A few days ago on CD, I featured Robert Reich’s recent video on doubling the federal minimum wage to $15 per hour that I described as a display of disappointing “economic malpractice.” In a series of posts, George Mason economist Don Boudreaux has done a great public service by conducting a systematic, step-by-step takedown of Reich’s economic asininity, because in Don’s words, “Nearly every sentence out of Reich’s mouth in the video is flawed.” Demonstrating his total “economic bad-assery” in regard to regularly dismantling every aspect of economic nitwitery about the minimum wage, here’s a summary of Don’s takedowns of Reich’s “manifestly idiotic” video:
1. In a post at the Cato at Liberty Blog (while his Cafe Hayek blog was temporarily unavailable) titled “Reich Is Wrong on the Minimum Wage,” Don described Reich’s video “painful” and commented further that “it hurts to encounter such rapid-fire economic ignorance, even if the barrage lasts for only two minutes. Reich’s video is infected, from start to finish, with too many other errors to count.” Here’s a slice of Don’s first response to Reich (emphasis mine):
Perhaps the most remarkable flaw in this video is Reich’s manner of addressing the bedrock economic objection to the minimum wage – namely, that minimum wage prices some low-skilled workers out of jobs. Ignoring supply-and-demand analysis (which depicts the correct common-sense understanding that the higher the minimum wage, the lower is the quantity of unskilled workers that firms can profitably employ), Reich asserts that a higher minimum wage enables workers to spend more money on consumer goods which, in turn, prompts employers to hire more workers. Reich apparently believes that his ability to describe and draw such a “virtuous circle” of increased spending and hiring is reason enough to dismiss the concerns of “scare-mongers” (his term) who worry that raising the price of unskilled labor makes such labor less attractive to employers.
Ignore (as Reich does) that any additional amounts paid in total to workers mean lower profits for firms or higher prices paid by consumers – and, thus, less spending elsewhere in the economy by people other than the higher-paid workers.
Ignore (as Reich does) the extraordinarily low probability that workers who are paid a higher minimum wage will spend all of their additional earnings on goods and services produced by minimum-wage workers.
Ignore (as Reich does) the impossibility of making people richer simply by having them circulate amongst themselves a larger quantity of money. If Reich is correct that raising the minimum wage by $7.75 per hour will do nothing but enrich all low-wage workers to the tune of $7.75 per hour because workers will spend all of their additional earnings in ways that make it profitable for their employers to pay them an additional $7.75 per hour, then it can legitimately be asked: Why not raise the minimum wage to $150 per hour? If higher minimum wages are fully returned to employers in the form of higher spending by workers as Reich theorizes, then there is no obvious limit to the amount by which government can hike the minimum wage before risking an increase in unemployment.
2. Once the Cafe’ Hayek blog was back up, Don posted “On Robert Reich on the Minimum Wage,” here’s a key excerpt:
Former U.S. Secretary of Labor Robert Reich recently did a short video in which he endorses a policy of raising the national minimum wage in the U.S. to $15 per hour. That’s a 107% (!) increase over its current level of $7.25. Amazingly, Reich seems seriously to believe that it is mere ‘scare-mongering’ to suggest that more than doubling the minimum wage will destroy jobs for any, much less many, low-skilled workers.
Nearly every sentence out of Reich’s mouth in this video is flawed. No matter what you might think of the rather esoteric exceptions to the economic case against the minimum wage – such as ‘labor markets are filled with monopsony power’ – the reality is that foolishness such as that peddled here by Reich is the kind and quality of argument that drives the minimum-wage debate in the popular press and in popular culture (and, hence, in politics). The fact that such manifest idiocy as is on display in this video is taken seriously by so many people speaks to the vital need for more widespread, basic economic education.
3. Don next asked “How Scientifically Objective Is Robert Reich?“:
Judge for yourself if Robert Reich, in this video promoting a 107% increase in the national minimum wage in the U.S., presents an unbiased interpretation of the data. About 45 seconds into this video Reich begins his comparison of the real value of today’s minimum hourly wage ($7.25) to the inflation-adjusted value of the minimum wage in 1968. In 1968 the minimum wage was $1.60; according to Reich’s inflation adjustment, this nominal value in 1968 is the equivalent of $10.52 today. Because $10.52 is significantly higher than today’s minimum wage of $7.25, we’re supposed to conclude that some great injustice is being visited upon today’s minimum-wage workers.
But as the graph above reveals, Reich’s selection of 1968 as the year to use for a comparison of the real value of today’s minimum with that of some presumed past golden era is almost certainly not random.
Indeed, the chart above shows that, save for the years of the recent Great Recession (hardly a time when one would wish for especially high minimum wages!), one has to go back to the early 1980s before encountering a time when the real value of the minimum wage was as high as is the real value of today’s minimum wage. While it’s true that for most (although not all) of the 15-or-so-year period between the mid 1960s and the early 1980s the real value of the national minimum wage was generally higher than is the real value of today’s minimum wage, this value was seldom anywhere near the high magnitude that Reich’s comparison of today’s real-minimum-wage value with that of the real value of 1968 would lead you to believe.
And consistently from the early 1960s back to 1938 – the year of the national minimum-wage’s unfortunate (and decidedly non-immaculate) conception – the real values of minimum wages were quite below that of the real value of today’s minimum wage. Even during the 1950s – a decade celebrated nostalgically by many as a glorious one, economically, for ordinary Americans – the real value of the minimum wage was well below that of the real value of the minimum wage today. Go figure.
4. Don’s latest post “Reich Is Repeatedly Wrong” is a letter to former Labor Secretary Reich, reproduced below in its entirety:
In one of your recent videos endorsing a 100-plus percent (!) hike in the national minimum wage, you repeat the popular-in-Progressive-circles assertion that (quoting you) “we subsidize low wage employers” through government welfare programs such as food stamps, Medicaid, and housing assistance.
Basic economic reasoning reveals your argument to be backwards. Welfare payments of the sort that you mention make work a relatively less attractive option for welfare recipients and, thus, reduce the labor supply. One consequence is that wages paid by employers to their low-skilled workers are raised (and not, contrary to your mistaken suggestion, lowered). Thus, far from being subsidized by most government welfare programs, Wal-Mart, McDonald’s, and other employers of many low-wage workers are harmed by them.
Don’t believe me? Here’s Arindrajit Dube, one of the most prominent economists today who favors raising the minimum wage: “[M]eans tested public assistance programs are not tied to work, and we should not expect them to lower wages. Let’s take food stamps, which are available to eligible families whether or not a family member works or not. Indeed, when people are not working, they are more likely to be eligible for food stamps since their family incomes will be lower. Therefore, SNAP is likely to raise, and not lower a worker’s reservation wages – the fallback position if she loses her job. This will tend to contract labor supply (or improve a worker’s bargaining position), putting an upward pressure on the wage.”
Your failure to grasp even the most fundamental of economic principles makes your arguments for a higher minimum wage especially dubious.
Bottom Line: In recognition of Don’s total “economic bad-assery” on the minimum wage (although certainly not limited to that one topic), I wrote in January on CD that:
No one has more steadfastly, consistently and vigorously brought economy sanity, logic and reason to the issue of the minimum wage law government-mandated wage floor that guarantees reduced employment opportunities for America’s teenagers and low-skilled workers (especially minorities) than George Mason University economics professor Don Boudreaux. On his Café Hayek blog, Don has for many years regularly covered the minimum wage issue with his wisdom, wit, and keen economic thinking, and I applaud his ongoing efforts to educate his readers, students and (hopefully, some day maybe) policymakers [and former Labor Secretaries] about an important economic issue. I once again say “kudos” to Don Boudreaux for his ongoing and tireless efforts to regularly expose the numerous flaws of the minimum wage law government-mandated wage floor that guarantees reduced employment opportunities for America’s teenagers and low-skilled workers.
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