Seattle
Bans the Poor from their Emerald City
by
Martin
Cowen
Beginning
April 2015, Seattle has mandated a minimum wage of $15 to be phased in over
time. Employers with fewer than 500 employees will reach the mandated rate in seven
years, large employers in three years. This feel-good measure is bound, by
economic law, to impair full employment. This essay explores the hidden motives
for imposing systemic unemployment.
No
principle of economic law is more fundamental than the relationship between
price and demand. The principle states that when the price of a commodity or
service rises, the demand for the commodity or service declines. Wages are
prices. The wage rate is only one component of the total cost of employment. Federal
and state income taxes, Social Security taxes, Medicare taxes, worker’s
compensation, unemployment insurance, government mandated health insurance, retirement
benefits, other voluntary employee benefits, regulations concerning the hours of
work, overtime, mandatory vacations, sick pay, maternity and paternity leave, conditions
of discharge, and reams of paperwork are all costs of employment. When the cost
of employment rises, demand for employment declines.
The
principle makes common sense. The principle comports with our everyday life
experience. We might buy a McDonald’s hamburger for $1. We will not buy a
McDonald’s hamburger for $10. Economics writers including Adam Smith (The Wealth of Nations), Ludwig von Mises
(Human Action), F.A. Hayek (The Constitution of Liberty), Henry
Hazlitt (Economics in One Lesson), Milton
Friedman (Free to Choose), and Thomas
Sowell (Basic Economics) teach this economic
law. Ludwig Von Mises said in Chapter 20 of Human
Action says: “Catallactic [voluntary] unemployment must not be confused
with institutional unemployment. Institutional unemployment is not the
outcome of the decisions of the individual job seekers. It is the effect of
interference with the market phenomena intent upon enforcing by coercion and
compulsion wage rates higher than those the unhampered market would have
determined. The treatment of institutional unemployment belongs to the analysis
of the problems of interventionism.”
America
and Europe both suffer from institutional unemployment at astonishingly high
rates. The sole cause of institutional unemployment is government intervention
in the labor market.
Why,
therefore, are socialist leaning cities inclined to raise their minimum wages
despite basic economic theory?
The
first thing to notice is that politicians do not care about the common good.
The common good is the good of the whole of the people the politician rules or
participates in ruling. Politicians care about being elected and re-elected.
Any action a politician takes is self-interested and not altruistic. We might
say that the politician is engaged in Altruism Theater. Obviously, the political
action must appear to benefit the
common good. Necessarily, the political action is intended to benefit the
politician by advancing his chances for re-election. The political action almost
always benefits a moneyed constituency.
So
what moneyed constituencies benefit from an increase in the minimum wage?
Unions
Unions,
whose members generally make more than the minimum wage, support increasing the
minimum wage. Why?
First,
some union contracts tie union wages to the minimum wage. Thus, an increase in
the government mandated minimum wage will increase the wages to which some unionize
employees are entitled.
Second,
non-union workers compete with unionized workers for jobs in states where
unions do not have a legal or coercive (union thugs beat up scabs and the
government looks the other way) monopoly. A large differential between the
wages of the two groups makes employment of non-unionized workers more
attractive than a small differential. Think of highly taxed cigarettes in New
York City. The difference between the high retail price of cigarettes in New
York City due to taxes ($5.85 per pack) and the low retail price of cigarettes from
Virginia with a lesser tax burden (30 cents per pack) encourages the smuggling of
cigarettes from Virginia into New York City.
Third,
unions have been known to threaten to support the minimum wage in order to
coerce a union-resistant employer to unionize. This tactic was apparently used
during efforts to unionize the employees of Seattle-Tacoma International
Airport. In a variation of this tactic, unions in Los Angles seek exemption for
union employees from the minimum wage in order to encourage employers to agree
to union representation.
Fourth,
union support of minimum wage appears to be altruistic and thus raises the
esteem in which unions are held by low wage workers, politicians, and
socialists generally.
Low Wage Workers
Economic
education in America is non-existent. Even college educated folk are
economically illiterate. Ludwig von Mises explains why: “Tax-supported
universities are under the sway of the party in power. The authorities try to appoint
only professors who are ready to advance ideas of which they themselves
approve. As all nonsocialist governments are today firmly committed to
interventionism, they appoint only interventionists.” Human Action, Chapter 38, Section 4, “Economics and the
Universities.” Von Mises wrote this in 1949. Now, 67 years later, virtually no
government school or university has any (out of the closet) free market teachers.
While
being conservative is no guarantee of economic literacy, only about 20% of university
professors identify as conservative or far-right. The ratio of Democrat professor
voters compared to Republican professor voters is 9 or 10 to 1. Being a Liberal
and voting Democrat is a practical
guarantee of socialist or, at least, interventionist, leanings. On the other
hand, voting Republican or being Conservative is no guarantee of economic literacy. President Richard Nixon, a
Republican, imposed wage and price controls in 1971. President George W. Bush,
a Republican, increased the minimum wage to the current level of $7.25 per hour
in 2007. Both Nixon and Bush were economic illiterates. Bush attended Yale and the
Harvard Business School where he earned an MBA degree. Clearly, he did not read
(or did not understand) the economists referenced in this essay. Hold on! Remember
that which is written above: “Any action a politician takes is self-interested
and not altruistic.” Bush and Nixon might well have known the economic harm
which wage and price controls and the minimum wage would inflict and enacted
both anyway hoping to benefit themselves politically in spite of the common
good.
Back
to low wage workers, it is, therefore, no particular insult to say that low
wage workers are economically illiterate on the whole and for the most part.
The low wage worker does not understand, on the whole and for the most part,
that a minimum wage does not help her. The
minimum wage merely deprives her of the right to work on terms to which she might
agree.
Some
low wage workers support the minimum wage in the hope that their economic
circumstances will be improved. They are mistaken.
Established Businesses
Wal-Mart, the largest employer in
America, does not oppose the minimum wage. Why? Here are a few reasons:
1. Wal-Mart
employees generally earn more than the minimum wage. The average rate is $13.38
per hour for full-time employees. A minimum wage does not hurt Wal-Mart.
2. The
minimum wage will harm Wal-Mart’s competitors and make it more difficult for
startup entrepreneurs to compete with Wal-Mart’s economies of scale.
3. Cooperation
with socialist and interventionist programs will endear Wal-Mart, it hopes, to
the socialists and interventionists in power and reduce political targeting of
Wal-Mart, at least for the moment. America’s largest employer cannot hide from
the socialists and the interventionists for long.
4. Agreeing
to superficially beneficial employment laws will endear Wal-Mart to its
employees, it hopes. There are reports that some employees who were already
above the minimum wage and who did not benefit from the increase are disgruntled
that others lower on the pay scale did.
All
established businesses in Seattle, including Wal-Mart, will
benefit by laws, like the minimum wage, that render competition more difficult.
Not all businesswomen take pleasure in crony capitalism, though. There are some moral businesspeople who
believe in free trade.
What is Going on in Seattle?
In 2014,
the median household income in Seattle was $71,273. The national median
household income was $53,657. The city with the highest median household income
is Washington, D.C. at about $90,000. San Francisco is next around $80,000.
Boston is next around $72,000.
Per capita income in the Seattle-Tacoma-Bellevue,
Washington Metropolitan Statistical Area (MSA) is $39,322, third from the top. Per capita income in Washington-Arlington-Alexander,
D.C.-Virginia-Maryland MSA is $47.411, number one. Per capita income in San
Jose-Santa Clara-Sunnyvale, California MSA is $40,392, number two.
Seattle is
a very rich city. Starbucks has more stores in Seattle per capita (1 for every
4,000 people) than any other city. Tiffany & Co. has three stores in
Seattle. A real socialist sits on the city council, party designation Socialist
Alternative. The other eight members of the council are Democrats. A rich city
can afford to be socialist for a long time. As Margaret Thatcher said: “The
trouble with socialism is that eventually you run out of other people’s money.”
When the city is the third richest city in America, running out of other people’s
money will take a long time.
People are
employed because their labor is worth more to the employer than the money she
pays them. A laborer works because the money she is paid for working is worth
more to her than her leisure. When the employee’s labor is not worth the wage,
then the employee will be discharged or not employed in the first instance.
Socialists and interventionists, at least the ones who pretend economic
thinking, love to observe that determining the marginal cost of labor is
difficult. And it is. But determination of the marginal cost of labor is
impossible for the democratic totalitarian who wishes to impose his will upon all
employers and employees within his grasp. It is up to the employee and the
employer, in arm’s length negotiations, to determine an agreed upon price for
the employee’s labor. If the businesswoman errs by paying too much, then she
will lose profit and might go out of business. If the businesswoman errs by
paying too little, then she will lose her employee when he discovers he is not
being paid what he is worth. The presumption of the democratic totalitarian to
make this decision for the parties to the transaction (employer and employee)
is hubristic and immoral.
Some of the
consequences of Seattle’s new minimum wage law are these:
1.
Any employee who does not produce value for the
employer at least equal to the cost of employment will be discharged. The “studies”
commissioned by the Seattle city council admit this fact. Note that these “studies”
were performed by “professors” and “scientists” who are working for socialist
and interventionist institutions.
2.
Entrepreneurs and startups who are not well
funded (most) will avoid starting new enterprises in Seattle. This consequence
will not be “seen.” The businesspeople and the opportunities they might bring will
just never show up. Established Seattle businesses will be happy about this.
3.
The low wage earners will go outside of the city
of Seattle to find employment. The “poor” will effectively be “evicted” from
the Emerald City. The Starbucks customers will not be disturbed by this
consequence. The Tiffanies customers will not lose sleep. They prefer not to
see the poor in their tony neighborhood, not even as employees in marginal
businesses. (As good progressives, though, they would never admit this.)
4.
Marginal businesses that cannot afford the high minimum
wage will close. These businesses, according to the Starbucks-Tiffany crowd,
are unsightly in any event.
5.
The socialist government of Seattle will bask in
the glory of their socialist “achievement.” They are celebrated by the
Mainstream Media and the overtly socialist media.
6.
No one in Seattle will make the connection
between Socialism and Puerto Rico, Venezuela, and Greece. Seattleite: “Food
riots in Venezuela? Who cares? Not my fault.”
The
citizens of Seattle are certainly good people. Like most Americans, though,
they have not been taught basic economics. Seattleites have absorbed Marxism
from our culture and from their progressive, socialist, and interventionist
teachers and professors. (Forty-seven percent of Seattleites have bachelor’s
degrees, the highest percentage of all American cities.) On the whole and for
the most part, the citizens of Seattle have not read (or at least not
understood) Adam Smith, Ludwig von Mises, F.A. Hayek, Henry Hazlitt, or our
great contemporary Thomas Sewell, despite their higher educations.
Seattleites
will continue to enjoy their coffee and their fine stores. Seattleites will not
miss the few poor people who will have to move elsewhere to find work. Seattleites
will not recognize the logical connection between Socialism and institutional employment
in the United States, because, being rich, their unemployment rate is
relatively low and the city thriving. Seattleites will not bother to wonder
what happened to Greece, Venezuela, and Puerto Rico. Seattleites will live out
their lives in lovely, green bliss, above the clouds, like the inhabitants of the
flying island Laputa in Jonathan Swift’s Gulliver’s
Travels (1726).
The
Capitol of Panem of the Hunger Games
could exist in the midst of poverty in the hinterlands. So can Seattle.
