The Absurdity of the “Living Wage”

Submitted by William Bonner, Chairman – Bonner & Partners

A “Living Wage”

GUALFIN, Argentina – Monday was Labor Day. Most of the world pays homage to its sweating, busing, trucking classes, its poor huddled masses… yearning for a cushier seat and a better deal… on May 1. President Grover Cleveland chose the first Monday in September.

proletariansПролетарии всех стран, соединяйтесь! (workers of all countries, unite!) – the state motto of the thankfully expired Soviet Union. When the proletarians actually did unite there under the wise guidance of the socialist vanguard, it proved to be a death sentence for millions of people who didn’t fit the mold of the “new socialist superman” as determined by the leadership of the party (see: The Human Cost of Socialism in Power at the Daily Bell).

Image credit: ITAR / TASS

On Friday, the Dow fell again – down 272 points. But don’t worry, Tobias Levkovich, Citi’s chief U.S. strategist, told CNBC there was a 96% chance (96%, not 95%!) that the Dow would be higher one year from now. Well, we can’t fight those odds, can we? So b … b … buy!

No, wait. What does he know? Nothing! Just like the rest of us. We’re all guessing. But our guess is that the risk of losing money is 82.7% greater than the risk of not making more. No, make that 82.8% …

DJIA, dailyThe DJIA, daily – Citi’s guesser-in-chief knows exactly what’s going to happen! You can’t lose! – via StockCharts, click to enlarge.

So, let’s go back to Labor Day. Of great interest to people in America, as indicated by the newspaper headlines, is how much other people earn. No-one – or almost no-one – writing in the editorial pages works at McDonald’s or earns the minimum wage. But practically every one of them has an opinion about how much people on low wages should earn.

A “living wage” is what they say they want. Thirty-thousand dollars a year is the amount we’ve seen discussed. Of course, a national living wage is absurd. It costs far more to live in Manhattan than in the Ozarks. And it is far less expensive to live with Mom and Dad than to have a place of one’s own.

Welfare-CheckIt is an emotional topic, but economic laws aren’t magically suspended in the labor market. Institutional unemployment is solely due to government interference in the labor market.

But we are not so much concerned with the practical details as with the theory. We have been told that the people who work at McDonald’s need to earn more. But what about those who write for the editorial pages? Perhaps they should earn less?

If well-educated, well-liquored, and well-paid employees can decide the wages of McDonald’s workers, surely the burger flippers should have the right to fix the wages of the chattering, meddling, and improving classes. Were that to happen, our guess is that the well-paid know-it-alls would take a pay cut. Which seems proper and just.

We walk into McDonald’s, and a minimum-wage worker serves up our order. We get what we pay for and are content with the transaction; we do not begrudge the worker his recompense. We read the paper, on the other hand, and we get bilge and nonsense.

NYTNew York Times newsroom: how would you like a little pay cut?

Photo credit: terraplanner

Self-Satisfied Price-Fixers

Generally, we get decent service and good value for money from the blue-collar worker. What do we get from the white-collared clown? Grief.

Logically, there are only two possibilities. Either wages are determined by a free give-and-take between those who offer their labor and those who want to buy it. Or someone sets wages according to his own standards.

welcomeWhat the minimum wage does to those on the lowest rungs of the ladder – it condemns them to life-long dependence on the government (and hence a reliable vote for more handouts and the parties advocating them).

Cartoon by Lisa Benson

The do-gooders want to use other people’s money to raise the wages of the least well paid, but they make no mention of their own. Nor do they even offer to pay more for their hamburgers so that McDonald’s can pay its workers more.

And what about the poor people who cannot find jobs at all? If the minimum wage were raised, there would surely be more of them – either because McDonald’s could not afford to hire so many people at higher salaries or because it had replaced its minimum-wage employees with machines!

Minimum wage robots$15 an hour for flipping hamburgers? Meet your replacement. It is of course true that the real wages of the poor and the middle class have been stuck in the mud for decades – but this is not the fault of insufficiently coercive labor legislation, it is the fault of the relentless money and credit expansion of the fiat money system.

Photo credit: James Wood

But the price-fixers are so self-satisfied taking what they think is the high road – driving along comfortably in their Subarus and Priuses – that they can’t be bothered to look out the window. If they did, they would see that setting prices always – always! – makes people poorer, not richer.

Nevertheless, we will give them the benefit of the doubt, if there were any, by trying to imagine how the world could be improved by setting wages for other people.

A Jolly Undertaking

So let us begin with a modest nod to fairness: If it makes sense to set the wages of the least among us, why not the most? If people not involved in a labor transaction can know better than the participants what the terms should be, why not set the salaries of editorialists? Publishers? CEOs? Sports celebrities? Movie stars?

There may be cheapness on the low end, but there is extravagant generosity on the other. If one side should be fixed, why not both? You can see what a jolly undertaking this would be for a bureaucrat with a sense of mischief. Instead of allowing the market to set prices, we will set them ourselves.

sucksHandouts now! Work sucks anyway …

Yes, we will not stop at rigging the stock market. We’ll rig the labor market, too – by assigning salaries where we think they should be. So, let’s have a go. We have taken the lead to propose annual salaries for the following trades according to the good we think they do society.

Entrepreneurs (including your editor), poets, inventors, and whacked-out metaphysicians – $100,000

Priests, teachers, mathematicians, scientists, pilots, nurses, and filmmakers – $85,000

Corporate CEOs, prostitutes, writers, bartenders, hedge fund managers – $75,000

Drivers, laborers, clerks, salesmen, farmers, firemen, policemen – $50,000

Psychologists, bone crackers, doctors (including witch doctors), financial planners – $40,000

Government employees (those not included in the groups above), politicians, drug dealers, world improvers, economists, counterfeiters, psychiatrists, sociologists, political scientists, pollsters, and flimflam artists – $30,000

We do not mean this list to be comprehensive or final. It is just a suggestion – a point of departure toward a “fairer” distribution of national income.

WalmartA ceteris paribus calculation for Wal-Mart. The alternative is for Wal-mart to raise its prices accordingly. But what will a higher wage have achieved then?