Unpersuasive Arguments: An Analysis

Consider the issue of minimum wage legislation. Libertarians, and free-​market economists generally, point out ad nauseam that employers pay workers according to their marginal productivity. As the workers’ productivity goes up, their wages go up. Their wages cannot exceed the value they contribute to the business. So why do left liberals simply dismiss this obvious economic truth? One reason, I think, is that it seems to be saying that low productivity is entirely a feature of the worker, so the responsibility for their low wages lies with the workers themselves. In other words, it seems to blame those with the least power and money. But of course the worker’s marginal productivity is largely a function of the market, specifically, of the demand for labor by similar businesses, the demand for the goods they produce, and the supply of labor by other workers, and not simply a function of how much the worker physically produces. If worker A can be easily replaced by Worker B who is willing to work for $7 an hour, or by a machine that can be rented for $7 an hour, then the employer will offer A no more than $7 an hour. Alternatively, if no one is willing to work for $7 an hour, and no $7-​an-​hour machine can replace the worker, but it would still be profitable for the employer to hire Worker A at a wage above $7, then the employer will pay a wage above $7 even when the worker physically produces no more than before. So it’s important to make it clear that the argument from marginal productivity is not placing all the responsibility for their low wages on workers.

Another reason this explanation for low wages is not persuasive to those who call for minimum wage legislation is that it fails to acknowledge the concern that lies behind such calls, namely, that some people in minimum wage jobs have families, and cannot afford to support families on such a low wage. (Of course, those who call for minimum wage mandates talk as though everyone in low-​paying jobs is supporting a family, but we can correct this mistake without making the opposite mistake of thinking that no one in these jobs is supporting a family.) Concern for such people needs, first and foremost, to be acknowledged. And then it needs to be addressed by pointing out that, sad as the situation is, mandating a minimum wage will make it even worse, because it will most likely lead to unemployment or disemployment of the poorest, least skilled workers, through outsourcing, automation, or the outright death of businesses that can neither afford to pay more nor outsource or automate their jobs.

Even this argument, however, loses much of its power if it’s presented as though it’s based on an unalterable law of nature. “Demand curves slope downward” tells us in a pithy formula how we human beings tend to behave in the market, not how some physical force orders our affairs as we stand helplessly by. This is why a firm can raise the wage it pays to labor without necessarily having to lay off workers. For example, a company can adopt the policy of paying its top executive only (say) seven times as much as the lowest paid worker instead of (say) 17 or 700 times, and using the savings to pay above-​market wages to the firm’s lowest-​paid workers. Not only can this happen, it has happened and is still happening. When Ben Cohen and Jerry Greenfield founded Ben and Jerry’s, the company adopted the policy that the ratio of the highest-​paid executive to the lowest-​paid worker would be 5 to 1. Of course, the success of such a policy depends on the willingness of executives to take a lower salary than they could in companies with no such policy. When Jerry Greenfield retired and the company couldn’t find anyone willing to take the job at his salary, it adopted a 7 to 1 ratio. This was eventually raised again to 17 to 1 This is another example of the principle that employees’ marginal productivity typically determines their salary - unless they are willing to take less, as Greenfield was, and many other executives still are. Whole Foods caps the CEO’s salary at 19 times that of the average annual wage of its workers. Of course, to pay their workers well, Whole Foods has to price their products much higher than other grocery stores, high enough (ironically) to put them out of reach of most workers. But in a more-​or-​less free market system like ours, those who don’t make enough to shop at Whole Foods have plenty of good choices. To his credit, the co-​founder of Whole Foods, John Mackey, recognizes that Walmart, with a very different wage-​and-​salary philosophy, is a great poverty buster, thanks to its low prices and (generally) good quality. And now Walmart is competing with Whole Foods by offering organic food at a much lower price than Whole Foods, thus leading Whole Foods to reduce the prices it charges – but also, of course, to reduce the number of workers it employs!

The supporter of minimum wages might respond to this by saying that those who insist on multi-​million dollar salaries at the cost of a higher wage for workers are just greedy. After all, how much does one need to have a comfortable – even super-​comfortable – and happy life? I’m sure there are greedy people in business, as there are in Congress, the police- and military-​industrial complex, teachers’ unions, the various government bureaucracies, and other walks of life. But the mere fact that they accept what they are offered, even though it is more than they need for a super-​comfortable and happy life, is not enough to make all business executives greedy. Or if it is, then most of those who make such criticisms also qualify as greedy, since they typically make far more than needed for comfort and happiness, and certainly thousands of times more than billions of people in the world.

This is a good time for libertarians to point out that , rather than criticize those who make “too much”, it is both just and more fruitful to criticize government policies and regulations that limit some to making too little. It is here that libertarian arguments cannot fail to convince even the most ardent lovers of government controls, so long as they have an open mind. Policies such as occupational licensing or zoning regulations make it impossible for many poor people to climb out of poverty by creating their own businesses. Such policies and regulations are ostensibly for our own health and safety, but a cursory look at them reveals that many have nothing to do with anyone’s health or safety. Rather, what they have to do with is incumbent businesses’ wealth and politicians’ desire for their money and votes. How else to understand why African hair braiders in Washington were required, before the Institute for Justice took the state government to court and won, to take cosmetology classes costing thousands of dollars, when they had no intention of doing anything other than African hair braiding? Or why florists in Louisiana were required to take expensive exams in order to sell flower arrangements (but not unarranged flowers!) before the Institute for Justice rescued them?

The success of libertarian arguments in exposing the role of occupational licensing in creating poverty is shown in the fact that criticisms of occupational licensing have now appeared in prominent liberal publications, such as The New York Times Magazine , and led many, including ex-​President Obama, to call for reform. Another area in which libertarians have been successful in exposing government policies that create poverty (again, thanks in large part to the efforts of the Institute of Justice), is civil asset forfeiture. Civil forfeiture allows police to seize and keep the property of individuals merely suspected of a crime, even if they are never charged with a crime. According to one estimate, the annual amount taken in such seizures now exceeds the annual amount stolen by robbers. Here the charge that state and federal governments not only create poverty, but do so out of a mixture of power-​lust and greed, is only too obviously true.

Success in opening people’s eyes to these predations by the state does not, of course, mean success in doing away with them. But it is the necessary first step. And it helps to cultivate the skepticism about government that alone will discourage people from forever advocating more poverty-​creating laws, like the minimum wage.