Russell Roberts over at Cafe Hayek points us to a remarkable Open Mind video from over 30 years ago of Milton Friedman discussing principles of economics and limited government. The entire video is about a half hour, but if you watch nothing else, take a moment to marvel at Professor Friedman brilliantly responding to an inflammatory opening question that suggests he lacks compassion for his fellow man. Professor Friedman calmly refuses to take the bait and turns the issue around to question the motives of those who advocate the cure-all of government intervention:
INTERVIEWER: Professor Friedman, I wonder if I might begin the program by saying that you’re a kind gentleman, yet you’re identified by many with those who seem — to those who make that identification to want us not to do kind and gentle things — perhaps not provide for the poor, perhaps not provide for the aged — and I wonder how you’d reconcile these phenomena and whether you feel it’s fair to characterize you as a conservative economist.
FRIEDMAN: Well, let me start at the end of that first. I never characterize myself as a conservative economist. As I understand the English language, conservative means conserving, keeping things as they are. I don’t want to keep things as they are. The true conservatives today are the people who are in favor of ever bigger government. The people who call themselves liberals today — the New Dealers — they are the true conservatives, because they want to keep going on the same path we’re going on. I would like to dismantle that. I call myself a liberal in the true sense of liberal, in the sense in which it means (inaudible) and pertaining to freedom.
Now, that brings me to your second point. One of the great mistakes is to judge policies and programs by their intentions rather than their results. We all know a famous road that is paved with good intentions. The people who go around talking about their soft heart — I share their — I admire them for the softness of their heart, but unfortunately, it very often extends to their head as well, because the fact is that the programs that are labeled as being for the poor, for the needy, almost always have effects exactly the opposite of those which their well-intentioned sponsors intend them to have.
INTERVIEWER: As an example, what are you referring to?
FRIEDMAN: Let me give you a very simple example. Take the minimum wage law. Its well-meaning sponsors — there are always in these cases two groups of sponsors. There are the well-meaning sponsors and there are the special interests who are using the well-meaning sponsors as front men. You almost always when you have bad programs have an unholy coalition of the do-gooders on the one hand and the special interests on the other. The minimum wage law is as clear a case as you could want. [. . .]
[T]he minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills. That’s what the law says. The law says here’s a man who would — has a skill which would justify a wage rate of $1.50, $2.00 an hour. You can’t, you may not employ him. It’s illegal. Because if you employ him you have to pay him $2.50. Well, what’s the result? To employ him at $2.50 is to engage in charity.
Now there’s nothing wrong with charity. But most employers are not in a position where they can engage in that kind of charity. Thus the consequences of minimum wage rates have been almost wholly bad, to increase unemployment and to increase poverty. Moreover, the effects have been concentrated on the groups that the do-gooders would most like to help. The people who have been hurt most by minimum wage laws are the blacks. I’ve often said that the most anti-Negro law on the books of this land is the minimum wage rate. And so I think the real answer to your question is that you must not judge a bottle solely by its label. You have to look at what’s inside and see what the law or the measure produces.
Indeed, Professor Friedman’s analysis with regard to the minimum wage applies equally well to eviscerate this local government boondoggle.
Tom,
I’ve been enjoying your posts for some months now but this is my first response. I have great regard for Friedman and the whole Chicago school, but I have to point out that empirical evidence (last time I checked, ten years ago) is inconclusive as to the employment effects of the minimum wage. Further, the theoretical argument of restricted employment due to minimum wage hinges on two key assumptions: 1) a world of perfect transparency and information with regards to qualifications, and 2) sufficient liquidity for the labor market to clear at a market price. If the Friedman’s hypothetical $2 worker and the hypothetical $2.50 worker are side-by-side, can an employer consistently discern the difference in qualifications and offer the more “skilled” worker a higher rate? Furthermore, can the $2.50 worker effectively identify the highest bidder and shop his skills appropriately?
Based on anecdotal evidence and personal experience (admittedly the worst sort of data), I am very skeptical on both accounts, and I do think there is value in a base wage rate for the lowest skilled workers. That said, varying the rate on a state by state or city by city basis might make more sense. I also think that at some wage level the market provides both better information and more liquidity, so raising the minimum wage should not be done lightly.
The employment of illegal immigrants at below minimum prices adds an interesting dimension to discussion (esp in an economy that is arguably at full employment)… I need to think about that some more. I think regional labor market variations are not fully considered in this debate either.