The law of demand is a bummer - The Economist
Opening with a straw man, the Economist claims that raising the minimum wage requires that we forsake the law of demand: that “raising the price of something–low-skilled labor, in this case– will reduce demand for that thing.”
This is rendition likens Burger King to a folksy consumer walking the supermarket aisles and selecting labor from the shelves, alongside ketchup and fry oil. Raise the price of one of these items, and the company will buy less. How intuitive and homey an adage. Pity the fool that disagrees.
Yet unlike a consumer, a business buys goods and services not to consume them but to produce more. For this, the business in turn needs customers, the absence of whom in the Economist’s storybook depiction betrays their argument as willfully ignorant.
An increase in the minimum wage, in an environment of already-depressed employment, is in fact a form of forced (dare I say Keynesian) spending. Companies are mandated to pay more to the very employees most likely to spend nearly all the additional earnings back into the economy, raising aggregate demand and helping the Burger Kings of the world buy more of the goods and services with which they serve their customers. This is exactly the right prescription for a stalled, demand-starved economy.
Some alarmists in the other camp suggest that if raising the minimum wage to $9 will help the economy, why not raise it to $90? I am reminded of the grade school taunt “if you like it so much why don’t you marry it?” The argument for a minimum wage at $9 is not weakened by the deleterious effects of a minimum wage at $90, any more than the argument for lower taxes is weakened by the deleterious effects of government-free anarchy.
There are certainly conditions where wage policy is not the answer. When corporate profits are at record lows, employment is high, wages grow faster than the economy, the stock market is in a long-term slump, inflation has spiked and union membership is ever climbing. If the Economist wants to make the case that our current condition can be so described, I invite their attempt. Until then, let’s not bemoan a policy of helping those worse off than we in a way that actually helps us all.