For the most part, people share common goals. Most of us want poor people to enjoy higher standards of living, greater traffic safety, more world peace, greater racial harmony, cleaner air and water, and less crime. Despite the fact that people have common goals, we often see them grouped into contentious factions, fighting tooth and nail to promote polar opposite government policies in the name of achieving a commonly held goal. The conflict is centered around the means to achieve goals rather than the goals themselves. The policies that become law often have the unintended consequence of sabotaging the achievement of the stated goal.
Let’s look at a policy pushed by advocacy groups, politicians and poorly trained, perhaps dishonest, economists — mandated increases in the minimum wage. Nobel Prizewinning economist Paul Krugman claimed in a 2014 interview with Business Insider that there is actually not much risk of significantly higher wages hurting workers. He argued that low-wage workers are in non-tradable industries for which production cannot be moved overseas and are in industries in which labor cannot be easily replaced by technology. Krugman’s vision is one that my George Mason University colleagues and I try to correct.
Those who argue that the price of something can be raised without people having a response to it have what economists call a zero-elasticity vision of the world. For them, labor prices can rise and employers will employ just as much labor after the price increase as before. There is no evidence anywhere that people have no response to the change in price of anything. Plus, the longer a…
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