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Friday, February 15, 2013

So Why Not Drink 800 HUNDRED Glasses of Water a Day?!

Over at Kids Prefer Cheese, Angus mocks a very silly argument: "Finally, I'd like to ask my conservative friends to stop making the 'if a higher minimum wage is good why stop at $9, why not make it $90 and everyone would be rich' argument.

"It's just silly."

Yup. Here is an equivalent argument: "Oh, you doctors say to drink 8 glasses of water a day: Well, if water is so good for you, why don't we just drink 800 glasses a day?"

Well, because it is quite possible that some amount of x is good, but a much, much larger amount of x is bad, hey? (At a high enough dosage water becomes a poison that will kill you. But no water will kill you just as surely!)

The above, of course, doesn't prove that a slight raise in the minimum wage is good. But it does show how bad that oft-repeated argument against it is.

UPDATE: Don Boudreaux, no minimum wage advocate, agrees that "Why not $90?" is a bad argument.

20 comments:

  1. Gene, you're too harsh. The point of this move is to force the $9 advocate to explain himself. Often the argument FOR the increase is "poor people deserve more money," or something. So why don't they deserve $90? Explain why your economic and/or ethical view supports one but not the other. [Not saying that no explanation is possible, but put some brain cycles into it!]

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    1. But marris, I think any intelligent proponent of a rise can handle this easily. (I'm not saying they are right, just that their response would make sense, e.g., "A slight increase won't increase unemployment because there is some slack in wages, but a huge one would send it through the roof.")

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    2. And, in fact, Marris, this argument is usually delivered with a subtext: "Why not just raise it to $90 (you friggin' moron)?" so no, I'm being very gentle.

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    3. Why is there 'some slack in wages'? Who says? Where is the evidence for that?

      As marris says, the point of this argument is to force the m.w. proponent to explain where the inflection-point occurs, or at least how/why he is so certain we're below it.

      They can't do that, of course.

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    4. "Where is the evidence for that?"

      Well, perhaps the many studies that have a hard time finding any significant employment effect from minimum wage hikes.

      "so certain we're below it."

      Does public policy ever deal with matters of certainty?! I think not. We are always operating off of our best guess. Why should this case be different?

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  2. I made a response there but wasn't sure if you would see it, so I'll just summarize what I said.

    There is no biological "logic" that shows that water is bad for you (and therefore any amount of water). However, there is economic logic that shows that the minimum wage causes unemployment (and therefore any increase in the minimum wage). The minimum wage and the economy are not analogous to water and the body.

    -Bharat

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    1. 'There is no biological "logic" that shows that water is bad for you...'

      Do you understand that biology *means* the logos of life? Of course there is a biological logic that says huge amounts of water are a poison, and just why this is so!

      'However, there is economic logic that shows that the minimum wage causes unemployment (and therefore any increase in the minimum wage).'

      False. Bharat, a simple exercise: draw a supply and demand diagram. Imagine the current price is below the equilibrium price. Now imagine a price floor is set anywhere between the current price and the equilibrium price.

      What happens to the quantity exchanged of that good?

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    2. I agree, I oversimplified in this post. This is what I said over there:

      "This is an interesting point, but I think it'd be up to the advocate of the minimum wage to explain why the economy and the minimum wage are analogous to the human body and water.

      In addition, it's logic that shows why the minimum wage increases or has no effect on unemployment in any situation. Those in opposition to the minimum wage only point out the absurd situation to get others to admit the logic is correct. Therefore, it applies to lesser situations as well. If the logic is valid, the only situation in which the minimum wage would not raise unemployment (and would actually have no effect on it) is if every single individual who was under the new minimum wage happened to have a productivity that was higher than the new minimum wage. It'd be absurd to assume this, with the enormous range and variety of working individuals in our society.

      There is no biological logic that says any amount of water is bad for you. But there certainly is economic logic that shows any increase in the minimum wage has an adverse effect (or at best, no effect) on unemployment. The situations are not analogous."

      The reason what you are pointing out now is not a proper argument to make is because you are using the water body analogy at the same time. Water is good for you in certain quantities. I am saying the minimum wage is never good for unemployment. There exists a scenario where an increase in the minimum wage can cause no increase in unemployment, but even this situation is absurd. Not only do you have to consider the enormous variety in productivity of individuals, but you have to consider the change in productivities of individuals over time.

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  3. I'm afraid I'm going to get sucked into the wrong argument, so the correct version of the analogy should be the minimum wage and unemployment to water and the human body.

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    1. No, the correct analogy is minimum wage and the economy and water and the body. Too high a minimum wage causes unemployment in the economy and too much water causes water poisoning in the body.

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    2. Ok, it doesn't really matter then. The only reason I made the distinction is because originally when I made the comment about a contradiction at Angus's blog, it was in response to him saying that we are unsure of a connection between the minimum wage and unemployment. Someone could say that the benefit of a raise in wages would outweigh the costs of unemployment, but I just wanted to clarify that that wasn't what I was arguing against, although I might disagree with it.

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    3. I responded too quickly and it seems I missed the point you were making. I have to concede this to you. Although I could argue it is improbable, it certainly not impossible that could happen.

      However, as Blackadder points out below, the absurdly high MW example is useful in explaining a specific element of causality that exists on all levels (where if an a MW is set above a worker's productivity, he will not be able to find a job) to people that initially deny the effect. From there, we can argue why or why not one effect would outweigh another. Angus isn't necessarily rejecting the specific cause I am talking about, and so he is not necessarily contradicting himself.

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    4. Bharat, I agree it is not the most probable situation. But congratulations: You are the first person to have listened to someone else's argument on the Internet in 2013!

      :-)

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  4. Yes, this post is right on the mark.

    And the proponent of the minimum wage would add:

    (1) the reason it is $9 and not $90 is that the *minimum* wage is a floor concept, not a ceiling.

    (2) the moral issue: it is the wage below which people start to really struggle to live: they face life below the poverty line or at that line. How can you expect them to live properly, eat properly, raise children, when their income is insufficient to meet basic expenses?

    (3) first economic argument: the law of demand is not universally true, certainly not in the real world. There is no reason why wage rises must necessarily cause unemployment.

    In fact, as Keynes pointed out that the labour market is highly unusual: people's wages are also income, and income is spent on output. Demand drives output. Even if we assume *some* unemployment from wage rises, it is more likely that extra demand will swamp that and make it insignificant (especially with countercyclical Keynesian fiscal policy).

    If you do not believe that, then why in the classic era of Keynesianism when the minimum wage was generous and real wages constantly rising did we have very high employment?

    (4) second economic argument: the reason it is $9 and not $90 is that excessive wage increases can feed into cost push inflation - wages being a big factor in input costs. In the Post Keynesian tradition, there has always been concern that wages should not rise excessively over and above productivity growth, or feed into wage-price spirals. Supply shocks in other commodity factor inputs can lead to wage-price spirals and stagflation (as in the 1970s).
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    And, Gene Callahan, on a completely unrelated point (I hope you'll indulge me), I have just recently read your posts on violence in stateless societies. They're excellent and I have written a post here on the same subject:

    http://socialdemocracy21stcentury.blogspot.com/2013/02/steven-pinker-on-deaths-by-violence-in.html

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  5. I'm not sure there's enough cash for everyone in society to make $90, so a $90 an hour minimum wage would have to result in either high inflation or high unemployment.

    But I don't see what's wrong with asking about a minimum wage of, say, $20 an hour. At the very least, the question would clarify why the advocate of the increase has settled on $9. Was it simply for political reasons ("I'd be fine with $20, but you'd never get it through Congress), or moral ones ("$9 is a moral minimum, but above that I don't care what people are paid"), or economic ones ("evidence suggests that a disemployment effect doesn't kick in until you get above $9").

    How exactly you phrase the question depends on how obtuse the other person is being. If I were talking with Alan Krueger, then I would ask how high he thought you could raise the minimum wage before you had a disemployment effect. I would only ask "why not $20?" if someone denied any connection between minimum wage rates and unemployment altogether (such people do exist, and in fact are pretty numerous).

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    1. I pretty much came full circle on this. I first, if I remember correctly, saw this line of argument from, I think, Hans Sennholz. He said if the minimum wage is so good why not X (He didn't use X, he used an actual number, but I can't remember what amount X was, but it was very high). I thought good point, but then I thought about medicine, about how a little of a certain might cure you but too much might kill you. So, I thought, maybe not such a good point. But now I think that the exhorbitant wage amount in the minimum wage debate is an excellent pedagogical technique because it shows that pretty much everyone, left or right, agrees that the demand for labor is downward sloping. It shows that the advocates of the minimum wage do believe that the raising of the minimum wage will affect employment eventually and that they don't believe that raising it without limit would be harmless.

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  6. I often spend my free time in thought, and this often leads me to propose refutations of my already held positions. One time I actually formed a hormesis argument very similar to yours when dealing with minimum wage arguments, except my example used exercise rather than water intake. However, I soon realized that the hormetic counter-argument wasn't valid, because it wasn't countering the original argument, and the concepts aren't equivalent.

    The recommendation of a doctor to drink 8 glasses of water a day, while ridiculous and arbitrary, is still only a recommendation. There aren't any agents going to come after you because you did not fill your quota.

    Also, the doctor's recommendation is dealing with an issue that is generally beneficial to a system (hydration is necessary for human biological systems to operate), whereas the minimum wage benefits only a part of a system and does not do so generally, we can only say that it is generally beneficial if we ignore the costs and even then it is doubtful that it is generally beneficial.

    In my experience when somebody uses the minimum wage argument that you propose, they aren't just doing it in a vacuum. There are considerations behind this argument. All resources are scarce, and at any given time there is a set amount of resources to be allocated. The problem with a minimum wage, other than the dictatorial nature and arbitrariness of it, is that when implemented there will be a cost (profits, employment, and others), and this cost will be unnecessarily borne by somebody.

    I personally don't think that there is an empirical case to be made either way on what the costs/benefits of a minimum wage will be, because the variables are so numerous so as to be impossible to isolate. However, simply understanding the scarce nature of the economy and how prices are arrived at is enough for me to know that it will ultimately hurt somebody unjustly, and that is enough for me to reject it.

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  8. The Hayekian response is that it's impossible for a few bureaucrats to divine the proper minimum wage. They simply do not have the knowledge to make that determination correctly. The decision on what wage to accept is a deeply personal one, one that should not be intruded upon by outsiders. I don't mind the 9 vs. 90 (or 20) argument, I think it's reasonable to make the MW supporters better explain themselves. But the main argument against MW is the freedom argument; the government has no right interfering with such private agreements.

    Lastly, I'd like to point out that only a few years ago our omnipotent overlords decided that $7.25 was the proper MW. What's changed that makes them want to increase MW by 24%? Surely they wouldn't argue that inflation has been that high. Is there any chance that they'd admit that the basis for the prior increase was flawed, that they lacked the proper knowledge to increase the MW to the right level?

    Why would anyone believe that a bunch of self-absorded, self-interested bureaucrats could possibly pick the right number? We seem to think the market is pretty good at fairly determining all other wages, but only the government can figure out the right MW. Talk about "just silly."

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    1. Russell, this is your first time here, so I posted this, but: this post was discussing a particular minimum wage argument. It was not put up to provide you a platform to say whatever you wanted about the minimum wage, like the whole "freedom" discussion: that is called threadjacking. I won't post comments like this in the future.

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