Minimum Wage 101
Libertarianism is often well known for its concerns over the use of government power in solving economic and social issues, primarily because such power often attracts the wrong people to wield it and can often do more harm than good (a government that is powerful enough to establish and enforce hate crime legislation is also a government strong enough to establish and enforce the fugitive slave act.) So when it comes to issues of tolerance, you won’t find a philosophy more celebratory of diversity and tolerance (a free market works because of a diversity of goods, services, firms, and individuals) but often lambasted for its refusal to cross the line of using government power to compel tolerance or intolerance (or compel anything in that matter).
Although, just because libertarians do not want to use government power to force social progress, it doesn’t mean libertarians shouldn’t express social values and engage in the discussion of social norms. Over time, social attitudes have changed to more tolerant ones. Tolerant in a greater way than just “I don’t mind those people” but extending to being able to share space and participation in social institutions such as entrepreneurship, leisure, and family. In the generation prior to mine this battle over tolerance was focused here in the U.S. over tensions between the African American and White populations, and in my generation it has been about tensions between homosexual and heterosexual populations. These days it’s not just that there is tolerance for African Americans and Homosexuals but widespread acceptance of their participation as business owners, as co-workers, consumers, and as part of household formation.
The struggle for tolerance and acceptance in the coming generation will have a lot to do with gender identity. We are currently witnessing controversy over how to handle bathrooms for transgender students, and physical assaults against them in photos on instagram or video on YouTube. While the transgender population has enjoyed an increase in tolerance along with homosexuals (the two populations are not the same despite often being lumped in the same category) acceptance of the transgender population still has a long way to go.
Now, tolerance and acceptance is not just about feeling good that peoples lives are a little bit better. It serves an economic and social function as well. A broader participation in economic institutions such as entrepreneurship benefits everyone, adding people to the labor force benefits everyone, but sometimes intolerance and a lack of acceptance can reduce participation in these institutions.
So how can libertarians improve tolerance & acceptance of Transgendered and other populations suffering intolerance at no fault of their own without the use of government force?
- Media: Shows like Cosby, Will & Grace, and other introduced these populations in a broader way not as a spectacle but as people with their own lives, challenges, and families. How about a sitcom with a transgender protagonist facing many of the same family issues we all do? The images we grow up with in our culture determine many of our sensibilities, so we should use this to our advantage. Transgender characters often do exist in media but often as a “spectacle” in roles that societies “allow” to be accepted (hairdresser, model, prostitute) but where is the transgender business owner or engineer (they do exist) in the public eye?
*The character of Sophia Burset in Orange is the new Black is by far the boldest transgender character on tv with complex family and health issues that make her interesting, although she is often found doing hair, thus keeping transgender activities in a narrow band.
- Support: Sometimes it’s just about breaking vicious cycles, many young children who open up to their parents are often cast out and forced to be runaways. Being ripped away from the support system of the family affects their ability to get educated and to later be able to participate in the traditional labor force. Fundraising and volunteering for shelters and education for runaway youth can help break the cycle.
While empowering government to solve social problems will often result in empowering them to create social problems, libertarians should not allow big government progressives to attempt to hold a monopoly on the fight for broader tolerance and acceptance of individuals of all types. We should come with a message not just more tolerance for a particular community, but that we want to include everyone in the greater community of individuals who can participate in social and economic institutions to all our benefit. We must make real front line efforts to advance these values through education and volunteering, and help craft the norms that make society wealthier economically and socially.
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 mobilityare 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 thefirms 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.
"Instead of just talking about how bad government solutions are I like to discuss how we can improve market solutions by reforming our institutions such as law/culture and our organizational structures to better serve society without have to centrally plan it."