Libertarian Thoughts on the Minimum Wage

With Obama proposing an increase in the minimum wage from $7.25 per hour to $9.00 per hour, it has become a topic of discussion.

One thing that I always find interesting is how the minimum wage debates come up.  There is a lot of Republican opposition to Obama’s proposal right now.  But where were they yelling and screaming when Bush was president?  While the last increase to $7.25 occurred in July 2009, it was because of legislation that was passed in 2007, while Bush was president.  Overall, that increase was bigger than what Obama has proposed.

And if Democrats are so much in favor of the minimum wage, why didn’t they pass it when they had the majority in Congress?  They could have passed legislation in 2009 or 2010 making it as high as they wanted.  Yet they waited to bring it up when the Republicans controlled the House.  You have to wonder if they understand that it is bad for employment, but just bring it up when they know it is harder to pass, so they can just blame Republicans for hating the poor.

I don’t want to rehash all of the libertarian arguments against a minimum wage, at least from an economic standpoint.  There has been a lot written by libertarians and conservatives that explain why a minimum wage is harmful, particularly to employment of low-skilled workers.

One important point to remember regarding the economics of the minimum wage is that an increase will not always cause higher unemployment.  If the minimum wage is low enough that most workers can still work and be profitable to the employer, then it may not matter much.  In other words, what would happen if we set a minimum wage of 10 cents per hour?  In some poor third-world country, it might cause an increase in unemployment.  In America, where there is much greater wealth and capital investment, a minimum wage of 10 cents per hour would affect virtually no one.

I would be willing to hire someone for a dollar a day to be my personal assistant.  I’m sure there are many people who would be willing to pay $20 per day for a personal assistant, assuming the person was competent and willing to work.  Since almost nobody would be willing to work for less than 10 cents per hour, the law would have virtually no effect.  I suppose it is possible someone might want to work for 5 cents per hour or for free just to gain experience.  But ironically, while you can’t get a job for $7.00 per hour, you can get one for $0.00 per hour.  It is called an internship and people do it so they can gain experience.

While most of the focus tends to be on the economic effects, I think it is important for libertarians to argue the moral side too.  Like most laws, the minimum wage is interfering in the voluntary process of the marketplace.  It is using the threat of government force to punish someone who offers a job to another person for less than the stated minimum wage.

There might be some people who simply can’t find a job in today’s market.  It could be a teenager or a mother who wants to work part time while the kids are in school.  It could be anyone.  But this person is forbidden to get a job that pays less than $7.25 per hour, unless it is an internship.  You could have someone willing to work for $6 per hour and an employer willing to pay it, yet they are forbidden because of the threat of government violence.

There are two questions you can ask  a supporter of the minimum wage.  The first question is an economic one.  If the minimum wage is good and will help people, why not raise it to $20 per hour or even $100 per hour?

The second question (or questions) is a moral one.  If someone desperately needs a job and finds a potential employer who can only pay $6 per hour, what would you do to them if they agree to these terms?  Would you send in police officers with guns?  Would you be willing to throw the people in jail?  Would you shoot them if they didn’t comply?

It is always important for libertarians to point out the government guns.  After all, virtually all laws are backed by the use of government guns.  At some point, if someone doesn’t comply with the law, then government guns will come out.  We must continually make people aware of this.

Libertarian Thoughts on Sequestration

I have been hesitant to write on this subject.  Whereas everyone was tired hearing about the “fiscal cliff” back in December, now everyone is growing tired hearing about “sequestration”.  It is a confusing topic and it is hard to rely on the mainstream media for any kind of accurate reporting.  The term “sequestration” is probably not even being used accurately in these discussions.

Some people claim that we will have draconian cuts that will dramatically cut services, hurt employment, and hurt the overall economy.  There are even some who claim it will harm our defense, although I think they are really talking about offense.

Others say that these so-called cuts are not really cuts at all.  They are simply reductions in the already projected increases in spending.

This article on Forbes gives a good example of what we are dealing with.  In some ways, both sides are correct, if you cut out the Keynesianism.  If the sequester goes through and the projections hold true (which they rarely come close), then there will be an increase in overall government spending over the next ten years.  However, it isn’t as clear when you factor in inflation, which we will surely have.

There will be actual cuts in certain particular things.  On the other hand, it is also true that the overall federal budget will go up for the year.

I think we are going to see a lot more of this in the future.  It’s just a guess, but for at least the next ten years, we are likely to see these kinds of debates continue.

One of the major factors in all of this is so-called entitlements.  In particular, it will be Medicare and Social Security.  The government no longer runs a major surplus in payroll taxes.  It is actually shifting the other way around, where there is a shortage of payroll taxes in comparison to what is paid out.  It doesn’t matter if the so-called Social Security trust fund cashes in on some of its government debt or whether Congress directly funds the difference.  It is all the same.  It is just a difference in accounting.  Either way, Congress, in order to keep its promises, has to spend increasing amounts of money on these programs.  So you can have the overall federal budget going up while still seeing cuts in many programs.

Of course, even if there were actual cuts of nearly a trillion dollars over the next decade, it is still a drop in the bucket.  The government is currently running deficits over a trillion dollars in one year.  So even if these so-called cuts held, the federal government will still have accumulate another, say, $9 trillion in debt, as opposed to $10 trillion.  It is a small difference that won’t mean much in the long run.  The whole thing is unsustainable and it is just starting to unravel.

Anyone who is a libertarian, or even slightly leaning that way, should be advocating actual cuts that are far more significant.  It would be a good start to cut the federal budget by $1 trillion immediately, and stop running up the national debt.  While this would certainly be painful for many, it would start to flush out all of the malinvestment and maybe we could start on a real road to recovery.

The longer we take in getting significant spending reductions, the more painful this will ultimately be.  There is going to be a giant default down the road in some form or another.  Then these “sequester cuts” will seem like nothing.