A Living Wage

In this episode, Rik from Planet Vulcan examines the concept of a living wage, something that, incredibly, many otherwise intelligent Earthlings seem to believe is a good idea!  Those who advocate living wage legislation are thereby placing themselves squarely in the tradition of the White Man's Burden, the belief that a select few must coercively intervene in order to "help" the world's benighted, which inspired the era of European colonialism, and which is now part and parcel of modern progressivism.  Without any understanding of the evolutionary nature of an economic system, or even basic arithmetic, they propose that government assume the role of deus ex machina, and intervene to make things turn out "right". 

Transcript

A Living Wage

 Good day to you, and welcome to Fascinating!  I am your host Rik, from Planet Vulcan.  My ongoing mission on Planet Earth:  to plant seeds of a way of thinking, a way that is based on an understanding of evolutionary processes, with the ultimate aim of helping to sustain and increase the momentum of Earth’s long arc towards prosperous and happy societies, founded on ideals of liberty and justice.

 As long as the New York Times continues to publish guest essays on its editorial page, I am sure I will never run out of ecnarongi to critique.  

 Ecnarongi, for those of you not familiar with this term, is “ignorance” spelt backwards, and refers to “knowing” things that are not so.

 A recent example of such an essay was titled “The Impossible Math of Philanthropy”.

 I began reading this piece with high hopes, that perhaps the guest essayists were going to point out that the salutary effects of philanthropy, which certainly has its place, pale in comparison with the salutary effects of the evolution of market economies and free enterprise, coupled with scientific discovery and technological innovation.

 Alas - I was quickly disappointed, but not surprised.  After a few paragraphs it became evident that this essay was just another tiresome deus ex machina proposal by members of your White Man’s Burden community, surveying everyone from their lofty perch.

 The essay was written by two professors from the Stern School of Business at New York University, and their thesis is that charities are having their resources overwhelmed by having to deal with the massive harm routinely created by businesses!

 What harm? we might ask.

 The crux of their answer is that many businesses are not paying their employees a “living wage”, and that charities and other societal institutions thus have no choice but to step in and somehow try to make up the difference between what employers are paying their employees and what they ought to be paying.

 The only example of intelligent design thinking on your planet I have ever encountered that is worse than this one is the idea that an entire national economy can be designed, implemented and then controlled by persons in positions of authority.

 In both cases, it is clear that the would-be designers have no understanding of the evolutionary nature of an economic system, nor of the unanticipated complexity they invariably encounter when they try to “help”.

 “Living wage” is another of those terms that sound nice, but for which the meaning is vague, because there is a vast range of what such a thing might be, so any proposed definition of the concept is necessarily arbitrary.

 Certainly a living wage would at least have to cover food, clothing and shelter; but those who advocate action to “implement” a living wage want to include much more than that.  How much more?  There is room for so many different opinions that finding a generally acceptable definition is futile.

 Advocates gloss over this conceptual difficulty by simply defining a living wage arbitrarily.  Our two brilliant NYU professors define it as a wage sufficient to cover what amounts to a middle-class lifestyle for a family of three, and they tell us they have determined it is currently about $75,000 per year in the New York metropolitan area, and they adjust it for relative cost of living for other parts of the US.

 A possible alternative approach to defining the concept of “living wage” might be to consider what people in the US, or around the world, are actually living on.

 Statistics show that worldwide, the median annual individual income is presently about $10,000.  If you are earning $75,000 per year, you are in the top 2% of wage earners worldwide.  And you would be in the top 40% even in the US.

 Another way to look at this is that worldwide, 98% of all people are not making a “living wage”, and in the US the figure is 60%.

 And the argument is that it shouldn’t even be possible that someone can live at all on the median individual income worldwide of $10,000.  And yet they are living, and they are living better than ever and increasingly well as their economies evolve and develop.

 Let’s do some math.

 If every worker worldwide were to be paid the equivalent of this “living wage”, it would add up to about $270 trillion, more than double the amount of global Gross Domestic Product, which is currently running at about $105 trillion.

 Even if an amount equal to worldwide GDP were to go 100% to wages (which is of course ridiculous, because other input factors have to be paid for), the median worker’s wage would increase $10,000 to roughly $20,000, still far below the threshold for their “living wage”.

 So any time spent thinking about what these authors profess to want for the just plain folk of the world reveals that their desired results are nowhere near the realm of possibility, not even if Earthlings voted for it unanimously.

 And it’s not going to be attained by leveling people’s incomes either, even if it were possible to carry out such a massive intervention. If the total wage compensation of the world were distributed evenly, the average wage would only be about $16,000.

 The authors do employ an approach that refers to externalities, which is to their credit – at least they understand this much – but this is about the only thing that we can congratulate them for doing right.  

 We have spoken before on this podcast about how important it is for social costs to be internalized, at least when the benefit of internalization is greater than the cost of internalization.  We have the eminent American economists Ronald Coase and Harold Demsetz to thank for these insights.

 But to include among externalities the difference between what an employee earns and what would constitute their definition of a living wage is utterly nonsensical, no matter how many “scientific” calculations they make, such as their estimate that employers in the U.S. collectively need to increase the wages they pay by $1.9 trillion in order to mitigate the harm they are causing by operating a productive enterprise and employing workers.

 And throughout their article, there is not even a hint of a nod in the direction of the inescapable fact that the value a worker contributes places an upper limit on what an employer can pay the employee sustainably.

 If these self-righteous inhabitants of ivory towers sincerely cared about helping workers and making the world a better place, they would focus their efforts on helping low earners learn to create more value, instead of unleashing preposterous attacks on the businesses they work for.

 It is difficult for someone with a functioning brain to understand the motives of people like these two obscure professors, when it is such a simple thing to dismantle their arguments. Perhaps this is their way of trying to crawl out of obscurity.

 I suppose, like professors everywhere, they are motivated by a desire to be noticed and to be held in high esteem for their work.  And although I am sure that they, as business school professors, do indeed understand that if you were to take them literally you would have to conclude that they are talking nonsense.

 So if we wish to give them maximum credit for their efforts, the only way I see to do this is to infer that they are motivated to add weight to the arguments of those in the currently-fashionable movement which advocates for income and wealth “redistribution”.  And they understand that there are a sizeable number of Earthlings out there who will applaud their conclusions uncritically.

 It seems pretty clear that these men are devotees of the quasi-religious movement I have begun calling Marxianity.  And once again we are witnessing a demonstration of piety as the last refuge of the despoiler.

 Let’s get real.  These people are proposing taking stuff that was produced by others, reaping where they have not sown, something which has previously and universally been considered a violation of any moral code, and claiming that their motivation is founded in morality!  And does it really matter that they propose to give benefits to others and not themselves, when the stuff is not theirs to give?

 Their argument is couched in the dogmas of Marxianity, in which the very existence of profits is taken as conclusive proof of the exploitation of workers.  

 This dogma is in turn based on the fundamental tenet of Marxianity, the long-discredited labor theory of value, and of course on fallacious zero-sum thinking.  They argue that all we collectively need to do is divert the supposedly ill-gotten gains of employers into employees’ paychecks, steal from the stealers, after which all will be well.

 Fascinating!

 The idea of a living wage, along with the idea of other “just” prices, has a long history.

 In ancient Greece, Aristotle argued that a just society must somehow ensure that workers are paid enough to sustain themselves and their families.

 Thomas Aquinas opined that employers were ethically obligated to pay workers enough so that they could live in “dignity”.

 In 1891, Pope Leo XIII released an encyclical which called for “just” wages.

 The Pope, along with other medievalist thinkers then and now, wholeheartedly accepted the ecnarongi which says that the industrial revolution had led to the exploitation of workers, with long hours, low wages and poor working conditions. 

 A longer perspective makes things look quite different.  

 After 200 years of industrialization, a view of things if you remove the shit-colored glasses favored by Marxians, is that workers have never been better off than they now are, and that the grinding extreme poverty that had always heretofore characterized the lot of the vast majority of mankind has been virtually eliminated all over your planet; and that Earthlings have the industrial revolution to thank for the abundance that this revolution has made possible. 

 People with good intentions, but little insight, have “helped” workers with things like minimum wage laws, the first of which was in 1909 in the United Kingdom, revealing the dismal misunderstanding of how an economy functions that persists today in calls for a living wage.  

 They just don’t get it that prices in general, including the price of labor, reflect vital information that enables value-maximizing decisions, and exhibit no qualms whatever about destroying this information.

 There seems to be almost no awareness amongst the intelligent designer set of the importance of the information that is revealed in prices that are set by supply and demand, and that they are consequently behaving like bulls in a china shop while saying that they are just trying to ensure that everything works out all right for those they imagine to be victims.

 The United States established the first federal minimum wage, effective in 1938, as part of Franklin Roosevelt’s New Deal.

 Now, even those Earthling politicians who understand pretty much nothing else about economic science at least understand that a minimum wage can price low-skilled workers out of the market, and usually leads to greater unemployment.  The minimum wage has accordingly been kept low enough so that its damage has until recently been minimized, even while maintaining some sort of official minimum wage as theater.

 And the damage a minimum wage can do is not limited to the near-term effect on employment. We should note further that a minimum wage has the effect of cutting off the lowest rungs of the ladder of advancement for those just entering the workforce.  Witness for example the statistics on rates of teen unemployment.

 Young people just entering the workforce with spotty education and no work experience are facing a Catch-22, where employers will not hire you if you have no experience, and you cannot get your initial experience because the value of your services is less than what an employer is legally required to pay you.

 Dimbulb Earthlings who still don’t understand the theatrical nature of the minimum wage are now arguing that minimum wages have not kept up with inflation, and they never were high enough anyway, so that therefore there must be not just a minimum wage, but a living wage.

 What could go wrong?

 The ecnarongi revealed by the advocacy of a minimum wage, and even moreso by the advocacy of a living wage, is widespread and entrenched throughout Earthling societies, and seems to be based on little more than a desire to present oneself as compassionate, even if the actual results of the policy, as opposed to the intentions, are never pretty.

 The consensus opinion among your public intellectuals, government officials and educators is that there is no debate about whether enforcing a living wage is a good idea in principle.  The only real debate is how best to implement it, they say.

 Those who point out that this sort of intervention amounts to throwing monkey wrenches into the works are routinely marginalized by the intellectuals, officials and educators.  They tell you that any ideas which question the value of the interventions are not part of the “mainstream”.  

 As if the label “mainstream” magically confers legitimacy on dumb ideas, and once this label attaches to your ideas, there is no need to counter, or even acknowledge, any ideas outside the mainstream.

 Yet another example of what Friedrich Hayek meant when he said, “Our curious task as economists is to explain to people how little they understand about that which they propose to design”.

 Vulcans are continually astonished, although I suppose we ought to be getting used to it by now, when we are confronted with evidence of how many Earthlings still believe, without apparent reservation, that it is possible to repeal the law of supply and demand, which is of course a natural law.  In truth you can no more repeal the law of supply and demand than you can repeal the law of gravity.

 You can legislate wages and prices, and you can try to enforce the legislation, but the conditions of supply and demand remain beyond anyone’s ability to control them.  Witness for example the black markets, gray markets and smuggling that always seem to accompany attempts to control prices.

 How many times do Earthlings need to experience a thing before they learn a lesson?

 I invite you to have a listen to the next Fascinating! podcast and a look at the next video on our YouTube channel.  You can find access to all podcasts and videos on our web page, fascinatingpodcast.com.

 Please recommend Fascinating! to your friends if you find the lessons from nature in these essays personally valuable.

 Theme music:  Helium, with thanks to TrackTribe.

 Live long and prosper.

 Practice the art of winning without defeating anyone.

 Savor your experiences.

 Treasure your memories.

 Anticipate a happy and rewarding future.

 And respect nature’s wisdom.