Thursday, September 04, 2014

NBTO, nothing but trade-offs

Those who favor higher mandated minimum wages argue that the affected workers "need" and/or "deserve" the extra money. The claims are rhetorical but makes sense when made by those low-wage workers who expect to be covered. But Bastiat's distinction between what is seen and what remains unseen is also relevant. The businesses never started, the jobs never created, the promotions that never come are necessarily unseen -- and harder to measure. We have to rely on the law of demand which does slope downward.  In fact, the great man was more specific.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
Los Angeles Mayor Garcetti wants the L.A. minimum wage to go to $13.75 by 2017. The Great and the Good of L.A. have lined up in support. Here is Eli Broad's op-ed. Broad and others cite a UC Berkeley study which adds that a higher minimum wage is a local economic stimulus; lower income people spend a greater share of their income and multiplier effects kick in.

Free lunch. Those who write and who repeat this stuff are likely to have 401k plans and other links to "corporate America."  Some may even check their accumulated balances on occasion. They have probably noticed that share prices are volatile and responsive to earnings and earnings prospects. In other words it is not simply about digging into other people's deep pockets.

TANSTAAFL is a mouthful.  NBTO, nothing but trade-offs, is much more manageable.