Labor Pains

Acting on your best behavior
Turn your back on Mother Nature
Everbody wants to rule the world
--Tears for Fears

My sister and I were discussing the validity of minimum wage laws last nite. Reaching decisive conclusions on such an issue using moral or ethical arguments is unlikely, because we know that people vary in their beliefs of what is right and just. For example, some people believe that it is right that individuals should be free to decide how to deploy income earned from their labor, while others believe that it is right that some of an individual's income should be appropriated to satisfy the needs of others.

A decision to implement a minimum wage law is therefore a political one, dependent on a group's ability to get its brand of justice enacted via the political system.

What we can do is evaluate minimum wage rules from an economic standpoint--to see if policies proposed by special interest groups actually lead to the results that their advocates desire. As a body of scientific thought, economics is incapable of rendering ethical or political judgement. But because economics is grounded in laws that govern nature and human behavior, it is quite possible to assess minimum wage rules, or any other social arrangement for that matter, in light of predictable economic and social consequences.

Minimum wage laws are a form of triangular intervention. Triangular intervention occurs when an invader compels a pair of people to make an exchange or prohibits them for doing so. In the case of minimum wage laws, the triangular intervention takes the form of a price control, where the State prohibits the exchange of labor below a certain price. The State enforces this 'price floor' by police action, inflicting penalty on all violators.

In free markets, each person's wages tend to be valued relative to the individual's potential for uniquely adding to an operation's productivity. A minimum wage law means that those whose marginal value is below the legal minimum are prevented from working. The worker is willing to take the job, and the employer wants to hire the worker. But the decree of the State prevents exchange from taking place.

The effect is compulsory unemployment. Compulsory unemployment removes competition for marginal workers and raises the wage rates of the workers remaining.

Although the commonly articulated aim of minimum wage law is to improve the condition of marginal workers, the actual effect is just the opposite. Minimum wage laws render marginal workers unemployable at legal wage rates. The higher the minimum wage rate relative to free market rates, the greater the resulting unemployment.

There are other, longer run issues to consider as well, such as the influence of minimum wage laws on a) an employer's propensity to move elsewhere in search of cheaper labor, b) potential for higher prices of goods and services as consumers absorb higher labor costs, and c) capacity of those workers whose job is protected by minimum wage laws to adapt to environmental change.

However, the direct effect should be clear enough. Put a floor under gas prices at, say, $4/gallon, and it is likely that less gas will be bought. Put a floor under labor at the current legal rate of $7.25/hr, and it is likely that less labor will be bought.

If the purpose behind minimum wage laws is to protect or enrich special interest groups (e.g., labor unions, political parties, etc), then there is a case to be made that the policy will be effective--at least in the short run.

However, if the purpose behind a minimum wage policy is to improve the condition of the marginal worker, then this policy is sorely ineffective, because these workers will be largely unemployed.

Productivity and Minimum Wage

"You know what, Mrs O'Rourke? You don't know me at all. I broke up with my girlfriend this year. I lost my job at All American Burger and two other places. I wake up at 5:30 to go to work at Mi-T-Mart. Then I go to school and go back to Mi-T-Mart. My grades aren't that bad. And you're telling me the fun is over. Man, I'm still waiting for the fun to start!"
--Brad Hamilton (Fast Times at Ridgemont High)

We have frequently observed that minimum wage laws amount to compulsory unemployment. This video employs a productivity argument to demonstrate.

California's recently passed minimum wage law does not require employers to pay at least $10/hr to every worker. It forces employers to pay $10/hr to every worker they choose to keep. Workers who are laid off, or who never get hired in the first place, get $0/hr.

For example, an owner of a hamburger restaurant hires workers perceived as being sufficiently productive. Productivity equals output / input. The primary objective of an operation is to produce output that is worth more than the input. This is not just a self-interested entrepreneurial goal. It is in society's best interests as well, because production that results in the opposite--output that is worth less than input--squanders scarce resources. Society is worse off when scarce resources are inefficiently employed.

Suppose the restaurant owner hires three workers of varying abilities (i.e., the productivity of each worker is different) to flip burgers. Workers A, B, and C produce 110, 120, and 90 burgers per hr respectively. If the owner makes $0.10 on each burger sold before paying workers, then A, B, and C produce $11, $12, and $9 per hour in pre-labor expense value to the owner.

Suppose that the owner pays each worker $8/hr. After paying the workers, the owner makes $3, $4, and $1 per hour per respective employee.

An important point to make is that, despite differences in individual workers productivity, the owner is motivated to retain all workers that generate a profit for the owner. In fact, the owner is motivated to look for additional workers whose productivities can generate even more profit.

Now let's inject California's recently imposed $10/hr minimum wage law. Productivity of A, B, and C doesn't change, meaning that they still produce $11, $12, and $9 per hour of pre-labor expense value. However, the owner is now forced to pay $10/hr to any worker that is employed at the restaurant. If the owner pays the three workers accordingly, then the owner makes $1, $2, and -$1 per hour per respective employee.

C no longer generates a profit for the owner; he generates a loss. The owner would be $1 per hour better off if C was fired.

A and B are better off. They now earn $2/hr more than before. But if C is fired, he is now $8/hr worse off. In relative terms, A and B each gain 20%, but C loses 100%.

And unemployment has just increased by one person.

As the video observes, one way to view the impact of minimum wage laws is that they benefit more productive workers at the expense of less productive workers. But is a minimum wage law even necessary to help more productive workers? After all, owners are motivated to raise the wages of productive workers because if they don't, competitors are motivated to hire those workers away to improve their own situations.

Meanwhile, marginally productive workers such as C who are willing to work for lower than the legal minimum wage are forced to the sidelines.

While they may be well intentioned, minimum wage laws exert the most pain on those people that the laws are purportedly intended to help.

Minimum Wage Laws and Discrimination

When you said goodbye
You were on the run
Tryin' to get away from the things you'd done
Now you're back again
And you're feeling strange
So much has happened, but nothing has changed
--Glenn Frye

In part 2 of a missive on the damage wrought by minimum wage laws (part 1 here), Thomas Sowell observes that minimum wage laws have historically been an instrument of racial discrimination. This is because these laws not only constitute compulsory unemployment, but they also disproportionately force low skilled workers, who often come from minority groups, to the sidelines.

Cases of using minimum wage laws to promote discriminatory agendas have been documented in other countries such as Canada, Australia, and South Africa. The United States has been no exception. For example, supporters of the first federal minimum wage law in the US, the Davis Bacon Act of 1931, included Northerners seeking to keep Southern construction companies that employed non-union black workers from heading north and under bidding unionized firms on building projects.

The irony, of course, is that many proponents of minimum wage laws also claim to oppose racial discrimination.

These people have either not thought things through or they possess ulterior motives.

Those who empathize with minorities and 'underprivileged' classes should be the last to support minimum wage laws because these laws disproportionately force minorities from labor markets and put them out on the street.

Unemployment Among Black Americans

All the way from Washington
Her bread winner begs off the bathroom floor
"We live for just these twenty years
Do we have to die for the fifty more?"
--David Bowie

GMU prof Walter Williams discusses the unemployment situation among black Americans. Black unemployment has been double that of whites for more than 50 years. Among black youths, the unemployment rate is more than 40%. In some cities, unemployment among black working age men exceeds 50%.

It hasn't always been this way.

In the first half of the 20th century, black male labor force participation rate equaled or exceeded that of white males. Black youth unemployment was equal to or was less than white youth unemployment. Average duration of black unemployment was 15% less that white unemployment; today it is 30% longer.

Obviously, as they used to say in problem solving class, something has changed.

As WW observes, blaming racial discrimination for today's high black unemployment rates rings hollow. It is difficult to argue that discrimination is higher now than during the early 20th century period when employment among blacks was much stronger.

Williams himself recounts the multitude of jobs he worked while growing up in North Philadelphia's housing projects. Youngsters who sought after school, weekend, or summer jobs found them.

Few of those jobs are available today. The reason is minimum wage laws. As we have noted many times on these pages, minimum wage laws are a form of compulsory unemployment. Marginal workers willing to take jobs for less than the minimum wage are prohibited from doing so.

Minimum wage laws hit the young and uneducated particularly hard because these people usually seek low paying jobs. Over the past 60 years, the scope of minimum wage laws has expanded to cover nearly all jobs--forcing low skilled black out of work.

Williams also observes the backing of minimum wages laws by unions--which is no surprise because minimum wage laws protect union franchises from being undercut by non-union black workers willing to work jobs for less pay.

Public education constitutes another explanatory factor as blacks populate K-12 public school systems at higher rates than whites, particularly in urban areas. The poor performance of US public schools has also been discussed on these pages. The restraining effect of public schools on young minds therefore hits black youths particularly hard.

The underlying cause of high black unemployment, therefore, can be tied to government intervention in labor and education markets. As long as government hampers these markets, then high black unemployment is likely to persist.

As uncomfortable as it may be for those who have put their faith in the State, the solution is for government to back away from these markets.

Clueless About Offshoring

All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
--Tears for Fears

In previous posts we distinguished between outsourcing and offshoring, and we observed that offshoring in particular is subject to political meddling. Perversely, while politicians jawbone against the practice of offshoring, many of their policies exacerbate, rather than brake, offshoring tendency.

Consider the following three general policy categories:

Tax rates. Econ 101 tells us that when you tax a behavior, you get less of that behavior. Couple that with US corporate tax rates that approach 40% - among the highest in the world - and, voila, policymakers have created compelling incentives for companies to operate outside the US.

Minimum wage laws. Minimum wage laws are a form of price control which imposes a price of hourly labor above the free market rate. Minimum wage laws also can be viewed as a monopolistic grant that protects a subset of workers from would-be workers willing to do the same job for lower pay. Econ 101 tells us that minimum price controls drive buyer (in this case employer) demand from the market. Thus, not only do minimum wage laws result in compulsory unemployment for some workers in domestic markets, but these laws encourage companies to look at foreign markets where labor can be obtained at a cheaper rate.

Regulation. Regulation in its general form involves any government interference in voluntary exchange between individuals. Tax and minimum wage laws discussed above can be viewed as regulation. Here, however, let's limit the notion of regulation to government interference in processes of production. In this context, regulatory burden might include product requirements (e.g., safety, quality), production process requirements (e.g., environmental, mandatory practice, testing, record keeping), and/or licensing requirements (process qualification, individual qualification), among others. Plainly, regulation raises cost of production. It also reduces flexibility to quickly move in directions that better satisfy market needs. Incumbents as well as aspiring entrepreneurs will be prone to look abroad for less regulated markets that reduce cost and increase freedom.

We might include other policies as well. For example, monetary policies that force interest rates lower discourage saving, thereby starving markets of real capital for investment. High levels of government spending and debt reduce forecasting clarity, thereby making it more difficult to plan for the future.

Clearly, policymakers have enacted rules that tilt the playing field away from domestic employment and toward offshoring.

The escalating presidential campaign provides a nice example of the politics of offshoring. Recently President Obama has been chastising challenger Mitt Romney for offshoring jobs during Romney's time at Bain Capital. Because Obama presides over an offshoring friendly political system, this is a classic 'pot calling the kettle black' accusation.

And Romney should have said so. He should have said that he, like hundreds of thousands of managers, was making decisions inside a system distorted by rules that encourage offshoring. This system is currently being overseen by the Obama administration. Romney should have said that before lashing out at others, President Obama should perhaps get his own house in order by dedicating effort toward lower corporate tax rates, abolishing minimum wage laws, and less regulation.

Unfortunately, Romney did not say so. He either a) does not possess capacity for recognizing lay up opportunities when presented with them, or b) he would like to preside over similar offshoring-friendly policies himself. Given Romney's history as a Big Government type, b) seems more likely.

Regarding offshoring, these two candidates may be more alike than different. Both seem either clueless about the president's role as offshorer-in-chief, or they think that voters are clueless.

Minimum Wage Laws and ECON 101

I'm ten years burning down that road
Nowhere to run and nowhere to go
--Bruce Springsteen

In an open letter the Obama administration, George Reisman provides a simple ECON 101-based explanation of the negative effects of minimum wage laws. As we have observed many times on these pages, minimum wage laws are forms of compulsory unemployment.

As such, and as Prof Reisman observes, minimum wage laws are anti-labor and anti-poor. They force marginal workers to the sidelines.

If the goal is to raise standard of living of marginal workers, then the correct policy is to abolish the minimum wage and other policies (e.g., forced union pay scales, licensing) that block the path to economic improvement for poor people.

Money printing must also be stopped, as inflation disproportionately destroys the purchasing power of lower wage earners.

Minimum Wage Joblessness

Standing in line, marking time
Waiting for the welfare dime
'Cause they can't buy a job
--Bruce Hornsby & the Range

The minimum wage thread on these pages is well established. Because they force workers willing to work for less than the legal minimum to the sidelines, minimum wage laws amount to compulsory unemployment.

Although conceptual explanation is straightforward, the question of how much unemployment can be attributed to minimum wage laws in an empirical one. A recent Cato Institute study finds that as minimum wages rose by about 30% during the later part of last decade, these increases reduced the employment-to-population ratio by 0.7 percent. This amount to about 15% of the total decline in employment during the Great Recession period.

That people generally do not grasp the negative relationship between minimum wage laws and jobs demonstrates just how economically illiterate we are.

Minimum Wage Literacy Quiz

Standing in line, marking time
Waiting for the welfare dime
'Cause they can't buy a job
--Bruce Hornsby & the Range

1) Increasing the minimum wage that employers can legally pay employees will drive employers to seek ____ productivity enhancing machines that can be substituted for human workers.
a) more
b) less

2) Increasing the minimum wage that employers can legally pay employees will drive employers to outsource ____ work to providers in other jurisdictions with lower minimum wage requirements.
a) more
b) less

3) Which of following is most likely to be hurt by an increase in the minimum wage that employers can legally pay employees?
a) a professional earning high wages
b) a marginal worker earning low wages
c) both of the above are equally likely to be hurt

Progressivism and Minimum Wage

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

Review of the origins of the minimum wage in the US. The minimum wage grew from the progressive movement over one hundred years ago. Progressivism was grounded in eugenics and social engineering. A primary objective of progressivism was to purify race and social strata in order to attain a more Utopian society.

On the jobs front, the idea was to raise entry barriers on marginal workers by increasing the legal minimum wage that employers could pay to these people. Employer would buy less of this labor as a consequence (ECON 101 as discussed often on these pages), thereby forcing those marginal workers to the sidelines and, hopefully, in the minds of progressives, out of the country.

Today progressives largely refuse to acknowledge the economic reality of less jobs when wages are forced above market. One hundred years ago, it was precisely their understanding of this relationship that motivated progressives to initial their campaign for the minimum wage.

Work Study

Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
--Billy Joel

While the big story this year has been the credit market bust, the focus in 2009 will likely turn towards the most visible economic consequence of the market meltdown: unemployment. Currently, the unemployment rate as measured by the government stands at 6.5%; we haven't seen rates this high since 1994. I wouldn't be at all surprised to see unemployment rates north of 10% next year.

Government will react in predictable ways. Programs will be initiated to 'create' jobs. Unemployment benefits will be increased. Policies will be enacted to 'protect' domestic jobs. Large firms such as General Motors (GM) or Chrysler may be nationalized.

After a huddle with his economic advisers on Friday, president-elect Obama indicated that he intends to pursue programs of this sort.

On top of the trillions of dollars already thrown at our economic problems, spending additional money that we don't have only sinks us deeper into squalor.

If bureaucrats truly wanted to improve the situation, then they would unwind regulations that have raised the unemployment rate. For example, a modest move in the correct direction would be eliminating minimum wage laws. Currently standing at $6.55/hr, minimum wage laws place a floor under labor prices, prohibiting buyers and sellers of labor from freely negotiating a mutually agreeable exchange. ECON 101 tells us that when price increases, demand decreases. Minimum wage laws increase unemployment by reducing demand for high priced labor.

Viewed from the worker's perspective, minimum wage regulations prevent those willing to work for less pay from finding employment.

A longer term consequence of minimum wage rules is that they reduce innovation. Higher cost of labor will deter some entrepreneurs from entering markets, thereby reducing potential for novel improvement and change. Longer run employment suffers as a result.

Other regulations inhibit employment as well, such as payroll taxes, licensing and certification requirements, and collective bargaining laws that reduce enterprise flexibility. Like most government intervention, labor regs tend to benefit special interest groups at the expense of everyone else.

Initiatives that free labor markets move society towards complete employment and better standard of living.

no positions

Price Floors

I'm all out of faith
This is how I feel
I'm cold and I'm ashamed
Bound and broken on the floor
--Natalie Imbruglia

A price floor is a minimum price set by law. Trade at prices below the minimum is prohibited.

An example of a price floor is a minimum wage law. Currently, the US federal minimum wage is $7.25/hr although it is higher in some states.

Buyers of labor at prices below the legal minimum are prohibited from trading with people willing to sell their labor at rates less than $7.25.

For marginal workers, minimum wage laws constitute compulsory unemployment for people willing to work for less than the legal minimum.

For organizations, minimum wage laws drive employers to hire fewer people than they would otherwise. Moreover, employers are likely to search for alternative environments where labor markets are less restrained.

Price floors infringe on freedom of contract. Moreover, price floors set on any commodity result in a reduction in demand for that commodity.

Money, Not Wage, Problem

Hundred dollar car note
Two hundred rent
I get a check on Friday
But it's already spent
--Huey Lewis & the News

As observed here, those concerned about people not being able to maintain a 'living wage' are missing the primary cause of the situation. The cause is not related to lack of a high enough legal minimum wage. In fact, as these pages have noted many times, legal minimum wages surely reduce the number of people able to earn enough money to satisfy basic needs.

Rather, the problem is more directly traceable to inflation. As money supply is expanded, the value of money goes down (ECON 101). As the value of money goes down, the dollars in our pockets buy less. This hurts the least productive members of society (i.e., those with lowest income) hardest.

1964-D 50c Kennedy PCGS MS66

In September of 1965, the federal minimum wage was increased from $1.15 to $1.25/hr--equivalent to 5 1964 Washington quarters or 2.5 1964 Kennedy half dollars. Interestingly enough, the silver content in those coins today is worth about $15--similar to the minimum wage proposed by many advocates.

Solve the money problem, and concerns about the sustainability of a living wage dissipate.

Lengthening Unemployment Lines in Cali

Plenty of room at the Hotel California
Any time of year
You can find it here
--Eagles

California legislators recently voted to raise the state's minimum wage to $10/hr, thereby guaranteeing more compulsory unemployment for people in The Golden State. Professor John Taylor pictures the situation in ECON 101 terms.

In unhampered markets, the prevailing price occurs at the intersection of supply and demand. Minimum wage laws place a floor on price such that markets cannot 'clear.' The result is a gap, or 'surplus,' of labor. Quantity of labor demanded by employers at the minimum wage rate is lower than the free market price. Moreover, there are people willing to contract for less than the legal minimum but they are prohibited from doing so.

It should also be obvious from the above picture that the higher the floor set by the minimum wage, the greater the 'surplus' of labor.

California just lengthened its unemployment lines.

Economic Malpractice

Drawn into the stream
Of undefined illusion
Those diamond dreams
They can't disguise the truth
--Level 42

Prof Walter Williams discusses the epidemic of economic malpractice related to minimum wage laws.

What these pages have frequently viewed as basic ECON 101 principles, Prof Williams calls the first fundamental law of demand. The higher the price, the lower the demand, and vice versa. The higher the price, the less people will buy, and the lower the price, the more people will buy.

This law is grounded in basic axioms of the human condition.

Thus, we know that when the price of jewelry, cars, houses or any other scarce resource capable of satisfying human needs and wants increases, demand will decrease.

Yet, the argument put forth by proponents of minimum wage laws is the opposite. Raising the price of labor will not change employer demand--in fact it might even increase it.

To any reasoning mind, such a proposition should ring hollow. After all, if raising labor prices slightly prompts no reduction in worker demand, then why not raise wages to the moon? Why stop at the current legal minimums if buyers will take the same amount of labor or more at higher prices?

The train of thought is silly, of course. Meanwhile, proponents of minimum wage laws scratch their heads and demonize employers that implement automation and/or move jobs offshore in response to laws that raise minimum wages. These individuals either don't understand or simply ignore the reality that minimum wage laws constitutue compulsory unemployment.

As Prof Williams observes, economists who contend that the first law of demand doesn't apply to wages are engaging in economic malpractice.

Priced Out of Work

I wander in early to work
Spending days licking boots for my perks
--The Who

Ron Paul relates productivity and wages to his childhood experiences at his grandfather's farm. Kids in the family would pick berries at the farm and get paid based on how many they picked. The more productive a kid was, the more the kid earned.

If Your Productivity Is Less Than The Minimum Wage...

Thank Government For Pricing You Out Of A Job pic.twitter.com/cfWv6yrtVB

— Ron Paul (@RonPaul) March 8, 2019

If the grandfather was forced to pay a minimum wage, then the dynamic may have differed. A mandated wage would have pressured the grandfather to pay some kids less than what they were worth in terms of productivity which, in turn, would have hurt the business. Or, the grandfather would likely consider hiring fewer pickers--i.e., those whose productivity was in line with the mandated wage.

Stated differently, a mandatory minimum wage would have priced some kids out of work.

Minimum Wage Laws and Racism

Standing in line marking time
Waiting for the welfare dime
'Cause they can't buy a job
--Bruce Hornsby & The Range

Suppose you represent a group of workers that happen to be predominantly of a particular skin color. Your group earns a comfortable wage.

A new group of people that happens to be of a predominantly different skin color arrives in town. They are looking for work. They are willing to do the same work as people in your group for 30% less pay.

This is competition. People in your group don't want this competition because it would mean lower wages and likely even unemployment for some in your group who get supplanted by workers from the rival group.

People in your group turn to you to protect their wage franchise. You must do something or they will find another representative. So you get together with politicians to devise a law making it illegal to pay workers anything less than the wages earned by people in your group.

This law effectively shuts out competition from the rival group. Employers will have little incentive to hire those people of a different color. After all, workers in your group are known quantites to employers. There is little reason to believe that people in the rival group can perform work any better than people in your group. So why hire them for the same wages paid to people of your group when there will surely be transaction costs associated with the change?

Moreover, many employers may prefer workers from your group because they identify with your group's skin color. In an unhampered market, however, there will be natural pressure on employers to shed their bigotry in pursuit of economic gains to be had by hiring competent workers at lower wage rates. But the newly enacted minimum wage law impairs this process.

Discouraged, the rival group leaves your town and moves on to the next one in search of work.

Your workers thank you for supporting them. The status quo has been preserved.

And you have now followed a long line of people that have employed the strong arm of government to enforce discriminatory, racist agendas.

Work Study

Hey I'm not complaining cause I really need the work
Hitting up my buddy's got me feeling like a jerk
Hundred dollar car note, two hundred rent
I get a check on friday, but it's all ready spent
--Huey Lewis & The News

I continue to be amazed about how little people seem to understand minimum wage laws. As Peter Schiff deftly explains, minimum wage laws lock productive earners out from low paying jobs. Qualified talent willing to work for $6/hr is legally banned from a market where $7.25 is the minimum. Because the price of labor goes up, employer demand for labor goes down.

Perversely, the demographic that purportedly benefits the most, low income wage earners, is damaged the most.

So who benefits? Following the money leads us toward politicians and collective bargaining units that vote for them. Wage minimums raise barriers to entry into job markets where unions have a presence.

But even the union's advantage is temporary, as markets will be made in other parts of the world for buyers and sellers of labor at the unmessed with price.

Switch in Rhyme

The shadow's high on the darker side
Behind those doors, it's a wilder ride
You can make or break, you can win or lose
That's a chance you take, when the heat's on you
And the heat is on
--Glenn Frye

Although the ink was barely dry on the Constitution before politicians began challenging its basis in natural law, the Supreme Court largely upheld, with notable exceptions of course, its libertarian underpinnings for the better part of 150 years.

The Great Depression, however, increased pressure to scrap the idea of limited goverment in favor of central planning and control. FDR's New Deal was a primary source of this pressure. Because of their radical departure from limited government precedents, New Deal laws like the National Industrial Recovery Act soon found their way before the Supreme Court.

Of the justices sitting on the Court at the time, four of them consistently opposed New Deal legislation. Justices Butler, McReynolds, Sutherland, and Van Devanter became known as The Four Horsemen.

The chief swing voter on the Court was Justice Owen Roberts. In early New Deal cases, Roberts typically sided with the Horsemen, thereby striking down much of FDRs program.

This frustrated FDR to no end. In fact, the president went so far as to propose that he should be able to name additional justices to the Court in order to 'lighten the justices' workload.' Although even FDR staffers thought his 'court packing' scheme went too far, pressure was increasing on the Court to bend to the progressive will.

In 1937 the Supreme Court court ruled on West Coast Hotel v Parrish. The case questioned the constitutionality of minimum wage legislation. In previous rulings, the Court had largely invalided such legislation. One year earlier, in fact, Roberts had joined the Four Horsemen in striking down a similar piece of minimum wage legislation in Morehead v Tipaldo.

This time around, however, Roberts switched sides, joining a majority in favor of minimum wage provisions.

Interestingly enough, FDR withdrew his formal court packing scheme at about the same time.

As such, Roberts' reversal has come to be known as "The Switch in Time that Saved Nine" in deference to the notion that external pressure swayed the Court.

After the Parrish, Roberts consistently sided with majorities that upheld New Deal laws and reversed previous rulings made on principles of limited government.

As the Four Horsemen retired, FDR replaced them with his own cronies to obtain a super majority and the Court commenced an activist binge unlike the country had seen before.

So here we are today. Another Justice Roberts does another historic switch as external pressure mounts to do so. Once again, the Court rules to expand government power over the individual.

As we recite the eerie rhyme of history.

Minimum Wage and Robots

So if you see me acting strangely
Don't be surprised
I'm just a man who needed someone
And somewhere to hide
--Styx

Nice demo shown here of how increases in minimum wage motivate more investment in automation and robotics.

The economics and accounting are straightforward. As cost of labor rises, equipment that can replace labor albeit at a high fixed cost becomes more attractive. It takes less time to cover the initial investment.

As minimum wage goes up, demand for labor goes down and demand for labor substitutes (machines) goes up. ECON 101.

Goals vs Incentives

"Not everything is as seems."
--Miyagi (The Karate Kid)

One of several nice points made by Prof Williams in his review of Thomas Sowell's new textbook edition is that the path to understanding economic outcomes involves examining the consequences of decisions in terms of incentives they create rather than of the goals pursued. He observes that doing the opposite--paying attention to goals rather than incentives has resulted in disastrous public policy.

For example, the goal of minimum wage laws is to provide 'living wages.' However, minimum wage laws create incentives for employers to reduce labor and to seek labor substitutes. Unemployment goes up--particularly for the marginal workers that minimum wage laws purport to help. The ECON 101 axiom: put a floor on price (of labor) and demand (for labor) will leave the market.

Another example is rent control laws that are enacted to provide people with 'affordable housing.' They create incentives for landlords to reduce housing stock available to marginal tenants that rent controls purport to help. The ECON 101 axiom: put a ceiling on price (of rent) and supply (of housing) will leave the market.

As these two examples demonstrate, incentives often result in outcomes directly opposite of the goals of particular policies.