Why Not Libertarianism?

Archives for January 2020

Let’s Make Low Income Workers Unemployed!

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On June 16th, 1933 F.D.R. gave a speech on the just-enacted National Industrial Recovery Act.  Although the law never lived to see its second birthday, being declared unconstitutional in 1935 (Schechter Poultry Corp. v. The United States), it did yield a snappy line that, zombie-like, never dies, and lives on in the memedom of the internet:

It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.

In lieu of silver bullets or a wood stake, let’s try to dispatch the undead with an even more lethal weapon:  brutal, unflinching logic.

Let’s imagine three businesses, all selling roughly the same thing, say baseball bats.

  • Company X, the oldest of the companies, makes their bats in Alabama. They have old equipment, from the 1950s. It is not the fastest in the world, but it gets the job done. The process is completed by 10 low skill workers who do the final sanding, varnishing and inspection. They earn minimum wage.
  • Company Y is a new entrant to the field. They use computer-controlled lathes and all the latest automation. Their automation even does the sanding and varnishing. To supervise this process requires fewer workers. In fact they only need 2 people. But because of the higher skills these two need, the company needs to offer 5x minimum wage in order to attract workers with the right skills.
  • Company Z has a website. They sell baseball bats drop shipped from suppliers in China and Vietnam. Workers there get paid far below U.S. minimum wage. But Company Z doesn’t know, or care. They hire one full-stack web developer to build and maintain the website. He is not cheap, but is worth it.

Let’s further assume that all three produce a product that satisfies some segment of the market, in terms of price/quality trade-offs, and that all three companies operate at a profit.

So, what do you think the impact of forcing Company X to shut down, because it could not afford to pay a “living wage”?

  • Would this increase or decrease unemployment in the United States?
  • Would this result in more workers, or fewer workers needing welfare?
  • Would this result in those already on welfare requiring more or less assistance?
  • Would this result in more workers, or fewer workers displaced by overseas competition?
  • Would this accelerate or slow down the push toward more workers being displaced by technological improvements?
  • Would this increase or decrease competition for baseball bats?
  • Would this change in competition increase or decrease the price of baseball bats?

It seems to me to be plain that forcing Company X to shut down will make things worse, not better, for the company’s owners, their employees, and their customers. It is hard to imagine a worse policy.

 

Some Thoughts on Safety

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It is sometimes said that, without government, we’d all quickly die, due to the lack of mandatory safety standards for things like food, drugs, building construction, etc.  The assumption is we’re all stupid.  We need government to tell us what to do.

The embarrassing question here is to ask how all these irredeemably stupid people could possibly elect a government that was not also irredeemably stupid.  One answer might be that we, as voters, seek out expertise to advise us on whom to vote for.  But if we can seek out expertise in this sphere, then why not also with respect to other things, like good building practices, good doctors, etc.?  The only resolution appears to be that we are wise, community-oriented, and generous when in the voting booth, but are idiots, selfish and greedy when in the market place.  We’re all schizophrenics, it seems.

Another embarrassing question to ask is: How safe must we be?

NORAD has a facility in Colorado, built under Cheyenne Mountain, beneath 2,000 feet of granite, behind 25 ton blast doors. The buildings themselves sit on giant shock-absorbing springs. By all accounts it is a very safe building. It was also very expensive to build. The cost, in today’s inflation-adjusted dollars, would be over $1 billion.  I mention this to remind us that safety is not the only goal of building. It is one of many. Affordability is another. Remember, we have a housing crisis in parts of the country.  Is it possible that homes are too safe, and this is part of why they not affordable to so many?

Government has no magic solution, unknown to the private sector, for avoiding cost/benefit trade-offs. There are no methods, known only to government, for getting safety improvements at zero cost.

Given the inevitability of such trade-offs, the question is then, who decides?

  • Government regulators, in bed with lobbyists from industry, mandating an array of safety (and increasing, environmental) “improvements,” which line the pockets of industry, while raising the cost of construction?
  • Or, the free market, buyers and sellers, eyes wide open, deciding what meets their needs, and ever-reminded by their insurers of the impact to their insurance premiums of various trade-offs they might make?

Of course, just as government has no magical insight into specific cost/benefit trade-offs, neither do libertarians. This is something for individual buyers and sellers, along with their trusted advisers, to hash out in the free market.