In a recent debate for a California Senate seat, Barbara Lee defended her proposal for a $50 per hour federal minimum wage.

Barbara Lee is currently a member of the House of Representatives.  She is perhaps best known as the sole “no” vote on the authorization of the use of force after the September 11, 2001 attacks.  Unfortunately, her anti-war credentials were thrown out the window in the last couple of years by supporting U.S. involvement in the Ukraine/ Russia war.

She has always been bad on economic issues, so that is nothing new.  But maybe there is something to celebrate with her proposing a $50 minimum wage.  Some of the other candidates for the Senate seat are advocating for a more “moderate” $20 to $25 per hour.

Those of us in the Austro/ libertarian camp sometimes like to use a reductio ad absurdum to make our point.  In this case, it means using an absurd example to show the fallacy of a proposal, particularly in economics.  And the most classic example involves the minimum wage.

When some candidate proposes increasing the minimum wage by, say, $2 per hour, a libertarian might retort by saying, “Why not make it $100 per hour?  After all, if a higher minimum wage is beneficial without drawbacks, why not just keep raising it up?”

Well, Barbara Lee has taken the reductio ad absurdum and applied it well on this issue.  The only problem is that she is serious.

This might even be too radical leftist for California voters.

Minimum Wage, Minimum Impact

A principled libertarian supports no minimum wage imposed by the state.  Any interference in wages is an interference in the market.

In recent years, it is interesting that one government intervention has minimized the impacts of another government intervention.  In this case, Federal Reserve inflation has diluted the negative impacts of a minimum wage.

While wages don’t necessarily go up in line with inflation, they do tend to go up in nominal terms in an environment of high price inflation.  If prices are going up 5% per year and wages are going up 3% per year, this is a yearly drop of 2% in real wages.  But the nominal wages are still going up 3%, which dilutes the impact of minimum wage laws.

In other words, there aren’t many jobs now that would pay less than the federal minimum wage in the free market even if there were no minimum wage laws.  So, the negative impacts of minimum wage laws are minimal right now, and it is largely due to the impacts of inflation.

The Problem with a $50 Minimum Wage

Unless we have really high price inflation, a $50 minimum wage would be disastrous.  I don’t think this will happen any time soon, and I don’t think Lee will win the election, but let’s just say that we got a $50 minimum wage in effect now.

It would cause mass unemployment, and it would misallocate resources on an extreme level.

I saw a segment of Gutfeld (the television show on Fox News) where this issue was discussed.  Greg Gutfeld and several of his guests were rightly criticizing and making fun of this $50 minimum wage proposal. Unfortunately, they got it wrong on the impacts.

They said it would cause hyperinflation like Venezuela or Weimar Germany.  But this is not good economics.  A massive increase in the money supply is what ultimately leads to hyperinflation.

With a $50 minimum wage, it’s possible some prices will go up.  A fastfood restaurant, like any business, will try to maximize its revenue when pricing its products.  If they had to pay workers this much money, then prices would have to go up to a certain degree.  The problem is that most people won’t pay $15 for a cheeseburger at McDonald’s.

This leaves a lot of scenarios with companies everywhere.  They can try to automate more, which means less employment.  They can raise prices, but again, customers might not be willing to pay.  This could mean that many businesses would simply go out of business.

We’ve never seen such a massive distortion in wage controls as this would present.  Therefore, it is hard to say exactly how things would take shape, but it seems certain that there would be a lot of “under the table” employment.  We would live in one giant black market of employment.

With a $50 minimum wage, it means a majority of workers would likely be officially terminated.  The majority of people in the United States earn less than that amount in the first place.

The good news is that if anything like this ever happened, it wouldn’t last long.  The consequences would be so drastic and immediate, it would be apparent what caused the consequences.  But it would make for an expensive economics lesson.