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Economics Enables Us To See That Racism Exists Only When Free Enterprise Is Taken Away.

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Economist Donald Boudreaux taught us that the economic way of thinking is like a pair of “magic spectacles” through which we see political lies more clearly. Professor Walter Block is particularly adept – and fearless – at applying the magic spectacles to social phenomena.

This essay is dedicated to Davonte Bryant, a nine year old black boy who was recently murdered in the streets of New Orleans, while he was playing in front of his home. May God grant that he is now in a Better Place.

How can we maximize the chances that in future this sort of thing will be radically reduced? That the next child, white or black it matters not one whit, will not be gunned down in the street?

We can do so by eliminating systemic racism.

First, what is plain old racism? This is the view that it is justified to violate the rights of African-Americans, plot their downfall, exult in their misery, instigate against them, etc. Lynchings certainly come under this rubric, as does the kneeing in the neck of a helpless black prisoner, who is handcuffed behind his back. But those are the easy cases, which all men of good will can recognize.

What, then, is systemic racism? It is not at all so obvious and blatant. As the name implies, it is a system that disproportionately vitiates against black people; institutions are to blame, not merely evil individuals. If the Davonte Bryants of our fair cities are to be safeguarded, we must do our utmost to eradicate this more insidious form of racism as well as the plain vanilla, obvious variety.

In systemic racism, there is nothing flagrant at all. Rather, it consists of policies which might even harm all people, but, nevertheless, single out blacks for disproportionate detriment.

Let us consider a few cases, so as to better focus on this phenomenon.

* The welfare system

The welfare system has broken up the black family. No, matters are even worse than that: welfare payments have made it all but impossible for this institution to form in the first place in the African-American community. Welfare payments all too often outstrip the earning power of the fathers of illegitimate children, leading them, as if by an “invisible hand,” to renounce their husbandly duties. Slavery broke up the family of this demographic cohort of course. But in its aftermath, the black family, naturally, reunited. It was just about as stable as all other families from the mid 19th to the mid 20th century. It was not until 1965, with the advent of President Johnson’s Great Society that the pervasive and negative sociological status of unwed motherhood was all but erased. Some 75% of black kids are now brought up without a father present. Nor is this just a black “thing.” Welfare has attacked the Caucasian family in the United States as well, and in Sweden, where there is little racial heterogeneity. It is just that African-Americans were more vulnerable to the blandishments of this evil system since they were poorer.

The poverty rate of intact black families is in the single digits. African-American impoverishment is almost entirely an offshoot of broken families. The father has a crucially important role to play in the formation of the next generation. Without him in the home, the youngsters, particularly males, are more likely to end up unemployed, in prison, or dead before their time. No, if we wish to protect the Davonte Bryants of the future, we must totally end this malicious instance of systemic racism. If people want to live in a house, eat, enjoy air conditioning, tv, have a car, etc., let them work instead of being on the dole. Private charity can take up the slack for the deserving poor, as it always has done. There is also the fact that compelling the rich to cede money to the poor is theft.

I do not think that anyone sat around the table and said, “How can we really injure the black family? I’ve got it; let’s inaugurate a very generous welfare system. That will break up their families, and impoverish them. Ha!” That would be plain, old, ordinary, vicious racism. But we are talking systemic racism here, a horse of a very different color.

* The Minimum Wage

But if people now on welfare are to attain jobs, the minimum wage must be erased from the books. All too many people think that this law actually raises wages, and that the higher it is pegged, the greater will be remuneration. Stuff and nonsense. Rather, the minimum wage constitutes a barrier over which productivity levels have to exceed in order to become employed in the first place. If your productivity is $12 per hour, and the employer must pay you $15, he will not hire you in the first place, and if he mistakenly does, will lose money on you and eventually be forced into bankruptcy, other things equal. If this pernicious legislation really could raise wages, why be so niggardly about its level? Why not raise it to $150 or $1500 or even $15,000 hourly? Obviously, it is productivity, not a legislative pen, that enables the middle and upper classes to earn vast multiples of the minimum wage law.

What determines productivity in the first place? Education, technology, capital equipment. And what encourages that? Savings? In turn, what promotes savings? Security of private property rights, or capitalism. It is no accident that before the advent of the minimum wage law, the unemployment rates of blacks and whites, young and old, were similar. Afterward, the unemployment rates of young white males rose to quadruple that of middle aged white men. Yes, quadruple, due to this wicked legislation.

* Drugs

Legalize them. All of them. Without exception. Not just marijuana. All of them. We can learn a lesson from the prohibition of alcohol. Then, it was young men Italian extraction who were shooting each other mercilessly over turf. Does anyone, nowadays, shoot anyone over beer, wine or liquor? Of course not. The very idea is preposterous. There was a time in our history, too, when drugs, all of them, were legal. No gunplay was involved in this industry then. But with the advent of drug prohibition, this criminal role has been disproportionately taken up by young black men. All too often there are drive by shootings in which innocents such as Davonte Bryant are killed. If we are to decrease the probability of this occurring, we must place drugs on the same legal basis as liquor; that is, legalization.

Will eliminating welfare and the minimum wage, and legalizing drugs, fully and entirely eliminate the difficulties faced by the African-American community? Of course not. This demographic faces many other, and serious difficulties. But these proposals will surely be beneficial. The perfect is the enemy of the good.  These three public policy proposals will not solve all problems but they will ameliorate at least some of them.

Note, I do not count police brutality as systemic racism. Yes, African-Americans are killed by the men in blue disproportionately to their roughly 13% of the population. But this is not true when compared to the times they interact with the police due to their criminal behavior.

Nor is the fact that on average black people earn less than whites or Asians an example of systemic racism. The vast earnings of people such as LeBron James, Spike Lee, Oprah Winfrey, and the very adequate salaries of many thousands of black lawyers, doctors, scholars, bespeaks a lack of either variety of racism. If racism really were keeping black people down, this phenomenon could not occur.

Some people claim intelligence tests such as IQ, SAT, ACT are systematically racist since they make invidious comparisons between different demographic groups. That’s just plain silly. These questionnaires measure certain abilities. They are good predictors of the likelihood of flourishing at university, for example. The vertical leap, number of chins in one minutes and time in the 40 yard dash also quantity capabilities; they are highly correlated with success in many athletic pursuits. Some racial groups do better on these than others, as well. If one set of examinations constitutes systemic racism, then so does the other. Neither is the case.

If the Davonte Bryants of the world are to be safeguarded, we must embrace private property rights, free enterprise, capitalism. That is their last best hope. This system has done more for the African-American community than any other, Imperfect as is the US economic system, the GDP of all black citizens together would rank 12th in the world, if they constituted a separate country.

How bad is racism of either variety in America? Not very, despite its many vociferous critics. Proof? “Voting with the feet.” Are black Americans emigrating from the US to sub Saharan Africa, where by definition there can be no such thing as anti-black racism? Not at all. Are black people from Africa attempting to immigrate into the US. Yes. So much for the supposedly gargantuan incidence of racism in this country.

Walter Block holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans, and is a senior fellow of the Ludwig von Mises Institute.

AOC Has A Perfectly Good Economics Degree. That Explains Why She Spouts Idiotic Economics.

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It has become something of a tradition in the free market corners of social media to express shock and dismay over the possibility that New York congresswoman Alexandria Ocasio-Cortez (AOC)—an avowed “democratic socialist”—has an economics degree from Boston University.

This is how it works: AOC makes a statement that is notably antimarket, prosocialist, or generally clueless about general concepts from the field of economics.

Her critics then post responses questioning whether she actually has a degree, or saying that she must have not been paying attention in class, etc.

Here are a few examples:

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But why is it so hard to believe that she has a degree in economics? It seems that far too many people have rather inaccurate ideas about what is taught in economics programs nowadays.

The truth is that there is little emphasis on understanding markets in economics programs, and little emphasis on the value of markets. The emphasis is now on using economics to justify state action in the economy. And any bias that may have once existed in favor of unhampered markets in these departments is vanishing.

The idea that economics is the dispassionate study of understanding how hiring is affected by an imposed price floor (i.e., a minimum wage) or how opportunity cost affects consumer choices is rapidly becoming hopelessly outdated.

Sure, twenty years ago that sort of thing could still often be observed. But microeconomics of that sort is now about as fashionable as other relics of that time, such as the Backstreet Boys.

Basic principles that were once a given—i.e., the notion that making labor more expensive means that employers buy less of it—are now out the window.

But this trend didn’t start yesterday. For decades now, economics has been moving further and further away from teaching microeconomics and how firms and households work. Instead, by the late 1990s economics was well down the road of constructing elaborate and purely hypothetical mathematical models that had little bearing on everyday life. These model builders claimed they could predict the future, but of course, they completely missed the huge financial crisis of 2008.

Another trend in recent decades has been toward conducting an enormous number of studies that produce statistical correlations. But as the correlations can be interpreted any number of ways, they often end up being used to support whatever policy the researchers prefer. Out of this has come the drive to make economics into a discipline that depends on tinkering and trial and error. Some now insist we can’t really guess what the results of a policy might be until we “test” it using methods from the physical sciences.

This is now what’s fashionable, and a December article at Quartz tells us, “the new era of big data…has led economists to revisit the wisdom of some long held assumptions.”

Those old “assumptions” are what many people wrongly think is a focus of economics instruction. Last year, for example, Vox happily reported that in a new introductory economics course at Harvard “[t]here’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts.” Moreover, it’s getting easier to get through an economics program without any knowledge of economics because economists are increasingly less interested in economics proper.

As I noted here at mises.org last year, economists nowadays seem to spend a lot of time ripping off the insights of historians, sociologists, psychologists, and political scientists. They then slap some new labels on the research and give it names like “behavioral economics.”

In the sorts of “economics” classes that focus on such topics, one learns that government planning is what gets a poor country out of poverty. They learn that people can’t be trusted to make decisions for themselves. They learn that bailing out billionaires in the financial sector again and again has no real downside, morally or otherwise.

There’s no reason to believe that a student with an economics degree is going to graduate with a deep understanding of how government intervention distorts markets or impoverishes consumers. The theoretical foundations behind such things are mentioned, of course, but at many institutions they are most certainly not emphasized.

Far more likely, one learns in these programs that central banks can be relied upon to fix almost any economic problem faced in the course of a business cycle. And if a certain problem becomes especially difficult, the answer surely lies in giving the central bank even more power.

Moreover, economics students believe all sorts of fantasies that most normal people would easily identify as obvious nonsense were they not told otherwise by “wise” economists. Only economics students, for example, are naive enough to think that central banks are “independent” and nonpolitical institutions. This is why the most revealing research on the Fed as a political institution is conducted primarily by political scientists. (For example, see John T. Woolley’s “The U.S. Federal Reserve and the Politics of Monetary and Financial Regulatory Policy.”)

So, it’s entirely plausible that AOC took any number of economics courses and came out with good grades after learning virtually nothing accurate about entrepreneurship, wages, money, or consumer choice. What she did learn on these topics was likely built on the premise that the state ought to be intervening in and tinkering with all these things.

AOC appears to have the same beliefs that many economics grads do.

Meanwhile, AOC’s critics make fun of her for being a bartender. But they’re getting things backward. Being a bartender is possibly the best thing on her CV. These snide remarks about “the bartender AOC” seem to assume that bartending is some sort of disreputable line of work that only idiots pursue. It’s not. “Serving” in Congress is much less impressive. Besides, tending bar is likely one of the more instructive things AOC has done as far as understanding markets goes. There’s certainly no reason to assume that the economics faculty at BU was any help in this regard.

Minimum Wage Legislation Cost This Foodservice Worker A Job, And Threatens To Destroy An Entire Industry.

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Seattle

This city’s minimum wage is rising to $16.39 an hour on Jan. 1. Instead of receiving a bigger paycheck, I’m left without any pay at all due to the policy change. That’s because the restaurant where I’ve worked for six years is closing as a consequence of the city’s harmful minimum-wage experiment.

I work for Tom Douglas, one of the best-known restaurateurs in Seattle. Mr. Douglas is in many ways responsible for the city’s reputation as a foodie paradise, and he recently celebrated his 30th anniversary in business. He’s a great boss, and his employees tend to stay at the company for a long time.

But being an established chef and a good employer doesn’t save you from the burden of a sharp minimum-wage increase, up 73% from $9.47 in 2015. For large-scale employers like Mr. Douglas, there’s no separate rate for workers who earn tips. In Washington and a handful of other states, tips aren’t counted as income earned on the job. That means restaurateurs are expected to pay servers like me the full minimum wage in addition to our considerable tip income.

When rent is too high, labor costs too much, and customers don’t want to pay $40 for a roast-chicken entree, the only way for many operators to ease the pain is to close.

So now, after six years working at Mr. Douglas’s restaurant Tanakasan, I need to find a new work home. My first thought was to go back to Sitka & Spruce, a restaurant where I had once worked. (I previously had to take on a second job there after the rising minimum wage forced Tanakasan to adopt a no-tipping payment model, drastically reducing my income.)

As it turns out, I can’t return to Sitka & Spruce. Its James Beard Award-winning owner, Matt Dillon, is closing Sitka after 14 years, defeated by the one-two punch of rising rents and labor costs.

As a worker, you’re attracted to restaurateurs like Messrs. Douglas and Dillon because they offer job security and you know you’ll make money. That’s no longer the case here with a high minimum wage that ignores tip income. I often hear people in Seattle lament that it’s becoming “more corporate.” The truth is that the city has made it nearly impossible for many small businesses to survive.

Mr. Douglas is trying to find a role for my co-workers and me at another restaurant in his group, but I’ve started applying for other open positions around town. I landed an interview at a restaurant called Super Bueno, owned by another established chef, Ethan Stowell. Before I could even confirm the interview, Mr. Stowell announced that he will close down Super Bueno at the end of the year. He’s also closing or restructuring two other restaurants.

I’ve lived in this city for almost 20 years, supporting my family thanks to the full-service-restaurant industry. Today I’m struggling because of a policy meant to help me. I’m proudly progressive in my politics, but my experience shows that progressives should reconsider minimum-wage laws that hurt the very workers they’re trying to protect.

Ms. Barron is a restaurant worker and co-founder of the Full Service Workers Alliance.

 

Can Parents Afford Increases to the Minimum Wage?

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For decades, free-market economists have warned that there are consequences to raising the minimum wage. However, despite economic principle and historical examples pointing to the contrary, labor activists have continued to campaign for a higher minimum wage, clinging to the belief that a “living wage” will result in the demise of income inequality.

While the prospect of a higher wage appeals to just about everyone, many seem to forget that money does not simply appear out of thin air. When employers are mandated to pay their employees a higher wage, that money must come from somewhere. Governments may be responsible for enforcing wage policies, but it is the employers who are left with the financial burden of figuring out how to provide for these pay increases.

In many instances, employers are forced to cut hours, lay off employees, or raise the price of consumer goods and services in order to meet the new payroll standards. This is the dilemma currently facing many employers in Washington State, where a new minimum wage law is already resulting in some unintended consequences.

In 2016, Washington residents voted to increase the minimum wage incrementally from $9.47 an hour to $13.50 an hour by 2020. For Advent Lutheran Child Center in Spokane Valley, the minimum wage increase meant an inevitable increase in tuition costs, which has left many parents shocked and concerned.

Beginning in January 2017, the cost of tuition increased to $140 a month per child. For parents with multiple children, this is an added burden of several hundred dollars a month.

One parent who voted in favor of the new minimum wage commented on the matter, saying, “I understand that they need to capture their difference and make that money back, but then so does everybody else.”

Unfortunately for parents hoping to find a cheaper daycare option for their children in wake of the wage increase, they may not find any alternatives. A local news affiliate reached out to other daycare centers in the area and found that tuition increases across the board seem almost inevitable at this point.

Kristin Larson, a program supervisor at the childcare center and an advocate of a living wage said, “I feel the state needs to be helping a little more, it would be nice if parents didn’t have to spend a majority of their paychecks for childcare.”

Unfortunately, Larson’s comments strike at the heart of the matter. It would be great if the state had to foot the bill for the increased wages, but the state has no source of revenue that does not come directly at the expense of its citizens. Whether through direct taxes or from revenue generated by traffic citations or other minor infractions, the state does not have the means to pay for a wage increase. However, neither do many Washington businesses.

When wages are inflated artificially (not as a natural response to increased market demand and higher profits), financial hardships are inevitable. As children, we were taught that money doesn’t grow on trees. However, this lesson seems to have been lost on proponents of minimum wage increases.

Alexandria Ocasio-Cortez Keeps Proving Why Socialism Doesn’t Work

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Everytime Congressional candidate and poster child for democratic socialism, Alexandria Ocasio-Cortez, opens her mouth to speak, she reminds us why socialism doesn’t work. Proudly assuming the role as spokesperson for the “rising” American democratic socialist movement after grabbing the Democratic Party’s nomination earlier this year, she has wasted no time commenting on current events. The only problem is, every time she attempts to stand up for working-class Americans, she either proves her economic illiteracy or makes a strong case for capitalism.

Minimum Wage Hikes Destroy Jobs

Recently, Ocasio-Cortez crafted a sentimental tweet, lamenting the closing of a local establishment where she used to work. Her tweet read:

“The restaurant I used to work at is closing its doors. I swung by today to say hi one last time, and kid around with friends like old times.”

After drawing attention to the closing of the restaurant, which is a popular coffee shop in Union Square in New York City, reporters made an interesting discovery. When the co-owner of “The Coffee Shop,” Charles Milite, was asked why his establishment was closing he explained that it was a result of the increased minimum wage.

Milite told the New York Post, “the minimum wage is going up and we have a huge number of employees.” Ocasio-Cortez is, of course, an outspoken advocate for raising the minimum wage. When she was interviewed by the Daily Show’s Trevor Noah, she commented:

“Raising the minimum wage to a living wage will expand the economy. It will create wealth in our economy. And it will increase economic activity in this country.”

Unfortunately, this just isn’t the case. A few years ago, a new minimum wage law was passed, incrementally increasing the wage rate to $15 per hour over the course of a few years. While the full implementation is still two years away, the current minimum wage rate has reached $13 per hour. And as a result, many Manhattan businesses have been struggling to stay financially afloat now that they are forced to pay their employees so much more. The Coffee Shop has over 150 workers who will soon be out of a job because the owners cannot afford to pay the 36 percent increase in costs to their employees.

This situation may have slid under the radar, but Ocasio-Cortez ’s tweet helped shed light on the situation and prove that raising the minimum wage, a policy she supports, simply doesn’t work. In fact, The American Action Forum estimates that 261,000 jobs will be lost this year as a result of minimum wage hikes. But this is not the only time Ocasio-Cortez has been caught with her foot in her mouth.

Uber vs. Cabs

In March, when a former Uber driver had fallen on hard times financially and chose to end his own life, Ocasio-Cortez tweeted:

“NYC’s fourth driver suicide. Yellow cab drivers are in financial ruin due to the unregulated expansion of Uber. What was a living wage job now pays under minimum.”

Of course, the tragic situation is in no way Uber’s fault, Ocasio-Cortez wasted no time casting blame. Neither did the cab industry, who used this tragedy to launch a campaign that would inevitably result in a city-wide cap on Uber vehicles.

Capitalizing on the situation as a means of furthering her agenda, Ocasio-Cortez backed the taxi unions and commented:

“We need:

– to call Uber drivers what they are: EMPLOYEES, not contractors

– Fed jobs guarantee

– Prep for automation”

 

Not only are her views on a “living wage” wrong, as we saw previously, but Ocasio-Cortez’s actions seem to tell a much different story than her passionate tweet.

During the course of her campaign, Ocasio-Cortez spent over $4,000 on 160 Uber rides from April-June 2006. And those number only account for her Uber use in California alone. It should be noted that she is not running in California, but she has a huge donor base there, which, considering the political climate of the Golden State, should be of no surprise.

It was also discovered that an additional $2,500 was spent on another ridesharing company, Juno. But Ocasio-Cortez is hardly alone in this hypocrisy. Mr. American Democratic Socialist himself, Bernie Sanders, met the same public criticism after it was discovered that he preferred Uber to taxicabs. This, of course, came after he had publicly condemned the company for being “unregulated.”

It would seem that socialism continues to be better in theory than it is in practice, which is evidenced by the ideologies own followers. While Ocasio-Cortez might be a better spokesperson than Sanders, that is not saying much. Democratic socialism will never fully catch on in America because the free market is too convenient. It is what has given employees competitive wages and bestowed the sharing economy upon consumers.

Ocasio-Cortez can complain about capitalism all she wants, but until she is willing to give up her Uber rides, it is unlikely that she will be taken seriously.

Study Shows That Increased Minimum Wage Rates Hurt Young Employees

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During the years of the great recession, when many millennials were coming of age, economics and statisticians began to grow concerned over the number of young people who were dropping out of the labor force or had never entered it at all.

However, what many discovered was that the recession had very little reason to do with these declining rates. In fact, the decrease in youth employment began before the 2008 financial crisis. The numbers actually show that youth employment rates fell from 24 percent to 13.2 percent between 1994 and 2009.

Attempting to discover why teenage employment rates have been decreasing, the Mercatus Center at George Mason University conducted a study. During the course of their research conducted by David Neumark and Cortnie Shupe, the two scholars looked at three different possible reasons for this decline: increased numbers of adults attending school, increased competition with immigrants, and an increase in the minimum wage.

The Research

While both schooling and increased job competition with immigrants both played negligible roles, the latter playing a slightly bigger role than the former, the main culprit was the minimum wage. As the study states:

“In terms of explaining changes in the behavior of teens age 16–17 since 2000, the role of the minimum wage is predominant.”

But oddly enough, many studies of this nature discount, or completely neglect, the role the minimum wage plays in the decreased numbers of youth employment. As the study says:

“Curiously, the role of minimum wages has been largely ignored in this context, despite the extensive literature on the effects of minimum wages on teenage employment (although the conclusion is contested)12 and the much smaller body of literature on the effects of minimum wages on schooling…”

Neglecting to discuss the role the minimum wage plays in decreased teen employment does a huge disservice when it comes to tackling the actual problem.

The fact is when employers are forced to comply with high minimum wage rates they have to choose between hiring unskilled, young workers or older workers who will need less training. In this case, they will almost always choose the latter. It makes more financial sense for them, especially since both workers are now more expensive due to mandatory minimum wages.

So as the push for higher wages began, fewer teens were finding employment because it was simply too risky and too expensive to hire these unskilled workers. However, those advocating for these policies continued to push for higher wages under the guise that it helped American workers of all ages. But the continued decrease in teen employment told a different story.

The Inconvenient Truth of Increased Minimum Wage

When policymakers consider raising the minimum wage, it always comes down to discussing whether the increased paycheck is offset by the increase in overhead labor cost. For example, is an employee earning more per paycheck enough to balance out the increase in cost the employer will have to endure in order to make this larger paycheck possible. While most free-market economists understand that this is not the case, the emotional argument for increased wages usually beats out logic.

Many proponents of raising the minimum wage also claim that it gives young adults a greater opportunity to learn and grow as employees. This, it is believed, sets them up for later success as they expand their careers. But this, as it turns out, is not the case.

One of the most interesting aspects of this study was that it found that for the teens who were able to enter the workforce,  an increase in wages led to fewer skills obtained by the time these teens reached adulthood.

As the study states:

“Turning to the second question, our examination of the longer-term effects of these three factors uncovers no evidence that higher minimum wages, which underlie teens shifting from combining work and schooling to being in school exclusively, led to greater human capital investment. If anything, the evidence is in the other direction. Thus, it is more likely that the principal effect of higher minimum wages in the 2000s, in terms of human capital, was to reduce employment opportunities that could enhance labor market experience.”

Herein lies one of the problematic issues with raising the minimum wage. Entry level jobs are just that: entry level. They are meant to help young workers earn the skills necessary to move up the latter in their desired fields. But this increase leads to entitlement, where workers are not paid for their individual skills but are instead bumped up to the level of more experienced workers. Clearly, this has been detrimental to the individual’s overall growth, as the research also demonstrates.

But in general, increased minimum wages have implications that expand beyond just these consequences. As we have already seen happen in the wake of “fight for 15,” employers who are forced to increase the wages paid to employees have to find their own ways of offsetting these costs. This can mean laying off workers or increasing the price of consumer goods, in which case nobody really benefits. But again, the emotional arguments go a long way with legislators, who would rather appease protestors than think about economic logic.

Seattle Proves That “Fight for Fifteen” Movement Will Have Negative Consequences

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The city of Seattle Washington is quickly becoming a cautionary tale when it comes to its economy. In May, the city even announced that it would begin levying a new employment tax on prosperous Seattle-based businesses. The “employment tax” as it is being called, will institute a new tax on the top 20 percent of businesses for each hour worked by each Seattle-based employee.

While this is absolutely absurd to tax job creators for creating value for Seattle, what is seemingly more absurd is the fact that the city hasn’t seemed to learn anything from its previous attempts to centrally plan its economy.

Fight for Fifteen

In many ways, Seattle is personally responsible for sparking the “fight for fifteen” movement. In 2014, it became the first municipality to vote in favor of raising the minimum wage to $15.00 an hour. At the time, the city’s minimum wage was only $9.47.

Jumping from less than ten dollars all the way to $15 was a dramatic increase. Even the city recognized the danger this posed on local businesses, who would be the ones responsible for finding the means to fund the new wage rate. So, it was decided that instead of the new minimum wage going into effect at the beginning of 2015, the city would do it incrementally.

After the first year, when the minimum wage had been increased from $9.47 to $11.00, a research team at the University of Washington began analyzing the effects it had on employment, specifically in the restaurant industry. As it turned out, the impact was minimal. For most people, the wage increase resulted in an extra 72 cents every few months. But what was most shocking to these researchers was the fact that low-wage employees, the very people who this was wage increase was supposed to help, were being negatively impacted. Low-wage employment was actually down in the year following the increase. But at the time the study was conducted, there simply wasn’t enough data to confirm how big of an impact the new wage rate was having. The city was going to have to wait a little longer before they could determine the impact.

Then, last summer, UC Berkeley joined in on the research and released their own new numbers declaring:

“Our results show that wages in food services did increase — indicating the policy achieved its goal. … Employment in food service, however, was not affected, even among the limited-service restaurants, many of them franchisees, for whom the policy was most binding.”

Of course, this gave city officials all the fuel the needed to start boasting that their initiative had been a success. However, right after then-Mayor Ed Murray has published the Berkeley findings on his own government page, bragging that wages in the fast food industry specifically had increased without negatively impacting employment rates, the University of Washington released its second installment of the study. And this one did not fit the city’s narrative.

Centrally Planned Economies Do Not Work

When the new study from University of Washington was released,  Bloomberg reported:

“The University of Washington released its second study, this one covering the increase from $11 an hour to $13. And this study found huge effects: For every 1 percent increase in their hourly wage, low-wage workers saw a 3 percent reduction in the number of hours worked. As a result, they lost about $125 in earnings a month, clawing back the entire gain from the earlier hike and more.”

As it turns out, money has to come from somewhere. And when employers are forced to pay more money to meet the wage requirements they have to cut hours or even cut positions in order to afford to do so.

Of course, the mayor couldn’t be troubled with these new inconvenient findings and stayed relatively quiet.

As new studies are about to be released, we are about to find out just how grave the numbers look after the wage has incrementally increased once again, quickly approaching $15.00 per hour.

But the data already provided does not do much to boost hope. And instead of trying to meddle in the market further like they are doing with the new employment tax, Seattle officials should seriously be considering the consequences of their actions.

While taxation and the minimum wage rate are not entirely the same, they both require the central planning of an entire economy, of which no good can come. A governing body that tries to control an entire economy will soon find they do not have enough knowledge or insight to do so. As Hayek reminds us, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” And when it comes to determining employee wages, the market will always do a better job than government. 

What Puerto Rico Can Teach Us about Minimum Wage Laws

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Puerto Rico has been put through the ringer lately. But one of the most economically devastating aspects of its economy came about because of minimum wage laws enacted by the United States.

After the 2007 Fair Minimum Wage Act passed, each of the fifty states was required to raise the minimum wage from $5.15 an hour in 2006, to $7.25 by 2009. Few Americans realize that this legislation was also applied to the U.S. territories of Puerto Rico, American Samoa, and the Northern Mariana Islands, who were also forced to raise wages.

Unemployment in Puerto Rico surged and its GDP per capita declined by almost 7 percent. 

When the minimum wage is increased, the private sector is responsible for finding the means to actually pay for these increases. Though many companies will be forced to raise prices in order to continue operating within their profit margins, some might be left with no choice but to lay off employees or dramatically cut employee hours.

Since minimum wage pay is typically associated with entry-level workers, if employers are forced to let these employees go, they will lack the skills necessary to quickly rebound in the job market. As a result, the unemployment rate begins to rise.

When minimum wage requirements are made at the city or state level, the losses experienced from high unemployment rates are offset in the local economy, since many who are unable to find work often relocate to an area where the minimum wage isn’t as restrictive.

However, for those living in U.S. territories, relocation is not as easy as it is for residents in the continental states. Without the flexibility to relocate, the economic catastrophe that resulted from the 2007 minimum wage increase was felt on a grander scale.

According to the National Review,

The impact on the economies of American Samoa and the Northern Mariana Islands was devastating. In American Samoa, by 2009, after only three of the ten scheduled minimum-wage increases, overall employment dropped 30 percent — 58 percent in the critically important tuna-canning industry. Real per capita GDP in American Samoa fell nearly 10 percent from 2006 levels. In the Northern Mariana Islands, by the end of 2009, employment was down by 35 percent, and real per capita GDP off by 23 percent.

As the situation grew desperate, the governor of American Samoa testified before the U.S. Congress explaining that the new minimum wage policy created, “the real possibility that American Samoa could be left substantially without a private-sector economic base except for some limited visitor industry and fisheries activities.” He continued, “American Samoa’s economic base would then essentially be based solely on federal-government expenditures in the territory.”

Puerto Rico met a similar fate after the new minimum wage rate went into effect. The increase resulted in a minimum wage that was greater than 75 percent of the Puerto Rican median wage. In fact, the situation grew so dire, unemployment in Puerto Rico surged and its GDP per capita declined by almost 7 percent between 2007 and 2013. As a result, many young and able-bodied Puerto Ricans left for the U.S. mainland, creating an imbalance as the old and less motivated were forced to stay behind.

Additionally, foreign investors were turned off from hiring Puerto Ricans, since residents of Jamaica and the Bahamas would only cost half as much to employ.

By raising the minimum wage to as much as $15 an hour, states like California and New York are not just setting an American record for highest minimum wage; they are setting a global record as well. Even France, where socialism thrives, has a minimum wage equivalent to only $10.90 an hour.

In fact, the only time in history that the minimum wage was increased at economic levels comparable to that of New York and California was in 2007, when the U.S. territories implemented the Fair Minimum Wage Act. As we all know how that situation ended, we can only hope that in the future, governments can learn from history and avoid causing economic catastrophes.

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