I fear the general public is in danger today of ignoring an incredibly vital issue that was set to be debated in the Commons this afternoon (but has in effect, been defeated and thrown out). The Employment Opportunities Bill, introduced to the House by Tory MP for Christchurch Christopher Chope. It raises the issue of Minimum wage, and suggests that, with the consent of the employee, employers should be able to opt out of paying minimum wage. It is, in essence, an abolition of the minimum wage bill.
Now, ignoring the fact that whilst Mr Chope doesn’t much care for those of us who could not afford to live on less than minimum wage, let alone hope to one day get a foot on the housing ladder, he didn’t appear to have a problem claiming £136,992 last year in expenses. Perhaps that money could go to helping those who would so severely be hit economically by his disastrous bill, buy food? We already can’t afford gas and electric since his party privatised it all during the ’80s.
Are the Tories really that naive as to think any employee is going to agree to opt out of minimum wage, without the employer saying “Sign this agreement to opt out, or fuck off”? It would encourage businesses that are not struggling, to pay beneath minimum wage. Prices would deflate hugely as a result. And all companies would start to opt out on a grand scale, because minimum wage does not work unless it’s universally applied. It would, in truth, be a disaster.
Chope said “Our government make it illegal for an employer and an employee freely to negotiate the level of remuneration if it is less than £5.73 an hour for an adult, unless, of course, the work involved is unpaid voluntary work.” That damn Government, trying to help those who were quite routinely exploited during the Tory reign of terror, live a better life. How dare they. I particularly dislike his use of the term “negotiate”. If an employer says “you either accept a pay decrease to £1 an hour, or i’ll employ someone who will”, that isn’t a negotiation, that’s exploitation. It is not a bill to help people surf the tide of recession by having access to more jobs albeit with slightly lower pay, it’s a bill to increase productivity of workers whilst paying as little as possible, it’s a bill to help employ at the lowest costs possible, whilst be able to pay just enough to keep employees alive to actually do the work. For example, one of the Tory MPs who backs this bill, is Peter Bone, famous for once paying a 17 year old trainee 87p for work in his Travel Company. The old face of exploitative Toryism just refuses to die.
It is no surprise that it is Mr Chope promoting this bill. He is responsible for selling off Council Houses in the 1980s, which lead to Mrs Thatcher’s re-election, gaining support from those who would typically vote Labour given that they could now afford to own their own home. In the process, it completely screwed over my generation, who will find it almost impossible, short of becoming a Lawyer (or an MP), of owning my own home. The Government of the 1980s made it easier for those wanting to buy multiple homes to do so, which in turn pushed the average house price up by 225% between 1983 and 1990, which meant sea side home were bought up and used once or twice a year, which meant villages like Beadnell in Northumberland are forced to close schools and businesses local to the area, because 256 out of the 500 homes, are holiday homes! Thanks Chope! You’re a genius! Chope went on to say that being FORCED to work for minimum wage, was against our “human rights”. Note, that this is from a party opposed to the Human Rights Act.
The idiots Geniuses over at Cambridge University Conservative Association (as if you’d expect them to understand the point of the minimum wage in the first place) say “ the minimum wage causes unemployment (a surplus of labour)“. No it doesn’t. It’s regressive, especially during a recession, to suggest that employers should be able to pay those who are already struggling to pay their bills, a lot less. It’s inexcusably immoral at best. They’ve decided upon the conclusion that minimum wage causes unemployment, due to their dedication to Thatcherite Neoliberalism. Not to concrete evidence. Surely if every firm is paying minimum wage, then equilibrium is achieved? Market forces cannot work against a universal principle. It creates a level playing field for all firms, whilst protecting the most vulnerable, from what i’m now going to refer to as “Cambridge Universitism“. The only conceivable way that markets will fail, is by introducing an Opt Out system, where by some firms stick in principle to minimum wage, whilst their competitors see an opportunity to capitalise on paying their employees, 35p an hour. In which case, those employees will want to go elsewhere, to companies that pay minimum wage, and the exploiting Company based on “Cambrigde Universitism” fails anyway?
The minimum wage was introduced in the UK in 1999, the pay was set at £3.30. Since then it has rose to £5.73 an hour, and comes with strict penalties for firms caught not abiding by their responsibilities. It benefits huge numbers of the lowest paid workers in the Country, which in turn, provides a higher rate of disposable income (some were paid as little as 80p an hour during the Thatcher years), and so benefits the economy on the whole. There is little argument that minimum wage is one of New Labour’s greatest achievements, and has helped improve the living conditions of millions since it’s introduction in 1999. Except, if you’re an expenses cheating Tory MP, or you’re in your own haven from the rich at Cambridge, obviously.
Cambridge go on to say “Indeed, now that we are in a recession, it is surely responsible for even more unemployment.” Followed by “Unemployment will never be minimised as long as minimum wage legislation remains in force.“…… Again, no evidence, merely sticking to Neoliberalist principles that says minimum wages prices people out of jobs. Unemployment (which spiked during the Thatcher era, despite the lack of minimum wage) was falling steadily year on year when minimum wage was introduced. Two years later, unemployment was at it’s lowest in decades. This is true for both full time and part time workers. In fact, by 2000, unemployment was at it’s lowest in 25 years. You’d surely expect, a year after minimum wage has been introduced, by Cambridge Univertism 19th Century Factory exploitation logic, and Peter Bone MP, who said in 1998 that a “A minimum wage would condemn hundreds of thousands to the dole queue.” that unemployment would have rose dramatically, almost inconceivably so, by hundreds of thousands, if not millions, but no, it fell, and continued to fall, pretty much until recession hit.
Recession of cause, had absolutely nothing to do with minimum wage, and everything to do with the greed of banking Neoliberalists, which in turn lead to suspicion in the banking sector and reluctance to lend. Minimum wage was not the cause, and minimum wage did not make the situation worse. In fact, having a minimum wage can help, given that mortgage lenders lend on the strength of income. If you’re being paid 80p an hour, you aren’t in a better position to be claiming a mortgage. Regardless of what these toffs say, Minimum Wage has provided security for millions of workers, who in turn have lead a healthier , more secure and happier life. It doesn’t cause mass unemployment, no more so than before minimum wage legislation was introduced. It prevents the greed of certain employers driving down wages as much as possible.
It is worrying that such a senior Conservative, advocates such regressive nonsense, at a time when Conservatives are almost inevitably set to become the next Government of the United Kingdom. Chope seems to be attacking Labour on the introduction of the minimum wage, appearing to be concerned with rising unemployment and yet didn’t have a problem when 3,000,000 people were left unemployed, and untrained, the homeless rate shot up, and the poll tax that he helped usher in creating mass unemployment, the deaths of thousands of businesses (including ours), and unprecedented rioting, due to the policies he endorsed in the eighties. The only difference now is, we at least have some protection for our lowest paid…. which he doesn’t seem to like. He appears to be in denial that deregulation of the labour market, would be a disaster during recession.
The same Tories were telling us all, a few months back, that you had to pay bankers high to provide incentive for them to work hard. Now they’re telling me that same logic doesn’t apply to those who are paid least? Why is Chope not proposing legislation to cut down on tax loopholes for the super rich? Why is he proposing to hit the lowest paid workers the hardest? Simple answer, he’s a Tory, and he’s supported by Cambridge Universitism.
Chope, who opposed the introduction of the minimum wage ten years ago, and seemingly still carries a grudge, speaking on behalf of Conservatives who oppose Minimum Wage, said, quite comically: “We are talking about the marketplace and people should be free to compete in the marketplace without restriction“. Well in that case, I cannot wait to see Chope introduce a bill to abolish or “opt out” of the Factory Acts and all anti-discrimination laws, so that people are “free without restriction” to hire whomever they wish, for as long as they wish, for as much as they wish. Let’s have no restrictions on employment. Let’s be fully regressive!
The Tories are starting to show themselves for what they really are. Stuck in the 1980s.
May 15, 2009 at 2:21 pm
Hi,
This is a mammoth comment, but I hope you find it interesting.
You’ll notice in the comments that I said I wouldn’t support Mr Chope’s Bill.
“as if you’d expect them to understand the point of the minimum wage in the first place”
I do understand the point of the minimum wage. It’s supposed to raise the incomes of the poorest. It does, but only for those who remain employed. The minimum wage is not an end in itself, but a means to an end. And there are much better means. (Like a negative income tax.)
So I’d only support the abolition of the minimum wage if it was replaced with something better.
Evidence and theory
It’s not just “Thatcherite Neoliberals” who believe minimum wages cause unemployment. Pretty much all economists believe it. It follows from some basic things which can be proved to be true (e.g. demand curves slope downwards).
“You know the Maxwell velocity distribution for molecules in a gas — Maxwell derived it completely a prior… Of course, it has been empirically tested many times, but if a test claimed to disprove it, we physicists would disbelieve the experiment, not Maxwell. The assumptions behind the derivation are so simple, and the math so straightforward and solid, that for a ‘classical’ gas, it is hard for any physicist to see how it could possibly fail to be true. Again, let me emphasize that this was true long before it was tested empirically.”
I wonder what sort of evidence you would require? None of the essentially anecdotal stats you provide actually support your point, because they are not controlled. How would one go about devising a controlled experiment? I don’t know. I doubt it can be done.
(Ricardian comparative advantage can’t be falsified, but you’d have to be insane not to believe it.)
You say, “Surely if every firm is paying minimum wage, then equilibrium is achieved?” This sentence betrays your lack of understanding of economics. You clearly don’t know what equilibrium means. To help you understand, I have two examples. One: if every firm was compelled by law to pay at least £20/hour, do you believe there would be no job losses? Of course not. Some people would get pay rises – those already earning close to £20. How close? I don’t know. Others would get the sack. How many? I don’t know. But surely you see the principle that minimum wages can cause unemployment, if they are set high enough. Therefore there is a trade-off between how high to set it, and extra unemployment.
My second example is price fixing of food. Have you ever been to Venezuela or Zimbabwe and seen empty supermarkets? Enforcing a “universal principle” on “every firm” doesn’t stop the fact that any price fixing will cause a gap between quantity demanded and quantity supplied – a surplus for price floors and a shortage for price ceilings. Follow the link I provided, which explains this in more detail.
In fact, enforcing a “universal principle” on “every firm” will guarantee the effect I describe. If you don’t enforce it on every firm, you’ll get a “black” market.
“Market forces cannot work against a universal principle”. Actually, politics can’t work against the laws of economics. If you try legislating against the laws of physics, you’d fail, but politicians still never tire of legislating against the laws of economics. (Or biology, for that matter.) They are doomed to failure.
Is the minimum wage good?
Actually, it may well be that the minimum wage is pretty good. After all, it doesn’t appear to have caused significant job losses. This is compatible with theory. I claim that it has caused job losses, but don’t say how many. It might be an insignificant number. Obviously not insignificant to those who lost their jobs, but hopefully they are adequately cared for by other welfare systems. Peter Bone massively overestimated.
Optimising wealth redistribution
The purpose of the minimum wage is, to some extent, to transfer employer surplus (consumer surplus (consumer of labour)) to the employees (those that don’t lose their jobs).
I happen to think that a negative income tax is a much better wealth transfer mechanism.
But it may be that both is better than either. Just as tax revenue maximisation (though not a good thing) requires more than one type of tax. No amount of increase in income tax could compensate for abolishing corporation tax, for example. Similarly, the wealth-redistribution:harm-to-economic-growth ratio might be optimised by both a minimum wage and a negative income tax.
I don’t know.
I said earlier “there is a trade-off between how high to set it, and extra unemployment”. It may well be that, in conjunction with another benefits system to take care of those who do lose their jobs, that the optimum amount of unemployment is not zero.
Other stuff
Ending recessions (and, indeed, reducing unemployment at any time, even when not just in a recession) does require wage decreases. Not just for those on minimum wage, but across the board. After all, eliminating unemployment is also known as clearing the labour market.
“It is common and indeed conventional knowledge that only World War II ended the Depression. It is also generally understood why the War did that, with millions of men drafted into the armed forces and the government borrowing and spending mountains of money on war production. What is less often acknowledged is that the New Deal as such thus failed to end to the Depression. Nor is it generally understood why the Depression did not return in 1946, after the military was demobilized and war production ended. By all rights, nothing should have been any different from 1939. But the Depression did not return. Despite demobilization and the end of war production, unemployment in 1946 was 3.9% and in 1947 3.9%.
…
So why didn’t the Depression return in 1946? Because wages were frozen even while the money supply was inflated with the war spending. This drove down real wages, the opposite of the consistent policy of Hoover and Roosevelt for a decade to drive up wages. In 1946, wages were low enough to clear the employment market. If employers could then hire workers at a market wage, and produce consumer goods, business could get back to normal. It did.”
Utilities
“We already can’t afford gas and electric since his party privatised it all during the ’80s.”
Perhaps you could provide some evidence for that!
I’m afraid I can’t see the justification, in general, for state ownership of utilities. It’s not because people need them more than most things. After all, food is pretty important, and the private sector copes with that just fine. The only good argument for state ownership is in the case of natural monopoly. For example, the state owns the national grid (electricity distribution), which is a natural monopoly. But electricity generation is private.
Do you think privatisation has resulted in higher costs? Gas is fungible – if gas prices are high at the moment, they’re gonna be high whether or not your supplier is the state or a private company.
Council houses
Perhaps (very perhaps) the only reason Thatcher was re-elected was that she bought votes by selling housing cheaply, just as Labour party strategy over the last 10 years has been to buy votes with benefits and more state employment.
“In the process, it completely screwed over my generation, who will find it almost impossible… of owning my own home.”
“The Government of the 1980s made it easier for those wanting to buy multiple homes to do so, which in turn pushed the average house price up by 225% between 1983 and 1990″
That’s really dubious. You could only buy a council house if you had lived in it for a certain amount of time. Justify the claim that it significantly contributed to multiple-house ownership.
I believe the main reason for the housing bubble (yes, it is a bubble) has been government expansion of the money supply (which government? all government).
Do you really believe that Beadnell turned into a retirement/holiday town because of the Tories? Do you really believe it wouldn’t have happened just anyway?
P.S. You seem to believe that Cambridge University is full of “toffs”. Actually, I believe my opinions are as deeply unfashionable at Cambridge University as they are elsewhere.
P.P.S. Yes, I see your point about “exploitation”. Choice to work for a pound or starve is not much choice at all. I can’t help thinking having the option is better than just starving. Here’s an analogy: Throughout history, all over the world, even up to the present day, people are moving from the country into city slums. Pretty grim, and they don’t earn much, but they earn more than in the country. In a John Pilger documentary, he asks a couple in Chile why they moved from the country to the slum, and they say just that.
Mainstream economics chooses not to call low market-set wages “exploitation”. It sees the inputs to a product: labour, land, capital and enterprise (initiative/entrepreneurship). The labour and entrepreneur get paid for their contribution, and the land and capital owners get paid for their land and capital contribution. The latter two are “rent”. Is this unfair? I don’t think so, as long as the property (land and capital) is justly acquired. Perhaps the capitalist just decided to save more.
“Capitalism” is just another word for saving, or investment in the future — preferring future gains over immediate gratification.
Some people see capitalism as good for workers, because it allows the worker to collect their wages now, rather than have to wait until the product is sold to get a return, as they would have to do if they were self-employed.
But yes, in a free market, the lowest-skilled would end up getting paid just enough to keep them alive, and would never be able to save. And that goes against our sense of justice. Perhaps the idea of property goes against our sense of justice. But the evidence shows that without it, the poorest are worse off (c.f. Hernando de Soto).
I hope you have seen from all this that my sole aim in politics is to raise the (long-run) income/standard of living of the poorest. I want the optimum redistribution of wealth which is a trade-off between increasing the income of the poorest today and increasing it tomorrow. To misquote Michael Foot, the rich will take care of themselves — they alway do. I just disagree on method. I hope at least you can see why I wouldn’t repeal the Factory Acts.
Hugo
May 15, 2009 at 2:55 pm
Huzzah! I can employ oiks for 50p a day to clean the Pimms bottles from the bottom of my moat.
May 15, 2009 at 3:30 pm
“It’s not just “Thatcherite Neoliberals” who believe minimum wages cause unemployment. Pretty much all economists believe it.”
Every economist on the planet believes this Hugo? Are you aware there are economists who exist who view things from perspectives outside of the narrow capitalist vantage point? Actually, the fact you use the word ‘believe’ is extremely interesting…what you’ve touched on is the reality that all economists of every political persuasion (all economists have a political preference as they are humans, not machines) follow an IDEOLOGY of one form or another. It may be free market neoliberalism (free markets don’t exist and cannot, with the latest crash being evidence of such), or Marxism, but everyone has a view.
So, what I’m trying to point out is that we shouldn’t put much faith in what economists tell us. They didn’t predict the current crisis, and like us to think they are scientists of some kind, but nothing could be further from the truth.
Have you heard the joke about the economist stuck on a desert island? It’s not hugely funny, but it is prescient…
A chemistry, physics and economics professor are all washed up on a desert island together. They start to get hungry after a couple of days and only have a tin of beans to eat between them. They realise they’re going to have to open it somehow.
The chemist tells the other two that he can look around the island for materials he can mix to cause a chemical reaction with, hopefully causing the tin of beans to explode open. They physicist laughs and says they’d lose too many of the beans that way and instead he will build a rudimentary tool that will exert force on the can and cause it to break open [I can't remember exactly how that bit went]…
anyway, the economist is chuckling away to himself and says, ‘look you idiots, you’re never get it open that way. Now, imagine we had a tin opener…’
Basically, economists aren’t scientists and economics is NOT a science. It’s a guessing game and also built on THEORY. Economists have theories about the free market, surplus labour etc etc, and many of the theories are still in the dark age when it comes to predicting real world events, as we have witnessed in recent months.
“Ricardian comparative advantage can’t be falsified, but you’d have to be insane not to believe it.”
-I’m not even going to begin to go into that now, perhaps in the next couple of days when I have time.
It’s a shame people who ‘believe’ in free markets (they don’t exist in the real world and no evidence suggests they can, so there basically exists a religion surrounding their existence) and oft quote Adam Smith generally haven’t actually read his work. The hand of God wasn’t about the market, it was about God. With the dawn of Darwinism and growing skepticism regarding God, people changed the argument to talk of a ‘hand of the market’ which no one has ever provided me evidence with. It’s mythical/mystical force of some kind that exists in a large number of economists imagination. It’s quite helpful though if your ideological background is that of retaining the status quo, or doing nothing to pro-actively improve the condition of the worst of in our society and elsewhere. Basically, it’s a cop out and an excuse on the part of those who are doing best out of the current system.
The minimum wage goes a very small distance in assuaging the harsh realities of neoliberal economics, but of course, can never truly free people from their economic servitude. A living minimum wage, proposed by some (especially for workers in London) of over £7 is again, a slight improvement, but no more.
I don’t care about what is good for the market, I care about what is good for people. The market was doing well for the past decade, and that didn’t improve ordinary people’s situation. Wages have either stagnated or grown at a slower rate in the past 30 yrs than at any other period in capitalisms history. While saving capital money in the short term, that hopefully undermines it’s long term viability in the medium to long term. People have supplemented their low wages with cheap credit, which has fueled consumer growth for dross like flat screen TVs. Now the credit market has dried up, people have been left with huge debts, low or non-existent savings and poor wages. Of course, private capital hasn’t been entirely free in the past 30 yrs (an excuse given by many as to why things are so shit at the moment), but it has been able to move more freely/quickly than at any other time in modern history. So, from this should we conclude that freer markets lead to even greater crises in the capitalist system?
May 15, 2009 at 3:32 pm
“The hand of God wasn’t about the market, it was about God.”
- Sorry, I mean ‘Invisible Hand’
May 15, 2009 at 3:49 pm
Hugo, I appreciated the effort put into that comment.
Firstly, like my assumptions on the housing market and the privatisation of utilities, which you labelled dubious, and quite rightly pointed out that it’s all opinion, the way you explained economics is merely that also. It’s based on presumption, and theory, rather than fact or science. Whereas you may say Marx and Engels are flawed in their presumptions, it’s just as easy to suggest neoliberalists are flawed, given the turn of events recently.
I fear you trying to claim that economics is just another science, with universal rules and principles is simply weak at best.
May 15, 2009 at 3:51 pm
hello. i read your entire post, and think you make a compelling argument. i’m american, but i’ve always thought minimum wage was created, in concept, to prevent employers from taking advantage of hired workers.
maybe some citizens would be able to confidently negotiate a fair wage with their employer, but many would not, and too many workers have been nearly extorted into accepting wages that dropped them below the national average poverty level.
this leads one to question:
since when should working people live in poverty?
why should our kids want to work, if that’s the case?
if employers were honorable, there would be no need for minimum wage. if politicians were honorable, there would be no need for elections.
you can analyze this or that about the economic effects of minimum wage and it’s relationship to unemployment levels, but those figures are not presented from a poor person’s perspective. those statistics are often generated by an “interested party” who has something to gain or lose, depending on the outcome of the decision to keep the minimum wage or not.
that’s just my opinion, though
great post. cheers
May 15, 2009 at 4:22 pm
Bill, your comment is exactly what I meant when I said that you cannot expect Conservatives in Cambridge university to understand minimum wage.
They just don’t.
Humans are suddenly seen as commodities.
Hugo went into analysing (from his own perspective) the slim economic effects of minimum wage. Based on economic theory. The fact that millions are secure every day, because of minimum wage, can only be a good thing. From the perspective of a poor person, the minimum wage is essential.
May 15, 2009 at 5:10 pm
kennedy121,
“Every economist on the planet believes this Hugo?” Most mainstream economists. I’m mostly sympathetic to Austrian economics, though, which is definitely not mainstream. They claim that economics is emphatically not a science. I agree. The exchange I linked to about Maxwell is all about that. I don’t see how either of you got the impression I thought economics was a science, given my comments on falsification. But I disagree with Austrian epistemology. There’s a good exchange on that at Less Wrong.
“‘Ricardian comparative advantage can’t be falsified, but you’d have to be insane not to believe it.’ -I’m not even going to begin to go into that now, perhaps in the next couple of days when I have time.”
I’d like you to go into it when you have time – I think it might be very useful to us. I must admit I consider people who don’t believe in comparative advantage analogous to people who don’t believe in mathematics.
I find your criticism of my use of the word “belief” a bit like the Creationists’ “evolution is only a theory”. Yes, I believe it. I believe in gravity. Beliefs can be justified (by argument or evidence), and some beliefs can be more reasonable than others.
I agree that economics is not a science. We should test our theories where we can, but if we can’t, that doesn’t mean they are nonsensical. We can criticise both assumptions and reasoning from assumptions.
In the case of minimum wages, I think the assumptions can be empirically verified (demand curves slope downwards, supply curves slope upwards), and the reasoning from there is sound. There are some arguments that labour markets don’t behave like other markets – I consider these either false or irrelevant.
Have you studied economics? I don’t say that as a challenge: if you have, great, but if not, you might enjoy it. I guess you haven’t because you’d probably have moved beyond talking about “the invisible hand”. I’m not sure what books to recommend though, because I think Keynesianism and neo-Keynesianism are bollocks. Thomas Sowell’s “Basic Economics” is quite fun.
I believe the Austrian theory of the business cycle, which blames bubbles (“crises of capitalism”) on monetary expansion by the government. Yes, I said “I believe”, but I believe it’s a justified belief (!). The Austrians did predict the coming crisis (i.e. predicted that it would happen, but of course they can’t predict it with enough accuracy to make money out of it – they don’t claim to. See mises.org for a slew of articles every day about this). Hayek and Mises predicted the Great Crash with surprising accuracy, though. http://www.auburn.edu/~garriro/macro.htm is good on business cycles if you have an hour. http://commentlog.org/bid/4412/An-Analysis-of-the-2008-financial-crisis-written-in-2006 is interesting too.
I’m afraid that as long as the government sets interest rates and issues currency, I don’t believe we have anything remotely resembling a free market. (I’m not an anarchist, though: I agree with Hayek — there aren’t free markets, just freer markets. All a market is is people trading, so a freer market is one with fewer restrictions on them. Some restrictions are good, and some are bad, so a completely free market is not even desirable, let alone achieveable. The job of the government is to maximise competition, by enforcing the law and intervening, say, in the case of natural monopoly. The law might include laws against pollution, for example.)
“I don’t care about what is good for the market, I care about what is good for people.”
Me too.
“The market was doing well for the past decade, and that didn’t improve ordinary people’s situation. Wages have either stagnated or grown at a slower rate in the past 30 yrs than at any other period in capitalisms history.”
Wrong. Real household income of the poorest 10% has increased by 50% over the last 30 years. http://burningourmoney.blogspot.com/2008/04/equality-for-all.html
I don’t know how that compares to “any other period in capitalism’s history”, but it’s pretty good, isn’t it?
Of course, I dislike the government for encouraging debt and discouraging savings through a too-low interest rate. But that’s price fixing again. I don’t know what the interest rate would be in a free(r) market, it might be 15%. That would certainly have stopped the house-price/earnings ratio increasing so much.
The invisible hand simply refers to the fact that if demand for something goes up, prices go up, and this “abnormal” profit (profit about “normal” profit) encourages entrepreneurs to increase supply, bringing prices down. For all its faults, the market does pretty well stocking the shelves of Tesco and Topman, don’t you think? Yet there was no central plan – it was “the invisible hand”. That’s all it means.
“A living minimum wage, proposed by some (especially for workers in London) of over £7 is again, a slight improvement, but no more.”
If a minimum wage is bad, different minimum wages in different places is terrible. If London is too expensive, move. Living in London is not a human right. If you think that’s harsh, tough.
I don’t find Marx very useful at helping me to understand the world.
May 15, 2009 at 5:48 pm
Jamie,
Your reply only makes sense if you deny that the minimum wage causes any unemployment. But you seem to have retreated from that position. I believe the minimum wage is great for people who keep their jobs, but bad for people who lose them, even if that’s a “slim” amount of people (which I don’t believe (because of high marginal tax rates and the poverty trap, but that’s a whole ‘nother story)).
I imagine it’s very difficult to live on minimum wage. A good way to alleviate this somewhat would be for the government to stop taxing people on minimum wage. Hell, the government even taxes people working part time on minimum wage. And we need to get rid of marginal tax rates of 70%+.
Because I believe it’s difficult to live on minimum wage, I don’t support the abolition of it unless it is replaced with something better.
So it is not true that “From the perspective of a poor person, the minimum wage is essential” – that’s only true as long as we don’t implement something better. The negative income tax. (Also known as “Basic Income”).
P.S. I don’t know what I am, but I know I am neither a small-c or large-C conservative. I quite like Hayek.
May 15, 2009 at 5:48 pm
“Your reply only makes sense”
Your reply to Bill, that is.
May 15, 2009 at 5:55 pm
But what is better? Minimum wage works. In my opinion, it’s proven to work. There is no alternative that we know for certain, would work better. The Tories don’t offer anything other than an opt out (which is just appalling). No one is offering anything other than minimum wage, it works, it’s worked for millions of people since 1999. You employ people if you need to employ them and if the business is likely to grow because of them. If you cannot afford to pay minimum wage, you should not be employing people. Business should be responsible, given the affect it has on a worker’s life. I do not trust business to be responsible enough to entrust them with an utterly free market system.
And can I just say that when you took up my point a few posts back, on my use of the term “equilibrium” you misunderstood me. I wasn’t using it in the strict economic sense of the Word, I was using it to suggest that competition between companies is cancelled out when minimum wage is set as universally. The floor is level. That’s what I meant, perhaps I should have used “cancelled out” instead of equilibrium, and I apologise if it came across wrong.
May 15, 2009 at 6:03 pm
“If you cannot afford to pay minimum wage, you should not be employing people.”
I’m intrigued.
May 15, 2009 at 6:12 pm
“But what is better?”
Negative Income Tax.
“No one is offering anything other than minimum wage”
A pity.
“There is no alternative that we know for certain, would work better.”
True, but with that attitude you’d never change anything.
May 15, 2009 at 6:24 pm
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2005/02/tony_blair_toda.html
May 15, 2009 at 8:43 pm
Isn’t it a given that the majority of employers would argue against a minimum wage, with occasional increases, as it would cut into the bottom line profit of the business? Why be for it if they can find people willing to work cheaper? Makes sense, right?
The problem with this is that the employer is expecting the worker to allow his own bottom line profit to decrease…..and the worker is already the lower paid of the two.
people with families can’t be forced into that position just because a selection of economic analysts choose to make minimum wage the culprit for higher unemployment, rather than the unethical behavior and poor decision making of the employers.
it could very well be a separate reaction to minimum wage that causes higher unemployment rather than minimum wage itself.
of course, i’m no analyst or economist
just another opinion
May 17, 2009 at 5:11 pm
Also, Hugo, did I see you suggest that Roosevelt’s new deal did no good whatsoever?
May 17, 2009 at 5:21 pm
Yes.
May 17, 2009 at 5:28 pm
One thing I find funny is you slam ‘Thatcherite neoliberals’… Im sorry but all the mainstream parties in Britain today are ‘Thatcher-lite’. You tell me one thing economically that Labour have reversed from the Thatcher years and Ill buy you a pint. In fact their deception is worse. Theyve hidden their ‘neoliberalism’ behind a social democratic front.
You talk about the minimum wage and all this but let me remind you that the minimum wage is only beneficial to those who work. Its a way for the government to say get off your lazy arse and we’ll give you a bit extra. Those who are unemployed are worse off today than they were under the Thatcher years. The minimum wage will do nothing for those that have lost their jobs in this recession and Labour couldnt give two hoots.
As a Thatcherite neoliberal myself it may suprise you to know that I am all for the minimum wage in theory but in practise i recognise its limits. I know Chris Chope personally as he is a patron of the Conservative Way Forward of which I and my family are members and I know he is a thoroughly decent man. He has always disagreed with the minimum wage on the basis that it discourages employers from setting up in the UK and thus emloying our people.
The truth is we need the companies more than they need us. Itll be all well and good having a minimum wage policy when theres no bloody employers to pay it. Socialism is all very well and good in theory but in reality we have to recognise that we are like it or not beholden to the employers. I believe that if some employees wish to opt out of the minimum wage if it gets them a job then that is their decision.
Chope is not calling for the abolition of the minimum wage he is trying to find a way to make the UK more attractive to commercial interest again and thus revive the economy. By giving employers and employees the chance to negotiate an opt out then you are more likely to raise employment (albeit at a lower pay). But lower pay is better than NO pay.
May 17, 2009 at 6:15 pm
“One thing I find funny is you slam ‘Thatcherite neoliberals’… Im sorry but all the mainstream parties in Britain today are ‘Thatcher-lite’.”
- No shit. When did I ever dispute that?
However, I cannot imagine complete 100% thatcherites would have introduced the minimum wage, or EMA, or anything else to help those people who aren’t multi millionaires. However, if you’re going to suggest that New Labour have continued down the neoliberal path, and you’re going to suggest it’s New Labour’s fault we’re in economic mess…….. well, you see where this is going.
Can I just say “Its a way for the government to say get off your lazy arse and we’ll give you a bit extra” is a typical Tory statement. Anyone struggling, is considered lazy. I resent that in all it’s entirety.
We went through recession during the 80s, and 90s, despite lack of minimum wage. We had 3,000,000 unemployed, and the Tories pretty much did nothing, sat back and watched those less fortunate struggle even more. They offered no help whatsoever. The homeless rate shot up. Are those people lazy?
Chope is a prick, scum of the worst kind in politics…. especially given his expenses claims. I have absolutely no respect for the man. He stands for everything I despise about Tory policy. He isn’t trying to “revive the economy”, because you, me, and he knows damn well it’ll give companies who are not struggling, the chance to exploit at will. No matter what you think about the state of our economy now, it will recover without the need to repeal progessive legislation like the Minimum Wage. Stop using the phrase negotiate. An opt out would never provide a negotiation. If the employer said “you either take £1.20 an hour, or i’ll find someone who will” is not a negotiation. It will make other competing companies lower their wages to continue competing, and so minimum wage is all but abolished. And we all become bitches to power that we have no control over.
In the OECD, Real Wages have been below the rate of inflation since about 1970. So yes, Minimum wage is a necessity, for those of us who don’t wish to dump those earning pittance, on to the rubbish heap. I do not trust big business to treat it’s employees decently, and responsibly, without hammering them for every penny they’re worth. Minimum wage offers them that protection. Quite obviously those defending Chope will never understand this.
According to Philip Bond:
“In the United States, between 1979 and 2004 the wealthiest 1 percent saw an increase in their share of national income of 78 percent, whereas 80 percent of the population saw an overall decrease in their income share by 15 percent. That’s a wealth transfer from the large majority to a tiny minority of some $664 billion.”
Yeah, great system. It didn’t stimulate growth, it didn’t create a more stable economic environment, it didn’t cut poverty, it promoted short term irresponsible gain to the detriment of society on the whole. It failed miserably. And i’m glad the old witch is still alive to see her system fail on such an epic scale.
By the 1990s, our social system was fucked beyond recognition, riots were breaking out (by those damned lazy commies!!!) and social mobility had declined so much so that 13 million people were described as living in relative poverty. But it’s okay, but the rich few got richer? The same idiots who were calling for mass liberalisation and deregulation of the money markets, privatisation, tax cuts and public service cuts – the very things that created the mess we’re in – are calling for it again. I believe the Americans call it the “Washington Consensus”…. and you Neoliberals can blind us all with detailed theory all you like, it makes no difference. I sense though, as many have tried to do, you will attempt to blame social policies (such as minimum wage) for the problems, rather than admit your economic principles are so deeply flawed.
It was your anti-minimum wage lot who predicted huge unemployment due to the introduction of the minimum wage. They predicted nothing short of economic meltdown. They were wrong.
Minimum wage is a huge achievement. So much so that even Cameron and Osbourne admitted they were wrong.
Thatcherism/Reaganomics hasn’t created secure prosperity. Much the opposite. Banks that are “too big to fail” piss all over the concept of Neoliberalism, whilst it’s proponents have no problem with it. All it created was a class of the super rich, and incredibly indebted middle class, and a “lower” class, whom the super rich and their lovers refer to as “lazy” (it’s evident that those who inherit millions and don’t work a day in their lives, are exempt from the “lazy” classification apparently, also referring to inheritance as inter family socialism, you Tories don’t seem to like, regardless of the fact that it’s true).
Before you go on to attack New Labour, I don’t care. They aren’t my party. I know their failings. I don’t need to hear it repeated.
One thing I will say positive about Thatcherism………. the best music came out of that era. The Clash!
May 17, 2009 at 6:21 pm
Hugo, It’s my understanding that millions were in extreme poverty due to President Hoover’s refusal to offer any help whatsoever? People were living in boxes labelled “Hoovervilles”. I don’t care how right winged you might be, surely compassion tells you, that’s so horribly wrong, it’s unforgivable for Government to do nothing in that situation?
Sure, FDR didn’t end the depression, but he certainly provided much needed help immediately.
American GDP in 1928 was $100bn. By 1933, it was $55bn. After six years of FDR it was $85bn. From 1933 to 1939, unemployment continued to fall (slowly, admittedly, but much more so than at any time under Hoover – http://en.wikipedia.org/wiki/File:US_Employment_Graph_-_1920_to_1940.svg) Surely that shows that whatever he was doing, it wasn’t wrong?
I’d disagree that he didn’t help at all. He clearly commanded the confidence of a general public who felt excluded by the Hoover administration, and left to rot. FDR helped the American public psychologically more than anything. He instilled confidence in the financial system again. I cannot accept that he didn’t help at all.
Confidence in the system, was a huge achievement.
Programs such as Tennessee Valley Authority, which persist to this day, were so deeply needed, it can only be described as a great success.
The depression was a nightmare under Hoover, and improved dramatically under Roosevelt.
http://en.wikipedia.org/wiki/File:Gdp20-40.jpg
May 17, 2009 at 11:56 pm
Im glad you acknowledge New Labours failings. One thing is interesting however is that what you regard as their failings I regard as their strengths and what you regard as their strengths I no doubt regard as their failings lol. I think with all due respect that your feelings toward Thatcherism and the Tories is of a ‘class warrior’ mentality. I know because my Dad has it too.
He chalks everything down to Thatcher trying to destroy the working man. This isnt true. The sale of council houses one of her cornerstone policies allowed people where I come from, Chesterfield in Derbysire, the chance to buy their own homes. They could never have done that before Thatcher. Instead of renting their whole lives and leaving nothing behind they now have the chance to leave something behind to their children and something to show for their hard work. The sale of council houses did not benefit the rich in anyway shape or form.
Further the taming of the unions was beneficial to ALL British people. My Dad, again one of Thatchers staunchest critics, at least concedes “Thatcher didn’t betray the miners, it was the prat Scragill, he took them in to a fight they couldn’t win because he couldnt get over his ego.” He told them to go on strike without a ballot of his members (because he knew he’d lose) and those who did want to work and feed their families were labelled ’scum’ ’scabs’ and god knows what else for doing so. That ‘class mentality’ led to neighbour turning on neighbour. Thatcher didnt divide the communities, Scargill and his merry band of thugs did.
The taming of the unions meant that no longer did ordinary British men and women have to sit back and watch as their power, heat and lights went out on a whim of the unions. The people were behind Thatcher every step of the way on that one. And do you know what? That is why the left hate her so much. Because she fought them fairly and beat them at the ballot box every time. She did nothing by deception which is a quaint thought with the lot we’ve got now who do EVERYTHING by deception. As Tony Benn put it ’she said what she meant and she meant what she said’ can the same be said of New Labour?
She took on the left in the battle of ideas and obliterated them. The public were behind her every step of the way, even if they didnt like her personally, because they knew what she was doing was right. She never lost an election and her electoral mandate in 1987 was bigger than it was in 1979. If anything she got more popular with the public as time went on. What finished her off was the community charge aka poll tax. If it werent for that she could well have led us to victory in 1992.
I take your point that we were harder on the public. Tories are naturally reluctant to ’subsidise’ people because it creates a bad mentality. ‘If you give a mouse a cookie its going to want a glass of milk’. There is only so much the state can provide. A hand out only does so much good (and that is coming from someone who was raised in a council estate and has seen the damage and attitude that comes from a benefit culture)Its equality of opportunity not outcome that I support.
Moreover as my Grandad (again a socialist) said ‘people don’t know what struggling is today’. In our grandparents day they understood what it meant to struggle. They understood it wasnt the governments job to pick you up when you fall flat. You do it yourself and when times were tough you went without rather than looked for handouts. Today we don’t know what it is to struggle, we don’t know what it is to be self sufficient. That is why this country is up the swanny because we have got a lazy nation more interested in Jeremy Kyle than the politics of the nation.
We need to take a look back to the nation pre 1945 (ie pre welfare state) and realise it was a time when people had values. Yes they had it harder but it didnt do them any harm in the long term. Its about time we reasserted some good old fashioned conservative values of self reliance, respect and thrift. That way we might be able to get this country back on track. The left has never and will never have the answers to the problems this country face, if anything they are the root cause of them.
May 18, 2009 at 12:16 pm
Jamie,
Take the red pill. “Everything you think you know about the Great Depression is wrong.”
Yes, the common belief is that Hoover was a freemarketeer who did nothing and Roosevelt started the New Deal. It’s a myth. If you really want to see a free-market reaction to a recession, look at Coolidge.
http://www.lewrockwell.com/murphy/murphy155.html
“The Real Lessons of the Great Depression” by Robert P. Murphy.
“Hoover behaved as a textbook Keynesian after the stock market crash. He immediately cut income tax rates by one percentage point (applicable to the 1929 tax year) and began ratcheting up federal spending, increasing it 42 percent from fiscal year (FY) 1930 to FY 1932.
But to truly appreciate Hoover’s Keynesian bona fides, we must realize that this enormous jump in spending occurred amidst a collapse in tax receipts, due both to the decline in economic activity as well as the price deflation of the early 1930s. This combination led to unprecedented peacetime deficits under the Hoover Administration — something FDR railed against during the 1932 campaign!”
Indeed, Hoover did a heck of a lot. Roosevelt’s was legislatively very busy, but he didn’t increase government spending much more than Hoover.
(In fact, Roosevelt campaigned on a free-market platform against Hoover, but when he got into power did the exact opposite – he copied Hoover. Though this is strictly irrelevant, he also acted a bit like a dictator. For example, did you know that Roosevelt made private ownership of gold bullion illegal in 1933? He said that if the Supreme Court declared it unconstitutional, he’d do it anyway. Luckily for him, they didn’t.
Also, read about the “Court-packing plan”.)
Though official unemployment declined at first when Roosevelt took over, by 1939 it was back to 19%.
Now, I’d expect that. The government spends a heck of a lot of money – unemployment declines temporarily. But government spending continues to distort the economy, and eventually it can’t cope and unemployment rises again. If it weren’t for WW2, the failure of the New Deal would be clear.
The unemployment statistics you cite are misleading. See http://mises.org/story/3453
—-
It usually takes about half an hour for me to explain this orally, and it would probably take even longer to explain it to someone who doesn’t believe in economics. But here’s an attempt at a summary.
Basically, Austrian economists believe that the business cycle itself is caused by credit expansion – the government printing money. This causes a boom in the bond markets and credit markets first, before filtering through the economy. It’s not uniform like Hume’s Archangel Gabriel. Inflation is essential a transfer of wealth from the poor to the politically-well-connected. It’s theft.
Credit expansion causes artificially lower interest rates. More people want to borrow, but fewer people want to save. It’s classic price fixing, where the interest rate is the price of capital. The diagrams I linked to regarding minimum wages are applicable here too. The gap is plugged by the newly printed money. The price of borrowing capital becomes the price of borrowing money. Keynesians advocate this policy because they believe money is capital. But because it isn’t, the capital structure of the economy is distorted. There will be an unsustainable boom caused by malinvestment, followed by a recession. Printing more money will only postpone the recession, and when it hits it will be even worse. This recession is bad because Alan Greenspan prevented the previous two.
And that’s why the New Deal made things worse.
An amusing explanation is here: http://mises.org/story/3155
If you have an hour, this is a better explanation:
http://www.auburn.edu/~garriro/macro.htm
—
“it’s unforgivable for Government to do nothing in that situation?”
Correct. I’ve nothing against welfare. But Roosevelt could have done that without, at the same time, interfering with the economy. His interference did not help economic recovery, it retarded it, and therefore, on balance I consider the New Deal to have done more harm than good. So my compassion tells me that it was a bad thing.
May 18, 2009 at 9:53 pm
No, you are advocating a system based purely on theory, regardless of the social misery it causes. De-unionising, deregulating, and cutting social spending, lead to the equality gap widening hugely. Poverty figures rose sharply, and the homeless rate rose. And no matter how technical and dazzling your economic theory knowledge might be, it just doesn’t fit perfectly. Trickle down economics, did not trickle down. It left a generation of those less fortunate, unable to find the means to protect themselves and better themselves, and when it failed, the neoliberals simply resorted to calling those people “lazy”.
All it created was a legacy of greed, cultivated by the need to shit all over anyone who stands in your way of owning a new yacht. Suddenly community isn’t important, your neighbour is just collateral in your quest for obscene profit, and if someone fails (which deregulated capitalism depends on to survive) to become ultra successful, if they are in desperate need of help, they’re worthless and lazy.
No matter how much you dazzle us with economic theory, you cannot defend the huge social inequality caused by such a system.
May 18, 2009 at 11:29 pm
Yeah, I agree trickle-down is bollocks. But it’s a straw-man that no one ever advocated.
“A year ago this column defied anyone to quote any economist — in government, academia, or anywhere else outside an insane asylum — who had ever argued in favor of a ‘trickle down theory.’”
http://www.capmag.com/article.asp?ID=4686
http://www.capmag.com/article.asp?ID=4183
http://www.capmag.com/article.asp?ID=1115
I find your criticism of me odd, given that I have clearly said a few times how in favour of welfare I am (and that I think negative income tax is the way to do it).
May 19, 2009 at 8:16 pm
I must say: please study economics. You might even like it. And hopefully you might realise that it is possible for theories to accurately describe the world, and have predictive power.
Hell, as a start, even though it has nothing to do with what we have been discussing, why not just read the Wikipedia article on the theory of Comparative advantage.