The Mechanics of the Minimum Wage [Video]

by Alex Merced

Often times when you try to create protections or regulations of the market, the result is to create an undue burden on those least able to bear them. The result is those at the very bottom can seem stuck there, and those who are somewhat to very well off find themselves relieved of a lot of competition, allowing them to take a bigger participation in the ever changing economic pie. The minimum wage is one of the policies that have these results. Although due to the amount of labor that may already be working at bottom of the income ladder can be limited, the result of this policy for good or worse can be hard to truly measured or seen. Yet, understanding the impacts of market intervention on economic disparities and in turn economic tolerance needs to be more part of the economic discussion.

On Equality

by Brian William Waddell

To many libertarian thinkers, speakers, and writers, equality is somewhat of a dirty word. Many don’t like to discuss it because the very word brings forth an image of socialism and equality of outcomes. But that isn’t how equality should be looked at. Equality is important in a libertarian society. Everyone must be treated equally from the start. However, it is not equality of outcomes, but equality of opportunity that is important for society to function in a truly fair and equal manner.

A Metaphor

Imagine the home field of your favorite baseball team. See the grass and dirt, feel the cool breeze, hear the roar of the crowd. Now, think about how the field looks with your team in the field. Finally, think about how the field changes if the other team is in the field. Do artificial barriers suddenly rise up to keep fielders from throwing to first? Does the fence move in so that the home team has a much easier time hitting a home run? Of course not. That wouldn’t be fair. The scoreboard on that field would hopefully show more runs for your team than the other. It’s okay to hope for this because the field itself did not determine the outcome of the game, but the skill and athleticism of the players did.

Now imagine what a field would have to look like to make sure that all contests ended in a tie. The easiest way to do this would be to stop both teams from ever being able to score. Maybe a wall that pops up to stop you as you round third? Even ignoring the uselessness of a contest where neither team has a chance of winning, this would make for a very boring game. Maybe all the games would end in a 3-3 tie instead. This would be more interesting at least. If a team with an excellent pitcher (which wouldn’t be necessary given everyone will score the same amount of runs regardless) faced a team with a poor one the necessity of the field to control the run production could become very entertaining in and of itself.

As the third inning ends, it’s two to nothing in favor of the home team. When they return to bat in the bottom of the fourth, the leadoff batter hits a homerun. The next hitter gets up and takes a mighty swing. The ball flies out toward the wall in left-center. Just as the ball is about to go out of the park, the wall extends itself up four feet to keep the ball in the playing field and the hitter settles for a useless double. The next batter hits a shot in the gap and the runner comes from second, rounds third, and is immediately stopped in his tracks when a snare catches him by the ankle and his face meets the field. He is tagged out as he tries to loosen himself from the snare. The player who hit the ball stops at first because he doesn’t see the point of running to second since he has no chance of scoring.

Now, the field has to find a way to help the trailing team score three runs. After keeping the home team from scoring through the eighth inning the field only has the top of the ninth to get the visitors three runs. The pitcher for the home team strikes out the first two batters. Then, with every pitch, for six straight batters a wall pops up in front of home plate to keep the ball from reaching the strike zone. Three runners score due to the walks issued, and the pitcher strikes out the final batter.

In this scenario, the field becomes the featured player instead of the actual players or the teams. The fields with more inventive traps and ways to make teams score would have the highest ticket sales. Players would just be placeholders rather than valuable assets.

If you haven’t picked up on the metaphor you either know nothing about baseball, or are not a libertarian. So, I’ll spell it out just in case. Government, or the state, is the field. The players are the people. The scoreboard is simply the reflection of what can be accomplished by the players. With the state (field) predetermining outcomes there must be some system to hinder certain people (players) and to help others.

Another Naughty Word

Let’s step away from the metaphor for a minute. In economics and governmental systems a guaranteed equality of outcomes has a name. Anybody know it? Yes, that’s right, socialism. I know for some of you I may as well have just dropped the f-bomb. However, the stigma surrounding socialism doesn’t come from the pursuit of socialistic society. Instead, it comes from the state mandating socialist policy.

I personally believe that socialism is against human nature and cannot be achieved in a massive scale without state influence. The idea that millions of people would willingly pool their resources and talents (or lack thereof) to end up having the same amount to show for it as all of their neighbors is not a likely occurrence. Humans like to have their own stuff. This is more of a primal urge than many like to admit, but we have certainly not evolved past it. Nor are we likely to any time soon.

On the other hand, the free market exists seamlessly without state influence. I suppose that’s why they call it the free market though. It needs nothing, besides being left alone, to guarantee it exists. Millions of people are much more likely to willingly exchange their goods and services for other goods, services, or means to acquire such things.

I’m sure by now you can tell which system I favor. But, let me explain my view on these two systems more completely. I believe both systems to be honorable goals so long as every individual willingly adopts them and there is no governmental interference that compels the use of one system or the other. In theory, a town could decide to live in pure socialism. They could decide that all products that were produced there were the property of the town and not the individual. Even if they all agree initially, what happens if someone who does not agree with the system moves to the town? Can such a system survive without the town government compelling all citizens of the town to surrender their personal property at the town line? Maybe. Sort of? But the system ceases to be pure socialism once one person can have property of his or her own. Many, including (and maybe especially) constitutionalists, would argue that the one who believes in personal property should just move elsewhere. He can, if he wants to. But why can’t beautiful weather or even proximity to a loved one supersede a difference of opinion on personal property? All should be able to live how they choose, so long as it does not interfere with the lives of others, anywhere they choose.

The free market does not suffer a similar breakdown if any number of people willingly decides to share what they produce. No coercion is necessary to keep people freely trading goods and services.

But, I digress. Sort of. Socialism is a prime example of the fallacies that surround equality. If someone can answer this question in a manner that supports socialism, I will consider socialism a valid option for building a society based on equality: How is taking things from people who produce more and giving them to those who produce less actually equal?

The Human Aspect

No more finances, for now. Instead, human equality.¬† Yes, that’s right, the concept that all humans, regardless of any identifying trait or marker, should have equal opportunity is the most basic form of equality. The very categorizing of people into groups besides human is counter to equality. Allow me, not that you really have a choice, to use another sports analogy. ESPN does something every year before the teams going to the NCAA tournament are announced. The resumes of two bubble teams are put up on the screen without the names of the teams. Basing the decision solely on the merits of who had the better season, it is usually clear who should get into the tournament. Then they reveal the teams involved, and sometimes your mind is blown. “But that’s my team that clearly shouldn’t get in,” you say to the TV. Suddenly, instead of believing that the better team should get in, you pick your team. If you happen to be on the selection committee, then your bias has just kept the better team out of the tournament that they deserve to be in.

I think the implication here is clear, but once again I‘ll spell it out. Having a favorite is fine. You can gravitate toward people who are more like you, less like you, or not at all like you. But when you choose them over better-qualified individuals for jobs you are doing something wrong. Not only does it sometimes hurt the individual, it also hurts the organization when an inferior (due to ability, not any identifying trait) person is hired. We all have prejudices and we all discriminate. Ensuring that we are discriminating based on the quality of the individual, and not a prejudice against an institutionalized group they belong to, is the important part.

Treating people equally is important, but it won’t always happen. Some people will, unfortunately, choose inferior applicants for jobs because of the color of their skin or some other identifying factor. It’s wrong, but inevitable. But, in a free market where this type of discrimination is not institutionalized, the wronged individual can get a job somewhere else. And, as a bonus, the individual can urge people not to utilize the offending employer’s services. Exceptional people come in all forms and there will always be plenty of people out there who recognize that and will give those people the opportunities they deserve without any form of governmental or societal interference.

The Payoff

Equality evokes different images to different people. For many, equality means having all the same chances in life as everyone else if you’re willing to go out and find them. For others, it means having all the same things as everyone else no matter what your lot in life. The question really comes down to whether you value the opportunity to succeed and make something of yourself, or having stuff. I’ll take the opportunity to make something of myself any, and every, day. I can buy the stuff that I want that way, instead of the stuff someone else thinks I should have.

Income Equality and Income Mobility – The New Frontier for Libertarians

by Alex Merced

Often times we hear conservative pundits, and the occasional libertarian one, respond to social and economic critiques concerning income equality with a dismissive tone. They will say it doesn’t matter as long as there is mobility or “equality of opportunity.” However, recent studies make it clear that there is a ¬†correlation between economic equality and mobility. So how do you make an argument for the free market in light of this data? Some, such as libertarian philosopher/economist Roderick Long, have already begun attempting to have a deeper libertarian discussion about equality, and at least about what kind of equality libertarians should be concerned with. Libertarians don’t need to shy away from discussing economic equality because there is a compelling case to be made that economic equality has plenty to do with a free, or at least a freer, market.

Before arguing the case one must discuss the causal direction in this relationship between equality and mobility (assuming there is one). Does more equality lead to more mobility? Or does more mobility lead to more equality? The answer to this question should lead to very distinct policy views. Progressives, through their policies of redistribution to create equality, argue that equality will create mobility. I would contend that this is putting the cart before the horse. Increasing mobility would lead to more equality. Thus, policies of redistribution are not needed if mobility can be repaired.

In economics there is a theoretical condition of “Perfect Competition.” This is a situation where so many firms compete over the potential earnings in a particular sector that those firms inadvertently evenly distribute those earnings. Labor markets are similar. Higher wages will attract more participants which, over time, will result in reducing the amount of earnings each individual makes because the total earnings is split among more workers. This result is another sort of equality. The implication is that if wages aren’t being distributed more evenly that must mean something is prohibiting or limiting the participation/competition in that market for wealth (profits from your enterprise, earnings from your investments, or wages from work).

In reality, there can be many societal, geographical, and cultural reasons why certain wealth markets may not be as competitive as we’d like, but some of the strongest barriers come in the form of interventions in the market. Reducing the ability for people to participate reduces an individual of a lower economic condition’s ability to have upward mobility and also reduces an individual of a higher economic condition’s downward mobility. Upward and downward mobility are equally important (you have to be able to lose from bad choices and gain from good ones or the market mechanism loses much of its effect). Let’s take a look at different wealth markets and discuss some of the conditions reducing competition in them.

Wealth Market # 1 – Entrepreneurship

Entrepreneurship is one way people can elevate their economic status. Anything that increases the costs of entrepreneurship in time and money will have a disproportionate effect on small entrepreneurs (as they are less likely to have the time and money to pay these costs). Some of the biggest costs in running a business are the legal and accounting costs. An ever growing complex legal and tax system only make these costs greater regardless of the absolute size of the tax bill or legal fine (because of the amount of billable hours paid to accountants/lawyers to guide through the complexity).

These costs may make some businesses less profitable or slow down their growth, but, most disturbingly, they discourage potential entrepreneurs from throwing their hat in the ring to begin with. The answer is a simple one that people across the board can get behind, simplification. While I’m all for lowering taxes which would make the costs of entrepreneurship lower, simplifying the tax and legal codes so that people can effectively participate without huge legal/accounting overhead would encourage more entrepreneurship. It would also free up the firms resources to be used for things such as improving the product, decreasing prices, or even higher wages for those involved in production of the good or service. Keep it simple stupid.

Wealth Market #2 – Capital Investment

Another way of developing wealth is to take wealth you have from your small business or job and invest it into capital either in equity (owning property or stocks) or via debt (lending money or buying bonds). Buying equity/ownership in companies early in their life cycle is often where some of the largest growth in wealth occurs, and it would be people of a lower economic status who can benefit most from that dynamic (of course more risk, more reward). In an effort to reduce the risks to the common man, laws like Sarbanes Oxley in 2002 were passed to make publicly traded companies more transparent. While access to information to people who are investing their capital can lead to better investment decisions, the costs of preparing this information fell on the company (which is fine, but many of standards can arguably so stringent that the costs increase may be less than reasonable). Essentially, Sarbanes Oxley brought at least an appearance of transparency of public markets in exchange for higher accounting and auditing costs, higher legal costs, and higher cost for executive pay for public companies (more liability is placed on executives so it is sensible that they’d ask to be compensated for the risk).

With these higher costs most new businesses decide to raise money in private markets first (where only wealthy “accredited” investors can participate). As a result, companies that issue IPOs (initial public offerings) are often more mature compared the plethora of IPOs we saw in the 90’s. (While some companies fell prey to the bubble, many people were able to grow their wealth more efficiently since they were able to invest in companies earlier in their life cycle.) The problem is, if companies are not available to the public for investment until later in their life cycle, most of the growth in wealth is made exclusively for the already wealthy while the public is left with the scraps of growth. (Less risk, Less Reward).

To the credit of lawmakers, this has not been ignored and the JOBS act was primarily passed to deal with much of this issue, but layering a complex law over another may result in just increasing legal costs which offsets any savings from simplified accounting costs.

Wealth Market #3 – Skilled Labor

The reality of markets is that the demand for labor is constantly changing, not only the quantity but also the skills and knowledge demanded (Cobblers are of course are still in huge demand still, right?). This can cause what’s often known as structural unemployment (unemployment due to skills of the labor force not matching the skills demanded by firms looking for labor). The people in the most dire circumstances, as previously mentioned, have the least money and time to acquire new skills to enter a changing labor market, so of course increasing costs of attaining skills will disproportionately punish those less able to pay those costs and reward those who can (often people who are “better off”). Here a few of the ways these costs increase:

– Compulsory licensing requirements will often result in months of studying full time to pass exams just to be allowed to work in a particular field (The Institute of Justice has done a lot of work on Compulsory Licensing). While making sure people are qualified to do particular jobs is a good thing, most, if not all, licensing requirements are less about competence and more about making workers aware of the ever expanding regulations of their new field of work (essentially the result of complex laws).

– The cost of higher education is primarily the result of the diversion of credit into the education market. Making it easy to borrow money for education has reduced the incentive for education institutions to rethink the way they price their product (why do you pay the same tuition for all degrees despite the huge variation of potential income they provide?) and for students to think about how they finance their education (there probably is a kickstarter like site for tuition now, but one probably would have existed sooner). Aside from distorting the whole pricing mechanism for education, this diversion of credit also means less credit for other types of investment. This may affect the quantity of work for those graduates with huge debts.The cost is currently so high people don’t get do overs. If education pricing was more sane people could afford to go back if their first program didn’t necessarily offer them the income they expected or hoped for.


The ability for people to be upwardly mobile depends on their ability to participate in wealth markets, and the ability for the wealthy incumbent class to be downwardly mobile depends on the ability for others to compete with them in wealth markets. If wealth markets are more difficult to enter, then those at the bottom fall further behind and those at the top get further ahead. This creates the inequality we see today. So essentially, a more free market, when properly understood, can offer a clear path to a more equal or more “fair” distribution of wealth without the use of intervention and intrusions of government.