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Minimum Wage Laws Breed Poverty

Written By Geoffrey Pike

Posted January 14, 2014

minwageIt can sometimes be frustrating to have an economic discussion with people who have little interest in economics. Well, I say they have little interest in economics, but they are quick to prescribe their own solutions to poverty and human suffering. They are quick to give their own suggestions on how to centrally plan an economy.

I’ll give an easy example…

Someone will complain about the high unemployment and the need for the government to help those who can’t find a job. In steps a free market economist who suggests that we repeal minimum wage laws. The economist provides an explanation about how when the government does not allow prices to reflect supply and demand – in this case the price of labor – it disrupts the market clearing process. In this case, keeping wages artificially high will lead to an oversupply of labor (unemployment).

The central planner will respond that he is not interested in graphs and discussions of supply and demand. “We are living in the real world and there are real people who are suffering at this very moment. We can’t be concerned with economics. We have to be concerned about the human suffering.”

Talking about economics with someone who has no interest in economics can be like talking to a rock. Actually, talking to a rock would be less frustrating, because at least the rock can’t respond with something ignorant.

I understand that most people do not find economics interesting and that is fine to a degree. But if they have no interest, then they should stop pretending how best to use the government to bring about a more equal and so-called compassionate society. They should stop supporting politicians who have these grand ideas of using government to centrally plan and supposedly improve people’s lives.

Economics is dealing with the real world.

When a free market economist points out that minimum wage laws tend to cause higher unemployment, it doesn’t mean that fake people are unemployed. It is real. Real people are needlessly suffering because of those who want to impose their ways on others.

Minimum wage laws prevent two consenting parties from agreeing to a contract. It makes certain jobs for certain people illegal. It says that someone who can get a job for $6 per hour is not allowed, even if there are no jobs available at the minimum wage. It’s real people who face this.

I think there are a couple of ways to address this problem.

First, do not cede the moral high ground. Taking a position of liberty and free markets is the moral position. You are advocating a voluntary society without the use of force or the threat of force.

In the case of minimum wage laws, you are not willing to use the force of government to prevent a voluntary contract between consenting individuals.

A second important point is that you should insist that you are taking the most compassionate position. It is a free market economy that will produce far less poverty and human suffering.

In the case of minimum wage laws, eliminating them is the compassionate thing to do. This will allow people to work who want to work. It will allow young people and unskilled people to get a job and work towards something better. It will allow them to get experience and better themselves.

In conclusion, some people will never be convinced, no matter how much reason and common sense you throw at them. But there are some people who are open-minded who may understand that a position of less government and more liberty is actually the moral position and the compassionate position.

We should not be intimidated by those who claim that we are not compassionate. It is the policies of the central planners that have led to so much misery and unnecessary suffering.