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A 2020 lesson for policy makers; Intentions do not matter, results do

Quoting the 1982 Economic Nobel Laureate, George Stigler,

Whether one is a conservative or a radical, a protectionist or a free trader, a cosmopolitan or a nationalist, a churchman or a heathen, it is useful to know the causes and consequences of economic phenomena.

Economic literacy is a trait that is is especially lacking in today’s policy making world. The misguided push for higher minimum wage that has taken place in the last year is clear evidence of this fact.

Given all that we know about the market it, is a shock that “The Raise the Minimum wage” movement has garnered so much support. As of January 1st 2020, minimum wages have gone up in 22 states,providing a pay increase for 6.8 million workers across the country. Furthermore, there are efforts to push for a federal minimum wage raise to $15 by 2025.

The  track record for minimum wage has been anything but positive as witnessed by losses incurred by small businesses and workers all throughout the country in 2019.

The minimum wage mandate has killed restaurants in Seattle and other cities throughout the country.  Most  restaurants have had to raise their prices to keep afloat, because like most labor intensive small businesses, restaurants operate on low profit margins. A single rise in costs hurts their bottom like. Worst case scenario they go out of business; best case they survive but have to lay people off or raise prices.

When it comes to minimum wage

The notion that the minimum wage causes social improvement without cost is just as absurd as the idea that the price of eggs can be doubled by law and this will have no effect on sales – only more profits to egg producers. It’s contrary to every economic sense, and describing its effects is no different from describing the effects of gravity on rocks dropped from buildings.

And this is true for any policy that intends to benefit workers or consumer by restricting freedom in the market.

When government takes away options, it is bound to make some people worse off, even with intrinsically good intentions behind that government intervention.~ Thomas Sowell




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