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June 6, 2003
Homeless advertising
A couple of years ago I had a silly idea for a marketing ploy: advertising space was going for a premium (ahh, those were the days) and there was one "space" that was being totally underutilized: the signs held by the homeless. Those things are probably read as frequently as many billboards and that marketing space is worth something. And hey, the people holding them usually are looking for money--so there was an opportunity for someone to bridge the gap, and possibly help people who are looking for money "earn" it rather than beg for it. The idea is simple: pay people to hold a sign advertising something and pay them what they would otherwise get begging.
Now this wasn't a serious idea and is probably in bad taste and raises some difficult questions (such as what are these people using the money for--answer for many is self-destructive drug habits), so I was fascinated to see that a pizza joint in Portland has tried this out. Already there is criticism--some along the lines that I mentioned above. But one of the weakest arguments against: exploitation--and the pizza shop owner is, apparently, already being investigated.
This is probably as clear cut a case as any: is no job really better than an "exploitative" job? Is there such thing in a free country as "exploiting" someone for not paying him a "fair" wage? After all, people are free to say no. Many believe so and favor a minimum wage, among other "protections." But list almost always in these discussions is a balanced discussion of the tradeoffs. If the pizza owner is forced to pay a "fair" wage, he will undoubtedly choose to forget the whole venture--and homeless people who apparently of their own free will have chosen this activity will be denied a meager opportunity. Is that "fair"? The trade off for wage laws is that there are necessarily fewer jobs--and so it is inevitable that those at the lowest end of the economic spectrum are the ones that suffer--rather than benefit. Look at the unemployment that wage laws have wreaked in several "old" European countries--among many others--for examples.
Exploitation is in the eye of the beholder--if people want lower paying jobs rather than no job, shouldn't that be their choice? Higher income workers have that ability--and can move down on the income level when times are tough and jobs are scarcer--why shouldn't lower income workers have that flexibility?
At the core this debate usually comes down to the issue of paternalism: can people make their own decisions as to what's in their best interest or does the state have to "protect" them (from themselves--that is their own inclination to choose something, such as working for a low wage, that the state doesn't believe they should choose.) There are many paternalists out there--and on some issues I can have paternalist tendancies--and I've found that it is very hard to argue with people who simply believe that the state knows better than the people it represents--it's almost an article of faith. But at the very least it is irresponsible to ignore the trade offs we make--if not explicitly then implicitly--when exersizing paternalism. In the instance of wage laws the paternalist is not just refusing to allow people to work under a certain wage floor but he is reducing the number of jobs available. So be a paternalist if you must but be clear about what you are forcing on people: you may be raising the incomes of some, but you are costing others their jobs. You aren't just choosing who to help, you are choosing at the same time to hurt others. Who are you to make that choice?
Actually, most (non-ideological) economists aggree that a minimum wage does not price a marginal class out of work--labor costs being elastic, but essential. The additional monies spent simply do not appear elsewhere--in profits, in capital equipment, etc. You can make an argument that a minimum wage makes business less efficient, and even deplore that fact: but modern economic research supports says that it does not price a marginal class, at the very end of the spectrum of employability, out of work.
Now who's being "ideological"? I just gave you an example and there is ample evidence that the unemployment problems of Europe are directly related to their onerous wage controls and work day regulations. Care to share a study that says otherwise? Who is your non-idological economist--Paul Krugman? Really, you are the most ideologically driven person I know. Your blind faith that virtually any government regulation of business is a good thing, in the face of mountains of evidence to the contrary, is truly remarkable. I have said time again that there are many things the government should do and can do more effectively than the private sector. There are clearly instances in which commercial activity ought to be regulated. However, we can't be blind to evidence of the abject failure of countless forms of regulatory activity--especially when it comes to wage and price controls. It doesn't take faith to see the evidence of the utility of economic freedom, but it takes a lot of faith to consistently insist that, despite the evidence, government can fine tune econmic behvior for the best.
I think it's gernally admitted that the TOTAL sum of labor regulations that European governments deem necessary is one essential cause of the higher unemployment common in European countries (including madated Unions, rigorous rules about terminations, expensive work enviroments regulations, etc.). It is not, however, the only reason why Europe has higher unemployment: the existence of a dependable social welfare system also plays a part.
In any case, the existence of a minimum wage cannot be held directly responsible for unemployment in Europe.
Every economic study I have read with the exception of openly ideological, and usually non-technical studies (from such institutions like Chicago University) reluctantly or otherwise accepts that minimum wages are not a major economic drag on productivity.
There is a good empirical proof of this: the UK, which has a more flexible labor market than Europe, and hence lower unemployment, nevertheless does have (compared to its per capita income) a more substantial miniumum wage.
I see. For those of you watching from home, let me explain what Jason means by the “openly ideological” economists from Chicago University. You see there is this school of economic thought that started, well, pretty much at the beginning of economic thought, by folks like Adam Smith, John Stuart Mill, and David Ricardo—let’s call it “classical economics.” This group of ideologues, as Jason might call them, had a fair amount of influence on many that followed, including another group of ideologues known as the founding fathers (or “framers” as they are now called) of the United States of America. They also influenced a group of Austrians, such as Ludwig von Mises, who influenced Friedrich Hayek, who in turn influenced a group of Americans, such as Milton Friedman and George Stigler, who happened to teach at the University of Chicago—many of whom (10 actually—more so than any other school) happened to win Nobel prizes for economics. These folks then influenced people like Margaret Thatcher and Ronald Reagan who put some of their ideas to practice—to great success, many would argue.
But apparently none of this really matters because these people are ideologues—and so that saves us the time of responding to their ideas or acknowledging their data. Fortunately, a fellow named John Maynard Keynes emerged in the early 20th century to show us the light. He rejected the ideologically motivated, and hence utterly meaningless it would seem, school of thought, of Adam Smith and James Madison, and showed us that strong federal governments could solve all of our problems by spending money (and cutting taxes!) and stimulating demand. Keynes helped bring us the welfare state. But those ideological, Nobel prize winning economists from the University of Chicago have been chipping away at Keynes legacy since the 1960s and unfortunately haven’t been totally ignored by policy makers, as any “ideologue” should.
Since the classical and neo-classical economists tend to favor nasty things like free markets and individualism, they have been embraced by ideologues on the right side of the political spectrum, while the Keynesians, totally free of any whiff of ideology and committed to the purely empirical notion the state can cure all the ills of society and global economies, continue to carry weight on the left. Fortunately Jason has given us a guide—we don’t need to acknowledge the arguments, theories, or data of the right because they are ideologically motivated. Jason has saved us the time and peered into the hearts and minds of the most powerful and prominent figures of modern economics (living and dead) and determined for the rest of us that their ideas can be dismissed on the whole because they are not real thinkers—they have hidden agenda.
Jason, you amaze.
Chris, you amuse. No, seriously, I was smiling throughout your response. It is always a pleasure to debate with you. As for your substance--that I am a Keynesian, and believe that the modern trend in economics is substantially Keynesian--I plead guilty. But then, as that noted Republican Dick Nixon once said, "We are all Keynesians now."
A slighly old but interesting piece by Jude Wanniski making the case that we, in fact, are all supply-siders now: http://www.polyconomics.com/searchbase/7-28-97.html