that slow, and cyclists and even skateboarders should be able to keep up without trouble.

Reasonably fit individuals can achieve that pace just by running.

For disabled people who can't walk, their powered wheelchairs can be designed such that they can comply to the new universal minimum speed limit.

The benefits would be numerous. People would get to their destinations faster, no one would be stuck being immobile or unable to travel because they were too slow to get to their destination quickly enough.

This minimum speed limit would help solve velocity inequality, where a small percentage of the world's population have a disproportinate amount of humanity's kinetic energy.

Eventually, we would bring this minimum speed law to less fortunate countries in Asia or Africa, where many people travel less than 10 miles a day. Some people even travel less than 1 mile in an entire day. Surely these people would be delighted to recieve a minimum velocity guarantee of 7.25mph.

A few people would complain about the drawbacks of not being able to go on leisurely walks, but those people are probably just pawns of elon musk, who wants to save all forms of high velocity travel for himself.

Surprisingly apt

The best way I can characterize this analogy is surprisingly apt. It is numerically insightful, because both economic and transportation activities involve exponential scales.

Athletes make millions while sustenance farmers only earn the food they eat. Spaceships travel at least 5 miles every second, while people walking take nearly 2 hours to cover the same distance.

This analogy also mirrors the differences we see across different countries. More people drive in the first world, and thus our average traveling speed is much higher.

The U.S. minimum wage may be low when you compare it to other 1st world countries like Australia, but in reality, half the people on earth live on $10 a day. A full billion people live on $1 a day or less. We can't arbitrarily enforce a "living wage" on these people.

It also highlights that differences in productivity that we realize are often due to different tools and techniques.

When you drive a car, it is easy to go 20mph. But only the fastest humans on earth can sprint over 20mph.

When you work in a factory, achieving a productivity level $20/hr should be easy. But if you try to cobble shoes by hand, it would be hard to keep up.

Just because we have modern technologies such as factories, doesn't mean that everyone has access to them, nor will everyone want to use them. Under our current system, a few people reap most of the benefit of factories, while other people are basically unaffected.

Finally, this analogy highlights the most important point I want to make. Minimum wage is not an effective solution to poverty nor is it an effective solution to wealth inequality.

Forcing people to run at 7mph doesn't fix anything. It won't give them good jobs if they don't have them already. It won't redirect resources away from space travel and private jets back down to earth. It won't create a blissful utopia with abundance and equality.

Perhaps there would be positive effects of a minimum speed limit. Perhaps more people would get in shape.  Perhaps it would improve congestion on the streets and city walkways.

But it would look ridiculously silly to have all those people running around for no apparent reason.

Final thoughts

Liberals have spent years fighting against unhealthy cultural norms, such as racism, sexism and more. They have fought uphill battles trying to ensure that people who are different have opportunities available to them.  It is unfortunate that these same progressive thinkers have become champions of a policy that partitions people based on their productivity level and enforces an arbitrary standard of productivity.

This simple wage limit, has helped create a culture where we universally both fear and hate economic activities that involve a low level of productivity.

In order to have value, in our culture, in the eyes of our society, there are currently 2 paths. One is to acrue social status or cultural influence, essentially fame. The other means of achieving societal value is by making a significant economic impact, essentially acruing wealth. Interestingly enough, the former can lead to the latter and the latter can lead to the former.

Individuals who fail to find a positive role within our society are generally looked down on. They are usually both misunderstood and feared and shunned. We create enormous pressure on ourselves and others to be high achievers, to find a worthwhile career where we have a positive sociatal impact and earn a decent amount of money.

But what do we really need?

There is a zen proverb that goes something like this: "Before enlightenment, chop wood, carry water. After enlightenment, chop wood, carry water"

I'll let you do with that quote what you will.