Bryan Caplan  

Questions for Minimum Wage Supporters

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How Much Good Can One Intellig... Fukuyama and Kuran...
1. If the minimum wage is a good idea, shouldn't unpaid internships be illegal as well?  If not, why not? 

2. Name the main arguments in favor of the legality of unpaid internships.  Aren't all of them equally good arguments for allowing people to work for wages greater than zero and less than the minimum wage?

I wish the Klein-Dompe survey included these questions!

Inspirational HT: Art Carden


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COMMENTS (75 to date)
Paul Allen writes:
1. If the minimum wage is a good idea, shouldn't unpaid internships be illegal as well? If not, why not?

Unpaid internships _are_ illegal, according to the Department of Labor.

http://wdr.doleta.gov/directives/attach/TEGL/TEGL12-09acc.pdf

Since Obama took office, enforcement has been game.

James SH writes:

No opinion in this discussion, just some notes:
In California, with its higher-than-federal minimum wage, unpaid internships are generally illegal. Exceptions can be made for education-driven internships.

MikeM writes:

A guy named Jan Helfeld asked these two questions to Nancy Pelosi for about five minutes straight. Watching her twist into knots was pretty funny but I think he was a little too aggressive about it at the end.

I think I got that link from Dave Henderson from a few years ago, so hat tip to him.

shecky writes:

In addition, one can often volunteer to do work, and it's often considered admirable compared to interning or straight up earning a wage. It seems the difference is sometimes in the intentions of the laborer and the beneficiary of the labor, even if the labor is the same.

A. writes:

That would be easy for them, of course unpaid internships should be illegal, they are being mercilessly exploited and enslaved.

A. writes:

*if it's in the private sector

Aidan writes:

Minimum wage jobs and unpaid internships serve different purposes. I doubt anyone would be willing to take an unpaid job bagging groceries or ringing people up at Walgreens in order to network or build their resume. People, mostly during or after their college education, are willing to take unpaid internsips to gain training or networking abilities in high skilled or specialized fields. Minimum wage jobs can be useful for teenagers looking for extra spending money or low-skilled/low-educated workers who need the money and can't find work in another field, but they don't provide the same opportunity for advancement that an unpaid internship might provide.

Brandon Berg writes:

Unpaid internships are for middle- and upper-class people. Minimum-wage jobs are for lower-class people. Obviously we only want to limit opportunities for the latter.

Joseph K writes:

I think the typical argument is that an unpaid internship is really education. Since it always has to be part of some college degree, people see it as just like a different type of class. In other words, since you normally pay to take classes, one could argue that the labor you provide is in exchange for the cost of the lesson you receive.

Of course, as soon as you raise the idea of non-monetary compensation, then the logic of a minimum wage is undermined. So, in order to defend the minimum wage and unpaid internships, you have to carefully circumscribe the forms of non-monetary compensation that are permissible: namely, the only acceptable form of non-monetary compensation is education and it only counts when it's part of a degree. In short, you could do it, but it'd take some contrived assumptions (never underestimate the ability of people to tie themselves in knots to defend their assumptions).

And it just highlights that the defense of unpaid internships and the abolition of minimum wage is simple: freedom of contract.

Matt writes:

Another question worth asking is, if a statutory minimum wage is effective, why not set it at $1,000 per hour and make everyone wealthy?

Mathew Crawford writes:

This post is exactly what came to my mind when the idea of banning such internships recently washed through the public discourse. I suspect that the relationship between the internships and minimum wage is precisely why the liberal half of the media stopped talking about the internships (at least, I heard internship banning discussed for a week or two and then nothing since).

Dave Hedengren writes:

Unfortunately, many supporters of the minimum wage would say that internships should be illegal too. Here's an nytimes op ed advocating just that.

http://www.nytimes.com/2011/04/03/opinion/03perlin.html

Philo writes:

Has anyone tried to evade the Minimum Wage Laws by bundling a job, paying the minimum wage, with purported "education/training," for which the worker pays the employer? That's pretty much what an internship is. If necessary, the employer could take out a few minutes each day for a mini-lecture to the workers, ostensibly educational.

Unfortunately there would be a major drawback in the form of a tax bite: payroll taxes and income taxes would be due on the full minimum wage, and the employer would have to declare the notional "payments" he received from the workers as income. Perhaps that makes it more attractive for the employer simply to operate on the black market, or substitute capital for labor, or not operate at all.

Tom West writes:

Okay, I'll bite.

First off, the minimum wage is not just about economics, but about society as a whole.

Those who cannot understand this are condemned to wonder why economists are perpetually ignored, not understanding that what is "right" for the economy (in theory) doesn't end up as what is "right" for the people (in practice).

Employees and people in general, treat people on the basis of economic or social position. We also value the output of something that's more expensive more highly, and this applies to employers as well.

Interns aren't judged on the economic scale, but the social scale. They are people who are aspiring to a similar position in your industry (otherwise why would they be trying to learn from you).

A minimum wage worker is not a social equal to the manager, and the lower the wage they are being paid, the lower that their employers and society at large judges their worth as human beings. My limited experience in non-Western countries made this abundantly clear. (And why the popular and correct advise is it is better to have no job at all than to temporarily take a low-paying job).

Perceived lower worth means less job training, worse work conditions, more abuse, less protection from violence, less opportunities for promotion, etc.

This, of course, isn't economic theory, and the loss of job opportunities to certain classes of workers *is* real - I don't deny the costs. But I am still convinced that the social cost of *not* having a minimum wage are significantly higher than having one.

Caleb writes:

@ Tom West

I'm not quite sure what you mean when you say minimum wage is "about" "society" and not the "economy." Are you saying that there are relevant factors outside the typical economic analysis? If so, please state so, and why they cannot fit into a typical cost-benefit analysis. In general, your first statement seems so general and ill-defined, it could mean almost anything. What prevents advocates of any economically inefficient policy from removing their pet policy from economic review by simply stating that it is "about society" and not the "economy?"

As pointed out brilliantly in Roberts' and Papola's rap video, the "economy" is nothing more than people who engage in transactions. The entire point of economic analysis is to maximize individual value, because that is the only value that exists.

Your "social cost" analysis may be absolutely true. Or, it may be dead wrong. Most likely, the concepts you illustrate apply in highly variant, extremely fact-dependent ways. The question becomes: who is in the best position to determine whether taking a low-income job is worth the social cost in any particular situation? You? Some bureaucrat in Washington? Or the person who is actually considering the job?

PrometheeFeu writes:

@Tom West: I don't understand how having unemployed people is "right" for society. Also, given how minimum wages give rise to non-monetary competition aka crappy work conditions, I also don't understand how that is also "good" for society. In fact, ignore my first two questions if you want. What the heck is this society that you speak of and how can I ask it what it likes and doesn't like and how happy it is about its current condition?

PrometheeFeu writes:

I just read the op-end and this Mr. Ross Perlin is proving a rather foolish opinion. It is obvious that unpaid internships bring about great benefits for the students, otherwise they would not do them. How else can you explain students practically killing each other for the chance at those internships. While those who favor minimum wage often speak of an unfair situation where one has to take a job because one is in a situation of economic distress that does not apply to unpaid internships at all. If you don't want it, don't apply. It's that simple.

Steve Roth writes:

Matters of degree, as always.

Matt's silly fallacy of the extremes illustrates this.

Unpaid internships are small change in their macroeconomic effects.

Unpaid internships are much more powerful pathways to long-term career growth than food-service jobs. One gives you work experience on your resume. That's good, but the other gives you work experience in a particular field that has a career path.

So characterizing an unpaid internship as education is not ridiculous.

orion's belt writes:

The answer is simple.

NMW should be lowered to the internship/ 'training wage', as this is now the default entry-post level.

Foobarista writes:

My biggest gripe with unpaid internships is they heavily favor the already wealthy and connected over poorer kids who may have to actually earn money versus living off the bank of mom & dad.

Jody writes:

I figured the apparent minimum wage / unpaid internship hypocrisy was a means to exclude certain "undesirables" from the workforce. Sorta like the effect of Davis-Bacon.

Tom West writes:

@Caleb

Are you saying that there are relevant factors outside the typical economic analysis?

Yes

If so, please state so, and why they cannot fit into a typical cost-benefit analysis.

Certainly, in this case, there are subtle social costs to having a class of people who are considered near worthless. Minimum wage laws are, from my experience, one way of avoiding this.

In general, your first statement seems so general and ill-defined, it could mean almost anything. What prevents advocates of any economically inefficient policy from removing their pet policy from economic review by simply stating that it is "about society" and not the "economy?"

Bingo. Welcome to the world of humanity where few questions that involve human beings interacting have black and white answers.

Trying to balance these factors, and deciding the utility of these 'social factors' is what democracy is all about. They're absolutely fuzzy, but they are also very real. The fact that they aren't easy to measure doesn't mean they don't exist.

Real life is messy.

As pointed out brilliantly in Roberts' and Papola's rap video, the "economy" is nothing more than people who engage in transactions. The entire point of economic analysis is to maximize individual value, because that is the only value that exists.

Indeed, but individual transaction have an effect on everybody else around them. To take a far out example, a person's personal choice to sell themselves into slavery, for example, has profound effects of how everybody in society treats all human beings, not just the few who would choose to sell themselves.

Your "social cost" analysis may be absolutely true. Or, it may be dead wrong. Most likely, the concepts you illustrate apply in highly variant, extremely fact-dependent ways.

Absolutely agreed.

The question becomes: who is in the best position to determine whether taking a low-income job is worth the social cost in any particular situation? You? Some bureaucrat in Washington? Or the person who is actually considering the job?

Since the person taking the job affects me, then in this society, I get a say. Once again, for better or worse, it's called democracy. The worst system, except for all the others.

@PrometheeFeu writes:

I don't understand how having unemployed people is "right" for society.

It's not, it's a cost of the other benefits of a minimum wage.

Also, given how minimum wages give rise to non-monetary competition aka crappy work conditions, I also don't understand how that is also "good" for society.

That has not been my observation. My experience has been exactly the opposite. The *higher* the wages, the more the investment (including working conditions) in the employee. I suspect it's the same quirk that a bottle of wine you pay more for *is* tastier than a cheaper wine. We human beings can't help value a more expensive item higher.

In fact, ignore my first two questions if you want. What the heck is this society that you speak of and how can I ask it what it likes and doesn't like and how happy it is about its current condition?

Again, welcome to democracy. Not a perfect measure, but the alternatives seem to suck even more.

Rupert Willis writes:

@ caleb

"As pointed out brilliantly in Roberts' and Papola's rap video, the "economy" is nothing more than people who engage in transactions. The entire point of economic analysis is to maximize individual value, because that is the only value that exists."

oh ?

so culture, community, citizenship, social norms, organisational culture ..... they exist only in the imagination? They have no effect on us as living breathing people?

I think you completely miss the point. There is a big gap between being a methodological individualist, and believing that every man is in island

David writes:

I suspect few(er?) people would have a problem with a job paying below minimum wage if it was for a limited time and included an educational component that would help get a higher paying job down the line (isn't this what apprenticeships used to be?).

But since this usually isn't what's proposed and there's a fear (I would suggest a valid fear) that people will be stuck very very low wages long term, people make a fair distinction between unpaid internships (temporary leg-up including education) and below minimum wages jobs (potentially long-term without any necessary education / traning component).

twv writes:

Invert the question: Could it be that we have the institution of unpaid internship BECAUSE of minimum wage laws?

It is obvious that some companies do regard their minimum wage, entry-level positions as training for more advanced work (my first full-time job was that, though I started at a quarter above minimum wage; within two years I had advanced several levels up the hierarchy.)

Raising the minimum wage prices some jobs out of the marketplace, as well as some workers. So low-pay/no-pay internships allows entry-level workers the chance to do what was done by minimum wage workers earlier.

It should be noted that the fears of social critics about permanent minimum wage workers is justified for some segments of the population, but not all. The social critics are generally of a "progressive" mindset, and their policies generally divert people from the marketplace to either (a) the dole or (b) subsidized schooling. To those who hate markets, even subsidized unemployment is better than working at a low wage.

Tracy W writes:

Tom West: I don't understand your logic. If people value the output pf something that's more expensive more highly, then shouldn't we expect people who are working for free to be valued more lowly than people who are at least earning the minimum wage? You attempt to deal with this problem by asserting that interns are being treated on the social scale on the basis that they are aspiring to a similar position in your own industry, but why wouldn't people on a minimum wage be in the same situation? Everywhere I've worked at on low wages had opportunities to be promoted internally, say to shift manager, or store manager.

And why do you think it's better to have no job at all than to temporarily take a low-paying job? Haven't employers being putting up advertisements that say "only apply if you already have a job"? I've never heard this advice, indeed all the other advice I've heard is that it's better to be doing something than have a gap on your C.V. Eg, instead of saying "I was unemployed for six months", say "I was employed as a chidminder for six months", even if this really means one morning a week you looked after the neighbours' kids for him.

Cahal writes:

I do wonder when the right will admit they got it wrong on the min wage. Every time it is introduced there is no effect on unemployment, a small rise in prices but millions of people improve their take home pay.

OT: I have nothing original to say - internships are not the same as jobs, but I actually don't think internships should be unpaid either. Perhaps a lower min wage, though.

Hans Pufal writes:

France has solved the minimum wage issue!

I recently worked on a 15 day project for which I negotiated a per-diem significantly lower than the minumum wage in France. When my pay slip arrived I was curious as to how my work hours would be presented. They simply divided my total agreed renumeration by the hourly wage and declared that many hours worked. So according to the tax declarartion I worked 50 hours at minumum wage when in fact I had worked 100 hours at half the hourly minimum.

It turns out this is institutionalised in the particlar type of contract I was given.

I hope that Nancy Pelosi does not read this ;-)

Tom West writes:

@Tracy W

but why wouldn't people on a minimum wage be in the same situation? Everywhere I've worked at on low wages had opportunities to be promoted internally, say to shift manager, or store manager.

I would say in cases where there is a lot of job mobility upward, that might be the case. But then, you're only looking at employees who were paid minimum wage - the wage gap between the shift manager and the worker is not that high.

However, I'd say (again, based on limited observation in countries that had no minimum wage) that as you drop to half or a quarter of minimum wage, that social gap changes (unless minimum wage acts as an underpinning to the whole low wage sector, in which case you've also beggared the shift manager as well).

And why do you think it's better to have no job at all than to temporarily take a low-paying job?

To make it clear, this was meant in context of higher paying/higher status jobs to illustrate loss of status taking a lower paid job is important.

For the lowest paid workers, any job is currently better than no job on a resume, but then there are no 'real' jobs that indicate that "you were only worth a $1.00 an hour before, so why should I think you're now worth $6.00?".

Again, I will say that there is harm done to some class of workers - those who really cannot produce a surplus equivalent to the minimum wage. However, I personally think the gains to society as a whole are worth it (as apparently do the voters as a whole), to say nothing of the fact that a significant group of workers get to keep more of the value they generate, as those at the lower end of the scale usually have very low pricing power.

andy writes:

However, I personally think the gains to society as a whole are worth it (as apparently do the voters as a whole), to say nothing of the fact that a significant group of workers get to keep more of the value they generate, as those at the lower end of the scale usually have very low pricing power.

Considering that minimum wage laws are in the category of laws that are most frequently regularly disobeyed (worked around etc.), I wonder how could you come to the conclusion that these wokers keep more of the value they generate, not to say that this whole game is a gain to the society... And considering that voters seem to support protectionist laws as well, this really seem to me a very weak argument...

Brandon Berg writes:

Tom:
My experience has been exactly the opposite. The *higher* the wages, the more the investment (including working conditions) in the employee. I suspect it's the same quirk that a bottle of wine you pay more for *is* tastier than a cheaper wine. We human beings can't help value a more expensive item higher.

It's quite rational and not a quirk at all. Employers value workers with rare and valuable skills. In order to attract and retain such workers, they will A) pay them high wages, and B) spend money to improve their working conditions.

You're seeing that A and B are correlated and fallaciously concluding that A causes B, and that if we pass a law making employers pay everyone more, then they'll treat everyone better in other ways.

But that's not how it works at all, because A doesn't cause B. Rather, the market value of your skills determines how much an employer is willing to spend on you, and the employer divides that between monetary compensation and nonmonetary compensation.

Raising the minimum wage doesn't increase the market value of anyone's skills. It just encourages employers to increase monetary compensation at the expense of nonmonetary compensation.

andy writes:

My experience has been exactly the opposite. The *higher* the wages, the more the investment (including working conditions) in the employee

Well, actually, this might be true. If you have scarce workforce, you will invest more, so that you will use it more efficiently and need it less. Instituting minimum wage causes supermarkets to behave as if there was a lack of low-skilled workers, so they will divert their investment and develop automatic cashier-machines; this will in turn reduce the demand for low-skilled workers and make the problem even worse.

Daublin writes:

Lots of bites on question #1, but very few on question #2 !

For example, Tom writes that interns are different because, "They are people who are aspiring to a similar position in your industry".

Okay. Now apply that to teenagers bagging groceries. Personally, I think it fits rather well. Teenagers bagging groceries are aspiring to hold some sort of job in the future, and so they take low-skill grunt work so as to get some experience with how a modern enterprise functions.

Why isn't this something we would encourage?

Tracy W writes:

Tom West:
So, let me recap your argument. People value things less the less money they pay for them. But this doesn't apply to interns, because they are aspiring to similar positions in the same industry. However, even though people on a minimum wage may also be aspiring to similar positions in the same industry, this doesn't apply to minimum-wage workers because the rise in income is very small.

So: the effect from low cost doesn't apply to intern workers, but the effect that saves intern workers from the dire effects of low cost don't apply to minimum wage workers, because the promotions are just too little.

If I am understanding you right, this seems to be a highly calibrated argument to get it to come out in favour of a minimum wage.

As for the change in social status, it would be interesting to know if there were any effects from the UK introducing a minimum wage law in the late 1990s, or Hong Kong introducing one now.

I agree that for someone earning a high-income job, to take a lower paying job means a drop in status. But being unemployed is also a drop in status. How is it lower status to take the drop in pay than be unemployed entirely? (Sometimes of course, with benefits or other such policies, it can make more financial sense to be unemployed).

Vance H. writes:

I have never understood why some people think it is, by virtue of public policy, better for a person to be forcibly unemployed at a particular above-market minimum wage than to be voluntarily working for a lower wage that he or she was willing to accept. The most compelling explanation seems to revolve around union efforts to price its competition out of the labor market. Couched in terms of protecting workers from the beast of employer greed makes abhorrent violations of personal freedoms to contract seem more palatable to some people.

jag writes:

Tom West:

"shouldn't we expect people who are working for free to be valued more lowly than people who are at least earning the minimum wage?"

Several times Mr. West says something similar to the statement above to the effect that "we value PEOPLE" in some manner with regard to a wage.

Isn't this perspective inappropriate? When pricing a level of pay for a job a business isn't making a value judgment of some person's "worth" but the worth of the work to the (hopefully) profit of the business. In other words, you may be the most wonderful, brilliant, fantastic worker in the world but what we need someone to do for us only increases our performance by a very small amount. That and the fact that, at minimum wage levels, most of this work can be done by just about anyone with some ability.

So the perspective on "value" is backwards for the Tom West's of the world. What comes first is the value of the JOB to the enterprise. If the job is simple and is does not dramatically impact the bottom line of the business (in itself) then IT (not the person doing the work) simply isn't that valuable. Mr. West's problem is that HE views people's "worth" by the particular job they hold. Anyone who's been in many businesses KNOWS that plenty of very talented people often hold jobs that don't come close to paying them what they, in a different circumstance, might be worth.

The issue then isn't that a person isn't "worth" more money but simply the work isn't worth the money. In an internship, where the intern is getting virtually all the benefit of the exposure to a business (learning, perhaps, that they NEVER want to be in this field), proves this point all the more.

The value of the work is the point, not the "value" any person who might, for their own particular reason at a given point in time, decide bagging groceries "works" for them....then.

Randy B writes:

Another way of asking the question is, if you can't find a job that meets the government's minimum standards, should you be permitted to work?

Doc Merlin writes:

Um, they are illegal, except in not-for profits and government. The federal government has been cracking down on this a lot, and Glenn Beck has talked about how he can't legally hire unpaid interns and give them experience producing a show (which looks really good on a resume).

Tom Swift writes:

As I recall from history, the minimum wage and unpaid internships appeared in America for entirely different reasons. The assumption that they are both subsets of "jobs" in general masks these origins.

The first minimum wages were instituted to prevent itinerant black sharecroppers from undercutting the demand for white sharecroppers. The minimum wage raised the cost to the employer of black sharecroppers to the point that there was no economic advantage to employing them.

This of course does not mean that all subsequent minimum wage laws were motivated by overt racism, but it should warn us to be a bit suspicious of high-falutin' rationalizations about their economic benefits.

looking closely writes:


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David writes:

As stated above, unpaid internships *are* illegal, but, if you are a member of a recognized union, you can have an unpaid "apprenticeship." At least according to the Department of Labor official who recently fined me for having non-union, unpaid apprentices learn skills in my shop.


Synova writes:

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Chris writes:

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Advocates for legislation which mandates a wage above above zero contradict themselves. On the one hand, they assert that minimum wage legislation will NOT reduce employment among low-skill workers, that employers are indifferent to labor costs. On the other hand, they maintain that penalties in minimum wage legislation will raise wages because employers will respond to the threat of fines. Either employers respond to financial incentives or they do not. One or the other.

koblog writes:

Hey, Tom West: you argue that society is better if there's a defined minimum wage.

Do you honestly think your vaunted progressive society thinks more highly of a worker who makes minimum wage?

It's the classic elitist putdown issuing from every progressive parent's mouth: "Don't associate with him dear. He's beneath you...he's only making minimum wage."

Barry Griffiths writes:

Okay, so with interns you can evade the minimum-wage laws by claiming it's a college course. What about volunteers? How can the Red Cross, for example, pay staff above minimum wage but not pay volunteers at all? How can my Scout troop have all volunteer adult leaders who are not paid at all? I'm definitely not signed up for any course work.

sagi writes:

Sounds like a renewable one-year internship at McDonalds serving burgers would be the way to blow all that minimum wage stuff away.

Free food and free uniforms. What a deal. And you would learn a lot, too.

Daniel writes:

There are actually three kinds of activities: below minimum wage employment, internships and volunteer work.
The latter two are indulged in by people who have the ability to get by without being paid, not by poor people on the edge of survival.
by the way voiunteers, who are often retirees, often do menial tasks.
The purpose of minimum wage laws was to prevent poorly skilled people from driving down wages, not to inhibit the wealthy.
Initially minimum wage laws were passed to discourage black immigration to cities in the north in the 1930s.
Since the purpose is to keep the poor (now badly educated young minority members) out of the job market, it makes no sense to apply such rules to the non-poor.
Of course you may doubt the morality of our inflicting minimum wage laws on the poor and inexperienced. But the supporters of raising minimum wage levels are mostly democrats who define themselves to be the morally elect. They are incapable of considering the morality of their actions.

Eric writes:

Tom Swift and Daniel both try to tarnish minimum wage laws by attributing their origination to racism. The article below from the Cato Journal suggests otherwise - "The first minimum wage law was enacted in 1912 by Massachusetts. Like most of the other early minimum wage laws, this law provided for the establishment of regulatory boards that set minimum standards for woman equal to the cost of living as determined by the board."

http://www.cato.org/pubs/journal/cj10n3/cj10n3-7.pdf

Elizabeth writes:

Unpaid volunteer work (or work done at a modest stipend) performed for a non-profit group is generally recognized as not being subject to minimum wage laws. Government work "counts" as "volunteer," too. The fact that such an organization also has paid employees doesn't matter.

Working as an intern for a for-profit company: it's supposed to be an opportunity to gain experience, but often is nothing more than secretarial work whose value is in having something for the resume and a few connections. If it's a "true" internship, where the work done for the employer comes along with meaningful training (either in formal training sessions or one-on-one) then it should be possible to document and quantify this. If it's really just unpaid work -- then, by all means, the intern should be paid at least the minimum wage, and an employer unwilling to do so is in violation of minimum wage laws. If the value of the work the intern does is questionable, then structure the internship in a piecework or freelance fashion.

Employers in business, engineering, etc., do pay their interns. It's the "creative" fields that don't and really ought to "creatively" restructure their programs.

Tom West writes:

@Brandon Berg

You're seeing that A and B are correlated and fallaciously concluding that A causes B, and that if we pass a law making employers pay everyone more, then they'll treat everyone better in other ways.

I am concluding exactly that, and I don't think it's fallacious. Pay for jobs is often fairly arbitrary, often dependent on how the business was doing when you started. I was in one shop were pay varied by almost a factor of two for people doing roughly the same (fairly high end) work. Amazingly enough, the highest paid workers were treated better and the lower paid workers treated worse regardless of the actual measurable productivity. Presumably the lower paid workers were more valuable to the company, but they weren't treated that way,at least until they fought to get a comparable salary.

Study after study has been done. We value more what we pay more for, *regardless of its base value to us* (as a general rule). Pay more for the *same* bottle of wine and it is tastier.

I'm sorry, but people just don't seem to work that logically.

But that's not how it works at all

I suspect that you assume a *lot* more rationality and a lot less human-ness on the part of employers than is borne out by reality.

It just encourages employers to increase monetary compensation at the expense of nonmonetary compensation.

Again - not my experience at all. The higher the pay, the *better* the non-monetary compensation.

Tom West writes:

If I am understanding you right, this seems to be a highly calibrated argument to get it to come out in favour of a minimum wage.

Fair enough. I think that when both sides know that the very low wage job (remember we're talking *below* minimum wage) is transitory that the social effect tends to be vastly less. The teenager earning $2/hour doesn't seem to have the same status cost as the middle age woman who's still only worth $2/hour.

The other side is that I don't see promotions between the $3/hour and $10/hour job happening very often. Maybe I'd be pleasantly surprised. But it's not been my experience. Once the differential is high enough, it does seem to have a social effect.

How is it lower status to take the drop in pay than be unemployed entirely?

Again, I cannot say why, but I will say that I think the majority of people will react worse to someone diligently searching for recyclable bottles to earn $2/hour than to someone who claims to be unemployed (to a point).

I'm not claiming this is right (I think it's stupid), but to my experience, it's common enough that I'd prefer a minimum wage law to what I see as the danger of having classes of citizenry viewed as having even less worth than they already do now.

(Remember, taking a large bunch of money out of the poorest workers isn't going to help their social standing. Already living in the places that you can afford to on minimum wage is pretty risky business. Imagine what sort of living quarters can be supported by a $3 or $4/hour job.

Of course, if your social safety net is reliable enough, then you have a different sort of minimum wage law, but the effect is the same.

Tom West writes:

I suspect I'll get put in moderation if I keep trying to answer people, but what the heck. Everyone needs a hobby.

@jag

I think you miss my point. I'm quite conversant that the value of the human being to a corporation is only vaguely related to what hey produce (I've jumped industries - same job, 75% more pay.)

I am not saying that corporations should be paying people what they are worth as human beings or by what they produce.

What I am saying is that in some cases, I believe the externalities of the corporation paying them what they are worth to the corporation are higher than the benefits that society receives from the corporation employing them at that wage.

I don't claim to have the ultimate facts - the situation is far too blurry for that. But I do think that a lot (perhaps a majority) understand the externality at a gut level, which is why you get a majority of economists supporting a minimum wage when the simple economic laws would indicate that it's a bad thing. They realize that there is more at play in economic policy than economics.

David writes:

Nice discussion. Some free country we've got here.
When politicians decide how much people should be paid (minimum or maximum --"rich CEO's") there will always be fighting.
If there were true freedom, individuals would decide together how much to offer/accept for employment.
If a person couldn't find another to pay him an acceptable amount for his time and efforts, he would go into business for himself - minus the regulatory/licensing obstacles.

Note the effect the recent minimum wage increase has undoubtedly had on employment:
http://www.dol.gov/opa/media/press/esa/esa20090821.htm

Caleb writes:

@ Tom West:

Certainly, in this case, there are subtle social costs to having a class of people who are considered near worthless. Minimum wage laws are, from my experience, one way of avoiding this.

There is a difference between saying that a cost exists, and proving that it does. You also need to show that the costs are not largely internalized by the transacting parties, that your proposed solution does not cause more harm than good, and that your method for determining the costs and benefits of your policy are less flawed than the decision making mechanisms of those engaged in voluntary exchange. It is a significant burden.

Like I said before, using your methodology, anyone could claim the existence of an infinite number of imaginable "social costs" as the reason to engage in economically destructive policies. So long as you can sell it to a critical mass of power holders in the "democratic" process, no one can contradict you.

Bingo. Welcome to the world of humanity where few questions that involve human beings interacting have black and white answers.

And yet the one question we are talking about has a rather simple answer: impose a minimum wage. Isn't that rather definitive for the complex picture you are painting?

Trying to balance these factors, and deciding the utility of these 'social factors' is what democracy is all about. They're absolutely fuzzy, but they are also very real. The fact that they aren't easy to measure doesn't mean they don't exist.

Like I said, they may well exist. We are now talking about mechanisms of cost mitigation. To me, the fact that the "social costs" are subtle, situation-dependent, complex, and hard to measure are all factors that weigh against using the violent drunk wielding a bazooka that is modern democratic process.

Indeed, but individual transaction have an effect on everybody else around them. To take a far out example, a person's personal choice to sell themselves into slavery, for example, has profound effects of how everybody in society treats all human beings, not just the few who would choose to sell themselves.

Right. All human action creates externalities. This is nothing new. Yet, should "society" be able to tell me I can't have a few friends over for a quiet dinner party simply because the ideas I impart to them may cause harm in the future? Not if you think the Declaration and Constitution are more than a collection of pretty words. You need to show more than the existence of a potential cost, or its external effects. You must show that the harm caused is categorically the type of harm that is under the purview of governmental action.

Since the person taking the job affects me, then in this society, I get a say. Once again, for better or worse, it's called democracy. The worst system, except for all the others.

Again, if 'affecting others in any way' is the only criteria that puts human action under the review of the democratic process, then there is nothing outside that scope. My neighbors just had a BBQ, and the smell of their cooking made me hungry. Should I have a say in whether they could have a BBQ?

@Rupert Willis


oh ?
so culture, community, citizenship, social norms, organisational culture ..... they exist only in the imagination? They have no effect on us as living breathing people?
I think you completely miss the point. There is a big gap between being a methodological individualist, and believing that every man is in island

I never said those intangibles you mention were imaginary (although, depending on your definition of imaginary, I might agree) or that they had no effect on people. Nor did I ever say that every man is an island. You may want to reread my post.

However, my point remains that those intangibles do not exist outside the concepts of individual human beings. There is no culture, community, citizenship, social norms, or organisational culture outside of the individuals who practice them. This is why I said that individual value is the only type that exists. "Cultures" do not value something, the individuals who subscribe to and influence it do. "Economies" do not buy and sell and produce, people do. People are the only entities capable of creating, destroying, transacting, and valuing. Claiming otherwise is logically flawed.

http://en.wikipedia.org/wiki/Fallacy_of_composition

Kinabalu writes:

Elizabeth:

From what I understand, you think interns who are only doing the job they are doing because of the CV (and are not receiving training) should be paid by their employers. But think about it: if the intern is doing the job without being paid, it means he values the note in his CV that says he did that job enough to do it without being paid. By forcing the employer to pay him, the result could be that the employer would not employ anyone at all, because he was only willing to employ someone he did not have to pay, since he did not value the job enough to pay someone to do it. As a result, the intern does not have the possibility do take the job and has less CV entries.

Instead, let the potential intern decide himself. If he values the job enough to do it without being paid, he should have the chance to do it. If he does not want to work without being paid, he simply will not take the job, leaving it open for other potential interns.

Tom West writes:

@Caleb

To me, the fact that the "social costs" are subtle, situation-dependent, complex, and hard to measure are all factors that weigh against using the violent drunk wielding a bazooka that is modern democratic process.

An very interesting point, but one that (I think) ultimately fails the purpose of government, which is to serve the people. If it *badly* fails to serve them, then, short of holding the people hostage, it will eventually be replaced by a government that will.

As an aside, I consider the American Constitution a remarkable document not so much because of what it prevents, for in the end if it flies in the face of the changing will of the people, it *will* be circumvented, but because of the attitudes toward freedom and tolerance it inspires.

In other words, a society survives (in the long wrong) not by preventing people from exercising their choices, no matter how absurd they are, but by persuading the people to make good choices.

In this situation, I do think that the (in my opinion likely) externality of abolishing the minimum wage is large enough that I do support keeping such laws. However, I do respect the idea that many value freedom high enough that minimum wage doesn't make the cut.

And lastly, I'd have to say that the complex, hard-to-measure, subtle and situation-dependent factors are, in the end, often far more important to people than economics. The hundreds of thousands who have died in wars for their country haven't done so because it made economic sense. Families often don't make economic sense. Much of what makes people happy or sad doesn't make economic sense.

But when the unseen and unmeasured are so important to us, is it any wonder that we seek to control it as we can, even with our vastly imperfect (and possible utterly mistaken) understanding?

Now that said, I hope the value that people place on freedom means that a whole host of minor possible externalities are *not* addressed. (Sadly BBQs *are* regulated in a lot of places...)

Kinabalu writes:

Tom West:

"In other words, a society survives (in the long wrong) not by preventing people from exercising their choices, no matter how absurd they are, but by persuading the people to make good choices."

You had earlier mentioned that societies are not black and white, and I totally agree. But this contradicts what you are saying here. What is a "good" decision? A decision that might seem good for you might seem bad for someone else. In this sense, there is no "good" and "bad", no "right" and "wrong", simply a collection of choices that we have to make. Every single person on this earth is likely to make a decision differently from someone else, based on their gain and their loss.

Bill Koehler writes:

If unpaid internships become illegal all the providers need to do is to sell them. Anyone want to go to intern school? Think about it anyone wanting to pay less than minimum wage could simply offer schooling in the job desired. Learn to be a cook, cashier, etc at MacDonalds at our Mac U institute. We will even get you on the job training. Where you will actually be paid while you work and learn.

BCanuck writes:

Economic theory says a minimum wage will cause additional unemployment but a contributor above say this doesn't actually happen in the 'real world'. If this is true, why not raise the minimum wage to a 'living wage' of $15/hr?

And for Tom West
'A minimum wage worker is not a 'social equal' to the manager,....'. Your theory rests on this premise but what if a minimum wage worker raking for a lawn services manage to aquire a truck and lawn mower and starts up his own business. He now goes into the labour market and hires a someone to rake for him. Is he now no longer a 'social equal' to his employee? After all, a week before he was raking. Has the action to pay someone for their services vaulted him to the exalted status of 'social superior' over his employee?

And where do commission only sales people fit into the minimum wage issue? If a car salesman is down at the dealership everyday for month, talking and taking potential buyers on test drives, etc but only ends up making one sale on a small car he is definitely working for less than minimum wage. Should the dealership be required to pay him for his time he spent on the premises?

BZ writes:

Brandon Berg is correct -- this is an example of Woods Law in action.

Half Sigma writes:

This blog is a libertarian echo chamber.

Demand for low-wage labor is INELASTIC. Does anyone here know what that means? Did anyone study macroeconomics?

The result of the inelasticity of demand means that raising the minimum wage results in very job losses. Unless the minimum wage is pushed into an area of the demand curve such that it's no longer inelastic, so no straw man arguments about raising the minimum wage to $50/hr please.

So no, you're not "helping" the poor by removing the minimum wage and allowing them to work at the same jobs for less money.

Vince Skolny writes:

This isn't my objection, of course, but I can imagine the response coming back that the interns (typically those being educated and seeking experience) aren't being exploited because they have a choice and are not being oppressed.

@shecky - I agree and it's the same problem with the irrational profit/not-for-profit dichotomy.

Regan writes:
Study after study has been done. We value more what we pay more for, *regardless of its base value to us* (as a general rule). Pay more for the *same* bottle of wine and it is tastier.

This is absurd. Why is your value of material goods/services anchored to its price? If you think that a bottle of wine tastes better just because it costs more then you are a fool.

I value the things that I do because their benefits outweigh the costs I had to endure in order to acquire them. That does not always mean that a higher price = more valuable.

Supposed you employed two people--one low skilled worker making minimum wage and another more productive worker who makes $15/hr. You wouldn't hold the labor of the employees equally valuable, would you? Of course not! That is why the more productive worker makes more money.

Now, let's say that the minimum wage is raised to $10/hr. Is the lower skilled worker's labor more valuable somehow? He didn't improve his abilities or acquire new skills. The government just mandated that you had to pay him more. If, out of the goodness of your heart, you paid your lower skilled worker the same as the person who was more productive would you value their labor in the same way?

If you were the business owner in this scenario you would have three options if the minimum wage was raised on your less able employee. You could (1)become content with making less money; (2)raise the prices of your products/services accordingly; or (3)employ fewer people. Which of these options is most beneficial to you, the business owner? Why?

Caleb writes:

@Tom West

An very interesting point, but one that (I think) ultimately fails the purpose of government, which is to serve the people. If it *badly* fails to serve them, then, short of holding the people hostage, it will eventually be replaced by a government that will.

I wish I had your optimism, if not your grasp of reality. I suppose that, indeed, the Platonic ideal of a government is one that truly and honestly serves "the people." I doubt whether any semblance of this ideal holds outside of a grade-school civics course. Spend one month working in Washington (or any other political capitol, for that matter) and then tell me that the goal of even a small percentage of actors in that government is to idealistically serve the interest of "the public." Then, among the cadre of starry-eyed idealists you manage to locate, try to find those few realistic enough to not be blinded by their ideology to the degree that they cease to relate with reality.

Once you have done that, try taking a look at the laws that actually govern this place. Not the glib little summaries found in political treatises published for mass consumption. Look at the actual rules, regulations, and codes that form the operating language of the political structure. Ponder the purposeful complexity and the convenient ambiguity of this system. Ask yourself: could rules with such a precisely calculated scope of potential beneficiaries, or with such a broad and indiscriminate scope of potential victims, truly be the rational expressed desire of voters who, on a good day, can identify perhaps two sitting Supreme Court Justices? Answer honestly.

As an aside, I consider the American Constitution a remarkable document not so much because of what it prevents, for in the end if it flies in the face of the changing will of the people, it *will* be circumvented, but because of the attitudes toward freedom and tolerance it inspires.

In other words, a society survives (in the long wrong) not by preventing people from exercising their choices, no matter how absurd they are, but by persuading the people to make good choices.

I'm not sure what you are saying here. If the Constitution 'inspires attitudes toward freedom and tolerance,' why will the "changing will of the people" want to circumvent it? If the will of the people is the supreme determining factor of optimal public policy, how on earth will that policy convince the majority to make "good" choices apart from whatever they themselves arbitrarily determine to be good?

In this situation, I do think that the (in my opinion likely) externality of abolishing the minimum wage is large enough that I do support keeping such laws. However, I do respect the idea that many value freedom high enough that minimum wage doesn't make the cut.

Yet you have not met the burden of proof to establish your assertion. Lacking that, on what rational basis do you advocate minimum policy? How reasonable is it to advocate for the imposition of a policy which, potentially at least, causes harm to millions of people without any definitive argument for how the benefits outweigh the costs?

And lastly, I'd have to say that the complex, hard-to-measure, subtle and situation-dependent factors are, in the end, often far more important to people than economics. The hundreds of thousands who have died in wars for their country haven't done so because it made economic sense. Families often don't make economic sense. Much of what makes people happy or sad doesn't make economic sense.

Your definition of "economics" is too narrow. In the Austrian School, at least, complex, hard-to-measure, subtle and situation-dependent factors are, arguably, at the heart of economic analysis. Economics is all about trade-offs and maximization of value. By definition, these criteria are defined by individual standards of value, because it is ultimately individuals who make trade-offs. So for those who died in wars, it made absolute economic sense. They valued their own contribution in the conflict higher than their alternatives. (Or, in the event of the draft, the costs of dodging the draft were high enough to make participation worth it.) Same with the family structure: the benefits accruing to those who participate in those structures outweigh the opportunity costs of not doing so. What makes people happier than the alternatives is, by definition, economic.

@Half Sigma

This blog is a libertarian echo chamber.

If this is true, by all means stick around and make it not so.

Demand for low-wage labor is INELASTIC.

Your proof? For what "low-wage" labor? All of it? Are the demand curves identical across every industry? What of the opportunity costs for not employing the optimal number of low-cost labor at market price?

Please consider:http://www.nber.org/papers/w10656

Tom West writes:

@Kinabalu

What is a "good" decision?

Obviously one that agrees with me, of course :-).

More to the point, if you are to have a society at all, there has to be a set of decisions made, even if it is only the decision to allow others their freedom to make choices.

Thus a good decision for an anarchist is to allow almost everything, and people need to fend for themselves, while a good decision for someone who is heavily religious might involve prohibiting evil behaviour from anyone including non-believers (no one has the right to be evil).

My point is that each of us should be trying to guide society towards what we believe are the right choices, even if (especially if!) that right choice is to allow other people their freedom in a great many other things.

The assumption is that my particular (or any particular) choice is the default choice is a little too arrogant for my taste, although sometimes people like to use it as a rhetorical device to, well, persuade others.

Anyway, to summarize: Freedom is not a default. It has to be decision made by society.

Tom West writes:

@BCanuck

If this is true, why not raise the minimum wage to a 'living wage' of $15/hr?

Well, I won't go so far as Half-Sigma and say that demand is inelastic, but I will say it's fairly inelastic at the current minimum wage. As that wage goes up, the cost of the laws (jobs lost when some people's marginal product falls below that wage level) goes up. At some point (and since the benefits are fairly fuzzy as well, it's a pretty big gray area), a majority feel that the costs are outweighing the benefits.

Of course, this point varies by economic conditions and other factors.

I will say, however, that Canada manages a $10 minimum wage without any highly obvious signs of extra unemployment among the unskilled, though I suspect much above that rate would cause long term problems.

As for your counter-examples, they're all perfectly valid examples of where my concerns would not be particularly high, although I have to say that the ability to start your own business is going to be hurt if you're not earning even a minimum wage now.

So, as is obvious, it's not that every lower-than-minimum-wage job is going to alter the fabric of society, but its my opinion, based on observation of other cultures with no such laws, a preponderance of *very* low paid permanent jobs does materially alter how citizens think of other members of the populace in a way that isn't to our general benefit.

Tom West writes:

This is absurd. Why is your value of material goods/services anchored to its price? If you think that a bottle of wine tastes better just because it costs more then you are a fool.

No, you are a human being.

See here

From the article:

The researchers discovered that people given two identical red wines to drink said they got much more pleasure from the one they were told had cost more.Brain scans confirmed that their pleasure centres were activated far more by the higher-priced wine

I'm in favor of governing based on how humans actually work, not on how they're *supposed* to work. If we're prone to certain foibles, then we need to take that into account to successfully govern.

Tom West writes:

Answer honestly.

I always try, which makes me a weak persuader :-).

Of course the march between citizens desire and actual law is a pretty rough one, but it's the best we have. If the people, by their vote, express a desire to limit their freedoms, what are we to do, force freedom upon them at gunpoint?

In the long-run, no society or culture can do much better than the aggregate of their populace.

If I'm not misinterpreting you, you are claiming that laws based on fuzzy justifications are dangerous because it's very easy to make bad laws on such a basis.

However, I notice you assume a default of freedom upon which laws are imposed. That's a pretty hefty assumption, and I think it's only possible because there's a tradition and generally held belief in the importance of freedom in the USA.

I think it could just as easily be turned around to be "provide clear proof that this freedom will have beneficial effects that outweigh its possible costs." In fact, that's probably been the default assumption for most of human history.

I'm not sure what you are saying here. If the Constitution 'inspires attitudes toward freedom and tolerance,' why will the "changing will of the people" want to circumvent it?

Well, we sort of hope that they won't. What I am saying is *if* there's sufficient public will to circumvent it, it won't last.

If the will of the people is the supreme determining factor of optimal public policy, how on earth will that policy convince the majority to make "good" choices apart from whatever they themselves arbitrarily determine to be good?

Not of optimal public policy, just of public policy. That's why it's our responsibility to try and push opinion to the optimal path, however we personally define optimal. How do people make "good choices"? By being persuaded by you as to what is good!

How reasonable is it to advocate for the imposition of a policy which, potentially at least, causes harm to millions of people without any definitive argument for how the benefits outweigh the costs?

Well, considering the loss of wages by the millions whose current wages are supported by legislature and not pricing power, why not compare the known losses of wages of multitudes of the poor to the marginal benefits of the extra few who might find employment? Okay, the rhetoric is on high for that last statement, but I'm not certain why the *much* higher burden is on the law makers.

After all, that pretty much precludes any government involvement in any activity with large numbers of unknowns. Pandemic preparedness? WWII? The very foundation of the United States?

Jeff writes:

I agree with Tom's post. I also think that unpaid internships are a form of signaling. People are willing to "pay" the cost, in lost wages and time in order to move up in the world. The signal to future employers is: not only could I get the internship, but I could afford to (referring back to previous comments on the upper vs. lower class arguments).

Regan writes:

@Tom West

No, you are a human being.

That's right--I'm a human being. I'm not a mindless drone who values something simply because someone tells me that it is valuable.

From your article:

He believes, however, that wine experts would not be fooled by superficial qualities such as price. He said: “Most people who drink wine regularly know the real retail price and resent the big mark-up in restaurants. I think it spoils it.”

Ignorant customers can be easily manipulated. Would you willingly pay $100 for a bottle of Ripple?

Toward the end of the article:

Other researchers point out that the subjects in the study were not paying for the wine. The pleasure they derived from the belief that they were drinking expensive wine might have been diluted if they had been picking up the bill.

This is a VERY important point. When you spend your own money on something, you tend to be a lot more cautious of the quality and the price.

Saying that people can't tell the difference between a glass of Cold Duck and a Chateau Trotanoy is one thing. That doesn't make a bottle of Cold Duck worth $300.

Regan writes:

@ Tom West

I think it could just as easily be turned around to be "provide clear proof that this freedom will have beneficial effects that outweigh its possible costs." In fact, that's probably been the default assumption for most of human history.

As Hayek said, "Freedom granted only when it is known beforehand that its effects will be beneficial is not freedom."

Caleb writes:

Of course the march between citizens desire and actual law is a pretty rough one, but it's the best we have. If the people, by their vote, express a desire to limit their freedoms, what are we to do, force freedom upon them at gunpoint?

Of course not. People can contract away their own personal freedom in exchange for other benefits at will. For example: buying into a HOA, agreeing to an insurance contract, or joining Scientology. It's when some people seek to limit other people's freedom, usually to their own benefit, that I become cynical.

In the long-run, no society or culture can do much better than the aggregate of their populace.

This is an interesting statement. I'd like to know more about the thinking behind it. I'm skeptical because, in my view, the vast majority of societal and economic progress stems from the innovative energies of relevantly small percentage of society.

If I'm not misinterpreting you, you are claiming that laws based on fuzzy justifications are dangerous because it's very easy to make bad laws on such a basis.

Not just easy. There is a systematic bias in favor of destructive policies because of a misalignment of incentives.

However, I notice you assume a default of freedom upon which laws are imposed. That's a pretty hefty assumption, and I think it's only possible because there's a tradition and generally held belief in the importance of freedom in the USA.

Perhaps. But there are strong reasons for the assumption. As I mentioned before, individuals are the only meaningful source of value, and are the ultimate agents of economic and social action. There is a presumption that humans are rationally self-interested and seek wealth maximization. Their incentives are by definition aligned well to achieve that goal. All sources of authority, power, law, and social structure are ultimately derived from the unimpeded will of human action. If the human will is the basis of authority for social structure, how is it not a higher authority in and of itself?

I think it could just as easily be turned around to be "provide clear proof that this freedom will have beneficial effects that outweigh its possible costs." In fact, that's probably been the default assumption for most of human history.

To humanity's net detriment. History is littered with the burning aftermath of powerful men who freely used their greatness to impose their will on others. Yet, the exercise of this type of freedom requires coercion and the enslavement of the will of thousands, if not millions of people. As pointed out in Federalist 10, one key to a successful government is the mitigation of factions of these "ambitious men." The founders hit upon the solution of a balance of powers in a triparte government, federalized into a tiered system. This solution worked fairly well. The irony is, any system designed to control corruption and domination is itself highly subject to corruption and domination. Thus, the founders included a second concept, dating back to the Magna Charta: The scope of governing authority, no matter how how centralized under the unified will of duly appointed political agents, is inherently limited in scope to certain predefined parameters. There are certain things which a legitimate government, by definition, cannot do. It does matter how popular that course of action may be. Society has benefited immeasurably from this concept. I will argue, until the day I die, against its abolition.

Well, we sort of hope that they won't. What I am saying is *if* there's sufficient public will to circumvent it, it won't last.

And if there is sufficient public will to circumvent the Constitution, then your only reason for respecting the document disappears. If the only mechanism for imparting authority to legal principles is their influence in the public will, then there is no such thing as legal authority. The only authority is public will.

Not of optimal public policy, just of public policy. That's why it's our responsibility to try and push opinion to the optimal path, however we personally define optimal. How do people make "good choices"? By being persuaded by you as to what is good!

So the policies that exist at any given time are inherently optimal? Or there is no such thing as optimal policy? Those are the only conclusions I can draw from your line of reasoning. The first is circular, the second is self-defeating.

Well, considering the loss of wages by the millions whose current wages are supported by legislature and not pricing power, why not compare the known losses of wages of multitudes of the poor to the marginal benefits of the extra few who might find employment? Okay, the rhetoric is on high for that last statement, but I'm not certain why the *much* higher burden is on the law makers.

Because, as you stated before, real life is complex, chaotic, and hard to either predict or control. Any black-and-white policy or wide-sweeping policy is bound to have unexpected, unintended, unmeasurable, and chaotic results. Declaring success in the face of countervailing evidence is blindness, trying to measure and compensate for every possible factor is folly. What makes it worse for lawmakers is that they rarely, if ever, truly experience the costs of failed policies. They have few reasons to craft limited, circumspect, and carefully tested and controlled policies. They have every incentive to write wide-sweeping laws that make headlines but truly only benefit a select number of factions powerful enough to sponsor a successful re-election campaign.

After all, that pretty much precludes any government involvement in any activity with large numbers of unknowns. Pandemic preparedness? WWII? The very foundation of the United States?

Indeed. Although, technically, the government came into being after the revolution started. As for WW2: Despite the emotionally romantic image most American have of that war, there are legitimate doubts as to whether the benefit of our involvement in that war (or any war, for that matter) actually outweighed the costs. Peruse this or other like minded sites for a summary of the arguments.

In pandemic preparedness (or any other risk mitigation strategy), the optimal level of prevention spending will not result in 100% prevention. This is because the level of spending required to achieve 100% prevention is so high, it actually does more harm than the occurrence of the event. Thus, we must make trade-offs, based on risk preference. Risk preference, however, is determined by access to resources. (If I am a millionaire, I will spend more on designer-fashioned bullet proof clothes than I do now.) The political system gives people access to resources that are not theirs. Thus, the political system mis-allocates resources to risk prevention than optimal for most people's risk preference.

Tom West writes:

@Regan

You might want to read a little about behavioural economics before condemning standard human behaviour so harshly. "Predictably Irrational" in an entertaining introduction.

@Caleb

I won't attack any of your points, but I will explain one aspect that I suspect I wasn't very clear about.

So the policies that exist at any given time are inherently optimal?

No, *each* of us decides what we believe the optimal policy is, and then fights to try and get it enacted. There are nearly 7 billion utility functions out there and thus 7 billion optimal policies. I'm don't believe there's *the* optimal strategy because that implies there's *the* proper utility function. I'm not (quite) that arrogant.

But being a human being, I have a right (indeed, a responsibility) to fight for what *I* think is the optimal policy, even if I acknowledge that you have a different policy that you believe optimal. Fighting for what I believe is right does not mean that what you believe is wrong, it's just not as good for me.

I think of it as choosing among family what colour to paint the house. Choosing not to paint the house is just another choice despite those who would claim it's the only 'fair' strategy. Just as many people are made happy or unhappy.

Alas, my job has gone entirely nuts, so I do not have the time to give your full reply the answer it deserves before this topic fades off into the sunset.

However, I would like to thanks you for taking the time to make measured, well-reasoned answers. It's been a thought-provoking pleasure.

Caleb writes:

I won't attack any of your points...

Well, you're no fun. :P

No, *each* of us decides what we believe the optimal policy is, and then fights to try and get it enacted. There are nearly 7 billion utility functions out there and thus 7 billion optimal policies. I'm don't believe there's *the* optimal strategy because that implies there's *the* proper utility function. I'm not (quite) that arrogant.

But being a human being, I have a right (indeed, a responsibility) to fight for what *I* think is the optimal policy, even if I acknowledge that you have a different policy that you believe optimal. Fighting for what I believe is right does not mean that what you believe is wrong, it's just not as good for me.


Here you run into the quintessential problem of any form of philosophical relativism: the claim that no one truth claim is inherently superior to any other is itself a truth claim that must be inherently superior to all others. In this case, you claim that no one person's utility function is superior to any others. Yet, you describe the process by which people compare, advocate, and adopt policies as one which universally applies to all persons. Indeed, this process you describe assigns both functions of rights and responsibilities, where one has a right to formulate optimal policies and the responsibility to advocate for them. What is that but a part of a utility function?

I think of it as choosing among family what colour to paint the house. Choosing not to paint the house is just another choice despite those who would claim it's the only 'fair' strategy. Just as many people are made happy or unhappy.

You must distinguish between subjective and objective claims. As you pointed out, quite correctly, every person has an ideal set of outcomes which they would like to see come about. Everyone's utility maximization formula is different. This is, I believe, because every person is ultimately self-interested. This does not necessarily mean selfish as defined by our society. Person A could want to rule the world with an iron fist, where everyone else exists to cater to their every whim. Person B could want everyone to live equal, harmonious, and community-centered lives. Both Persons A and B are self-interested, because both desire other people to live in a way that maximizes their own utility. Thus, everyone's personal value maximization scheme is subjective.

This is different from a system which attempts to combine each person's values in a way that maximizes overall utility. If we treat every person's value system as a given, then claims about how to maximize utility overall are subject to outside scrutiny. These systems work better or worse, as measured by the combined sum of every person's revealed utility calculation. Systems that result in more conflict in value calculation lessen utility maximization, while systems that promote efficient exchange of values and extrinsic cooperation maximize it. The result is a comparison of overall systems on an objective basis.

So, for your house example: My response is that one person has a property right in the house. They determine what color the house is painted. But each party also retains a freedom to contract. If enough people put enough resources on the line to make the party who has the property right question his decision, the opportunity costs will make him change his decision. If the other parties do not do so, then they didn't actually value the color change enough to warrant it in the first place. (This is called the Coase Theorem, fyi.)

Alas, my job has gone entirely nuts, so I do not have the time to give your full reply the answer it deserves before this topic fades off into the sunset.

Well, we are on the same page there. I completely sympathize.

However, I would like to thanks you for taking the time to make measured, well-reasoned answers. It's been a thought-provoking pleasure.

Same here. I would also like to thank you for continuing the discussion for so long. It is a rare thing for me to find anyone willing to debate in any sort of length. (IRL or online.) Even rarer is someone who will do so with logic, reason, and civility. Many thanks.

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