I’m not yet ready to commit myself to any serious study of macroeconomics: it’s simply too large of a field, with too many interconnecting pieces. I don’t know that my interests will actually help me go very deep here. But I think thought games can do a great deal to help anybody think clearly about the complexities of an issue. Too often, I’m looking for a book to help tell me what the truth is, but this is somewhat problematic, since everyone has a bias, and although reading can be a good thing, it is meant to help you think, not to replace your thinking.
I only have two thought games right now, but I wanted to write them out.
The first concerns minimum wage:
Assume the existence of a small town in the midwest, Riskyville. Imagine there is an antique store in this town, run by a couple who live there. Because the population is small and the interest in buying antiques is “okay”, let’s say they are earning just enough from their endeavor to pay their bills and hire one worker to work the cash register for minimum wage (let’s just say that’s $8.50). The couple doesn’t earn much from their endeavor, largely because they operate in a small town, but then their cost of living is fairly small, too, since their house was a lot cheaper in this town than it would be in the city.
Now let’s say there’s a hardware store in town, too, which earns much more. They also hire a worker for minimum wage to work the cash register. Let’s also say their business really grows and they become rather wealthy, relatively speaking.
See…there’s a difficulty here. Both the worker at the antique store and the worker at the hardware store perform the same tasks: they work the cash register, and they earn minimum wage for this. This is the value of their labor, and nobody else in town wants to pay more than minimum wage for the same skill set. But then…you have the successful business that hasn’t bothered to increase the pay of their worker.
Considering that the market has settled upon a particular wage for the skill set in question, that’s the going rate for that skill. So…it’s really difficult, in my opinion, to formulate why the successful business should pay their worker more. Seriously. What philosophical foundation would there be for that? I won’t say it doesn’t exist, as I haven’t dove into the literature, but it’s difficult for me to make one, although I fully understand the oddness of a business being greatly successful but continuing to pay their one worker minimum wage. [although, strictly speaking, the worker at the hardware store is probably working a lot harder, but let’s assume for now that this is not the case]
Now, let’s say that the state has decided to raise its minimum wage. The couple who owns the antique store can no longer afford their worker, and the job is now much harder for them in order to stay afloat. The hardware store has to pay it’s worker more, but they easily afford it. In such a case, the raising of the minimum wage discriminates against very small business. In fact, you might able to argue that raising the minimum wage discriminates against rural areas that don’t have the population or the demand to pay higher prices, which they don’t need to do since the cost of living in those areas is typically lower, too. People in the cities are at a great advantage when it comes to paying higher wages: they are surrounded by other people, and if the demand doesn’t exist THERE, then they go out of business and everybody understands.
Now, one way to argue, which I actually find really interesting, is that a company that can’t afford to pay their worker(s) a living wage (in our case, meaning a higher minimum wage) shouldn’t exist, it should be selected out by the market. That’s actually really interesting. I think what it means is that if you raise the minimum wage too high, loads of businesses that are breaking even have to close down, and this puts selective pressure on corporate jobs (I’m not joking! Think about it! Many people own break-even businesses because they so hate the idea of working for other people. It’s real!), for which the demand must necessarily increase. At the same time, if you can only stay afloat by paying poverty wages, your business model isn’t very viable, is it? So in that case, raising the minimum wage actual weeds weak businesses out.
What’s the answer? I don’t know. It would be interesting if working for a company gave you access to a portion of its revenues, but that’s not how wage labor works. You are selling your skills for money. And who knows? Maybe Marx actually shed some light on this. But presently, I don’t know what a good solution is, except that the issue is complicated. Minimum wage is only particularly relevant compared to the cost of living, which varies from place to place (especially rural vs. urban), and, for whatever reason, it is really bad optics when a company is successful but doesn’t pay it’s employees above minimum wage. But I do think there is also some truth to saying that companies that can’t afford to pay a minimum wage aren’t usually adding a tremendous amount of value to the world, either, and I suspect a case could be made for letting the market select those out, you just have to be careful where you set that bar.
Also worth noting is that there is a disconnect between the skill a worker performs and the constancy – the demand – placed upon the exercise of that skill. This is also interesting. When most companies expand, they often hire more workers, but there are other times, such as our example, where it seems necessarily to be true that some workers must exercise their skill more, but are not compensated based on workload, which is difficult to measure. Perhaps it’s the difficulty of measuring this workload that leads to such a disconnect between wages and work, and I think it’s a subject work inquiring into.
Let’s look at a different example, related to why government intervention is valuable:
Standing in ironic disharmony to Riskyville, let’s assume a city called Safeville, in which a factory operates. Regulations do not govern this factory, and so, due to mis-engineering of processes and poor safety standards and cutting corners, several people die in this factory over time. The executives care more about production than they do safety, so the people in operations are the ones risking their lives.
This…has happened all through history. In fact, I’ve been watching a channel that covers quite a number of these deaths. It’s true that I tend toward conservative economic policies, but this is where I would describe myself as something of a “medium government” guy. This is a situation in which you cannot just tell people to vote with their dollars. Why do people still buy Apple products even after the conditions of its contractor factories have been exposed over the past decade? (zing! Sorry, just had to jab at Apple, it’s too easy). Nobody would do it in large enough numbers to make a difference, and even if they did, people would have had to die in the process before the company had a “profile” of worker safety for people to evaluate. People abstract away the supply chain. That’s just human psychology, you can spray your hair blue and scream in the streets as much as you want, but that’s just how it works. So there’s only one solution: regulation. Regulation that has steep punishments for failure to meet safety standards. To stop people from dying in Safeville’s factories. And that’s why laissez-faire can go fuck itself.
You might say, “Well, too much regulation means fewer businesses can afford to operate!” Which I get. You don’t want extraneous regulation. At the same time, should people be dying in factories because some businesses can’t afford to pay for safety equipment, layouts, and training? No. If you can’t operate safely, you shouldn’t be operating.
It’s a different subject, but oddly very similar. Different enough, though, that the conclusions aren’t parallel, I don’t yet believe.
Anyway, that’s all I’ve got for today. It’s only two issues and there’s no way in hell I can think up every significant facet, but I think they are valuable exercises.