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Explaining How Minimum Wage Laws Work Against Social Justice

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April 26, 2009 – Comments (74)

First, I want to present the argument developed by Professor Walter Block, one of Rothbard's many outstanding students, thirty two years ago.  It's as true today as it was then.  Minimum wage laws are most harmful to the very group of people that its supporters most wish to help.  Then I look forward to engaging any arguments in the comments section.   

THE FAT CAPITALIST-PIG EMPLOYER by Walter Block, 1976

 “If not for the minimum wage law and other progressive legislation, the employers, the fat-capitalist-pig exploiting employers, to be precise, would lower wages to whatever level they wanted. At best, we would be pushed back to the days of the sweatshop; at worst, to the days of the industrial revolution and before, when mankind waged an often losing battle with starvation.” 

So goes the conventional wisdom on the merits of minimum wage legislation. It will be shown, however, that this conventional wisdom is wrong, tragically wrong. It assumes a villain where none exists. What does the law actually accomplish and what are its consequences? The minimum wage law is, on the face of it, not an employment law but an unemployment law. It does not force an employer to hire an employee at the minimum wage level, or at any other level. It compels the employer not to hire the employee at certain wage levels, namely, those below the minimum set by law. It coerces the worker, no matter how anxious he may be to accept a job at a wage level below the minimum, not to accept the job. It obligates the worker who is faced with a choice between a low-wage job and unemployment to choose unemployment. Nor does the law even push any wage up; it only lops off jobs which do not meet the standard.

How would wages be determined in the absence of minimum wage legislation? If the labor market consists of many suppliers of labor (employees) and many demanders of labor (employers), then the wage rate will tend to be set in accordance with what the economist calls the “marginal productivity of labor.” The marginal productivity of labor is the extra amount ofreceipts an employer would have if he employs a given worker. In other words, if by adding a given worker to the payroll, the employer’s total receipts rise by $60 per week, then the marginal productivity of that worker is $60 per week. The wage rate paid to the worker tends to equal the worker’s marginal productivity.  Why is this so, in view of the fact that the employer would prefer to pay the worker virtually nothing, no matter what his productivity? The answer is competition between employers.For example, assume the worker’s marginal productivity is equal to $1.00 per hour. If he were hired at 5¢ per hour, the employer would make 95¢ per hour profit. Other employers would bid for that worker. Even if they paid him 6¢, 7¢, or 10¢ an hour, their profit would still make the bidding worthwhile. The bidding would end at the wage level of $1.00 per hour. For only when the wages paid equal the worker’s marginal productivity will the incentive to bid for the worker stop. 

But suppose the employers mutually agree not to hire workers at more than 5¢ per hour? This occurred in the Middle Ages when cartels of employers got together, with the aid of the state,to pass laws which prohibited wage levels above a certain maximum. Such agreements can only succeed with state aid and there are good reasons why this is so. In the noncartel situation, the employer hires a certain number of workers—the number which he believes will yield the maximum profit. If an employer hires only ten workers, it is because he thinks the productivity of the tenth will be greater than the wage he must pay and that the productivity of an eleventh would be less than this amount. If, then, a cartel succeeds in lowering the wage of workers with a marginal productivity of $1.00 to 5¢ per hour, each employer will want to hire many more workers. This is known as the “law of downward sloping demand” (the lower the price, the more buyers will want to purchase). The worker whose productivity was, in the eyes of the employer, just below $1.00, and therefore not worth hiring at $1.00 per hour, will be eagerly sought at 5¢ per hour. This leads to the first flaw in the cartel: each employer who is a party to the cartel has a great financial incentive to cheat. Each employer will try to bid workers away from the others. Theonly way he can do this is by offering higher wages. How much higher? All the way up to $1.00, as we have seen before, and for the same reason. The second flaw is that nonmembers of the cartel arrangement would want to hire these workers at 5¢ per hour, even assuming no “cheating” by members. This also tends to drive up the wage from 5¢ to $1.00 per hour. Others, such as would-be employers in noncartel geographical areas, self-employed artisans who could not before afford employees, and employers who had previously hired only part-time workers, would all contribute to an upward trend in the wage level. Even if the workers themselves are ignorant of wage levels paid elsewhere, or are located in isolated areas where there is no alternative employment, these forces will apply. It is not necessary that both parties to a trade have knowledge of all relevant conditions.

It has been said that unless both parties are equally well-informed, “imperfect competition” results, and economic laws somehow do not apply. But this is mistaken. Workers usually have little overall knowledge of the labor market, but employers are supposedly much better informed. And this is all that is necessary. While the worker may not be well-informed about alternative job opportunities, he knows well enough totake the highest paying job. All that is necessary is that the employer present himself to the  employee who is earning less than his marginal productivity, and offer him a higher wage. And this is exactly what naturally happens.

The self-interest of employers leads them “as if by an invisible hand” to ferret out low-wage workers, offer them higher wages, and spirit them away.  The whole process tends to raise wages to the level of marginal productivity. This applies not only to urban workers, but to workers in isolated areas who are ignorant of alternative job opportunities and would not have the money to get there even if aware of them. It is true that the differential between the wage level and the productivity of the unsophisticated worker will have to be great enough to compensate the employer for the costs of coming to the worker, informing him of job alternatives, and paying the costs of sending him there. But this is almost always the case, and employers have long been cognizant of it.  

The Mexican “wetbacks” are a case in point. Few groups have less knowledge of the labor market in the United States, and less money for traveling to more lucrative jobs. Not only do employers from southern California travel hundreds of miles to find them, but they also furnish trucks or travel money to transport them northward. In fact, employers from as far away as Wisconsin travel to Mexico for “cheap labor” (workers receiving less than their marginal product). This is eloquent testimony to the workings of an obscure economic law they have never heard of. (There are complaints about the poor working conditions of these migrant workers. But these complaints are mainly from either well-intentioned people who are unaware of the economic realities, or from those not in sympathy with these hapless workers receiving full value for their labors. The Mexican workers themselves view the package of wages and working conditions as favorable compared to alternatives at home. This is seen in their willingness, year after year, to come to the United States during the harvesting season.) It is not the minimum wage law, therefore, that stands between Western civilization and a return to the stone age. There are market forces and profit maximizing behavior on the part of entrepreneurs, which ensure that wages do not fall below the level of productivity. And the level of productivity is itself determined by technology, education, and the amount of capital equipment in a society, not by the amount of “socially progressive” legislation enacted. Minimum wage legislation does not do what its press claims. What does it do? What are its actual effects? 

What will be the reaction of the typical worker to a legislated increase in wages from $1.00 to $2.00? If he is already fully employed, he may want to work more hours. If he is partially employed or unemployed, it is virtually certain that he will want to work more. The typical employer, on the other hand, will react in the opposite way. He will want to fire virtually all of the workers he is forced to give raises to. (Otherwise he would have granted raises before he was compelled to.) Now, he has to keep production up, so he might not be able to adjust this situation immediately. But as time passes he will replace his unexpectedly expensive unskilled workers with fewer but more skilled workers and with more sophisticated machinery, so that his total productivity remains constant. Students of an introductory economics course learn that when a price level above equilibrium is set, the result is a surplus.

In the example, when a minimum wage level above $1.00 per hour is set, the result is a surplus of labor—otherwise called unemployment. Iconoclastic as it may sound, it is, therefore, true that the minimum wage law causes unemployment. At the higher wage level it creates more people willing to work and fewer jobs available. The only debatable question is: how much unemployment does the minimum wage law create? This depends on how quickly the unskilled workers are replaced by equivalently productive skilled workers in conjunction with machines. In our own recent history, for example, when the minimum wage law increased from 40¢ to 75¢ per hour, elevator operators began to be replaced. It has taken some time, but most elevators are now automatic.

The same thing happened to unskilled dishwashers. They have been and are still being replaced by automatic dishwashing machinery, operated and repaired by semi-skilled and skilled workers. The process continues. As the minimum wage law is applied to greater and greater segments of the unskilled population, and as its level rises, more and more unskilled people will become unemployed. Finally, it is important to note that a minimum wage law only directly affects those earning less than the minimum wage level. A law requiring that everyone be paid at least $2.00 per hour has no effect on an individual earning $10.00 per hour. But before assuming that the minimum wage law simply results in pay raises for low-wage earners, consider what would happen if a $100.00 per hour minimum wage law went into effect. How many of us have such great productivity that an employer would be willing to pay $100.00 for an hour of our services? Only those thought to be worth that much money would retain their jobs. The rest would be unemployed. The example is extreme, of course, but the principle which would operate if such a law were passed does operate now.

When wages are raised by law, the workers with low productivity are discharged. Who is hurt by the minimum wage law? The unskilled, whose productivity level is below the wage level legislated. The unemployment rate of black male teenagers is usually (under-) estimated at 50 percent, three times the unemployment level of the 1933 depression. And this percentage does not even begin to take into account the great numbers who have given up searching for a job in the face of this unemployment rate. The lost income that this represents is only the tip of the iceberg. More important is the on-the-job-training these young men could be receiving. Were they working at $1.00 per hour (or even less) instead of being unemployed at $2.00 per hour, they would be learning skills that would enable them to raise their productivity and wage rates above $2.00 in the future. Instead they are condemned to street corners, idleness, learning only those skills which will earn them jail sentences at some early future time.

One of the greatest hurdles facing a black teenager is looking for his first job. Every employer demands work experience, but how can the young black get it if no one will hire him? This is not because of some “employer conspiracy” to denigrate minority teenagers. It is because of the minimum wage law. If an employer is forced to pay for an experienced-level worker, is it any wonder that he demands this kind of labor? A paradox is that many black teenagers are worth more than the minimum wage but are unemployed because of it. In order to be employed with a $2.00 an hour minimum wage law, it is not enough just to be worth $2.00. You have to be thought to be worth $2.00 per hour by an employer who stands to lose money if he guesses wrong and may go broke if he guesses wrong too often. With a minimum wage law, an employer cannot afford to take a chance. And, unfortunately, black teenagers are frequently viewed as “risky,” as a class.

When confronted with a reluctant employer, a Horatio Alger hero could stride over manfully and offer to work for a token salary, or even for nothing, for a term of two weeks. During this time our hero would prove to the employer that his productivity deserved a higher wage rate. More important, he would bear with the employer part of the risk of hiring an untried worker. The employer would go along with this arrangement because he would be risking little. But the Horatio Alger hero did not have to do battle with a minimum wage law which made such an arrangement illegal. The law thus insures that there is less chance for the black teenager to prove his worth in an honest way. The minimum wage law hurts not only the black teenager, but the black ghetto merchant and industrialist as well. Without this law, he would have access, in a way which his white counterpart would not, to a cheap labor pool of black teenager labor. The young black worker would be more accessible to him since he tends to live in the ghetto and would have easier access to the job site. He would undoubtedly have less resentment toward, and a smoother work relationship with, a black entrepreneur. Since this is one of the most important determinants of productivity for jobs of this type, the black employer could pay his workers more than the white one could—and still make a profit.

Unfortunate as the effects on young black workers are, a greater tragedy of the minimum wage law concerns the  handicapped worker (the lame, the blind, the deaf, the amputee, the paralyzed, and the mentally handicapped). The minimum wage law effectively makes it illegal for a profit-seeking employer to hire a handicapped person. All hopes of even a modicum of self reliance are dashed. The choice the handicapped person faces is between idleness and governmentally supported make-work schemes which consist of trivial activities and are as demoralizing as idleness. That such schemes are supported by a government which makes honest employment impossible in the first place, is an irony few handicapped people would find amusing. Recently, certain classes of handicapped people (the slightly handicapped) have become exempt from the minimum wage law. It is, therefore, in the interest of employers to hire the “slightly handicapped,” and they now have jobs. But if it has been realized that the minimum wage law hurts the employment chances of “slightly handicaped” people, surely it should be realized that it hurts the chances of others. Why are seriously handicapped people not exempt? If the minimum wage law does not protect the individual it seems designed to protect, whose interests does it serve?  Why was such legislation passed?

Among the most vociferous proponents of minimum wage legislation is organized labor—and this must give us pause for thought. For the average union member earns much more than the minimum wage level of $2.00 per hour. If he is already earning $10.00 per hour, as we have seen, his wage level is in accordance with the law, and is not, therefore, affected by it.  What then accounts for his passionate commitment to it? His concern is hardly with the downtrodden worker—his black, Puerto Rican, Mexican-American and American-Indian brethren. For his union is typically 99.44 percent white, and he strenuously resists the attempts by members of minority groups to enter his union. What then stands behind organized labor’s interest in minimum wage legislation? When the minimum wage law forced up the wages of unskilled labor, the law of downward sloping demand caused employers to substitute skilled labor for unskilled labor. In the same way, when a labor union, composed mainly of skilled laborers, obtains a wage increase, the law of downward sloping demand causes employers to substitute unskilled laborers for skilled laborers! In other words, because skilled and unskilled laborers are, within certain bounds, substitutable for each other, they are actually in competition with one another. It might well be that it is 10 or 20 unskilled workers who are in competition with, and hence substitutable for two or three skilled workers, plus a more sophisticated machine. But of the substitutability itself, especially in the long run, there can be no doubt.

What better way to get rid of your competition than to force it to price itself out of the market? What better way for a union to insure that the next wage hike will not tempt employers to hire unskilled, nonunion scabs (especially minority group members)? The tactic is to get a law passed that makes the wage of the unskilled so high that they cannot be hired, no matter how outrageous the wage demands of the union are. (If minority groups could get a law passed requiring all union wages to rise ten times their present amount, they could virtually destroy the unions. Union membership would decline precipitously. Employers would fire all unionists, and in cases where they could not, or did not, they would go bankrupt.) Do the unions purposefully and knowingly advocate such a harmful law? It is not motives that concern us here. It is only acts and their effects. The effects of the minimum wage law are disastrous. It adversely affects the poor, the unskilled, and minority group members, the very people it was supposedly designed to help.

74 Comments – Post Your Own

#1) On April 26, 2009 at 7:05 PM, jdgee2 (< 20) wrote:

Thanks. Great article (sorry for absence of any argument).

[quote]Minimum wage laws are most harmful to the very group of people that its supporters most wish to help. [end quote]

This is more then theory. It's played out in the real world, with each forced minimum wage increase.

Still, the principle remains to be mostly non exsistant amoungst non conservative minded folks.

I wouldn't be surprised if the government would offer to pay the difference (increase) in employee per hour compensation. This in-turn, would allow the government to tell Ronald how to make his burgers and Happy Meals.

Best Wishes,

Jon

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#2) On April 26, 2009 at 7:31 PM, alexxlea (44.74) wrote:

You can get back to me on drivel like this once you've picked strawberries.

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#3) On April 26, 2009 at 7:41 PM, whereaminow (< 20) wrote:

jdgee2,

Agreed. It's more than theory. It's logic. Economics as a logical science is based on logical deductions from incontrovertible maxims. If you liked Block's argument, you may enjoy the entire book Defending the Undefendable. Free pdf here.

alexxlea,

I am not sure I understand your point. Does picking strawberries improve my understanding of minimum wage laws?  What about shoveling snow or having a paper route?  Why strawberries?  Is there something about strawberries that improves mental acumen?

David in Qatar

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#4) On April 26, 2009 at 7:51 PM, Rehydrogenated (32.26) wrote:

What were the original arguments when the minimum wage laws were first written?

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#5) On April 26, 2009 at 8:04 PM, whereaminow (< 20) wrote:

According to the occasionally reliable Wikipedia:

Until relatively recently, minimum wage laws were usually very tightly focused. In the U.S. and Great Britain, for example, they applied only to women and children. Only after the Great Depression did many industrialized economies extend them to the general work force. Even then, the laws were often specific to certain industries. In France, for example, they were extensions of existing trade union legislation. In the U.S., industry specific wage restrictions were held to be unconstitutional. The country's Fair Labor Standards Act of 1938 established a uniform national minimum wage for nonfarm, nonsupervisory workers. Coverage was later extended to most of the labor force.

In America, minimum wage laws became part of the government's war on poverty in 1933, as part of FDR's National Industry Recovery Act, which was an effort to cartelize certain industries under the newly created National Recovery Administration (NRA).

The NRA was almost identical to the Italian corporatist system that existed at the time. In Italy each trade or industrial group was organized into a government-controlled "corporative" association that had the power to plan production and pricing. In the U.S. the NRA organized each industry into federally-supervised trade associations called "Code Authorities" which could also limit output and set prices. The antitrust laws were explicitly set aside.

Over 700 industrial codes were created and were rigorously enforced by thousands of government code enforcers who, according to Roosevelt biographer John T. Flynn, "could enter a man's factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant." A hapless New Jersey tailor named Jack Magid became nationally famous after he was arrested, convicted, and imprisoned by the code police for the "crime" of pressing a suit of clothes for 35 cents when the Tailors' Code fixed the price at 40 cents. The NRA was ruled unconstitutional by the U.S. Supreme Court on May 27, 1935.  - Thomas DiLorenzo

http://mises.org/story/55

David in Qatar

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#6) On April 26, 2009 at 8:14 PM, whereaminow (< 20) wrote:

According to the U.S Department of Labor, the minimum wage is expected to increase this year to $7.25/hr effective July 24th. Last year it was raised to $6.55.  That's a solid 10% increase during a time when jobs are being lost at a near record pace.  I have a feeling that this will add to our unemployment numbers this summer rather than reduce them.

Cost of Labor in Strawberry Picking

I guess we should cover this, since it's all just drivel unless we focus on strawberries.  Good thing it's strawberry season.  A strawberry picker picks an average of 2 flats of strawberries per hour.  A flat of strawberry currently retails at $15/flat at the roadside market.  So the cost of labor for picking strawberries at current prices and a minimum wage of $7.25/hr is 24.2% of gross revenue.  Just want to throw that out there.

David in Qatar 

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#7) On April 26, 2009 at 9:06 PM, russiangambit (29.40) wrote:

An intresting thing about the minimum wage, that even if you provide additional benefits, for example in case of live-in nanny or maid (transportation, food, shelter) you still must pay the minimum wage, you cannot pay less even if the value of these additional benefits is significant.

So, another side effect is that minimal wage jobs are stripped of all benefits whereever possible.

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#8) On April 26, 2009 at 9:29 PM, whereaminow (< 20) wrote:

russiangambit,

Good point. Often overlooked.

David in Qatar  

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#9) On April 26, 2009 at 9:53 PM, imeasure (< 20) wrote:

Great Blog. 

From a former tomato picker and fast food worker (apologies for no experience picking strawberries). 

My favorite question to proponents of minimum wage laws is why stop at $7.25 an hour?

If $7.25 an hour can have the effect of mitigating poverty, wouldn't $20 per hour make them even better off? In fact, why not $50 per hour?

Of course people intuitively understand the impact if we were to do such a thing. Yet somehow they rationalize that it's only a 75 cent increase - surely that won't cause a problem.

Brent in St. Charles 

 

 

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#10) On April 26, 2009 at 10:23 PM, jawatt (< 20) wrote:

Would doing away with the minimum wage laws stunt technolgoical advances in productivity? 

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#11) On April 26, 2009 at 10:50 PM, whereaminow (< 20) wrote:

I wouldn't think so, but it's a good question.  Higher employment leads to greater competition.  Greater competition among businesses leads to advances in productivity.  Societies generally don't create as many technological advances in environments where competition is stifled. 

David in Qatatr

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#12) On April 26, 2009 at 11:03 PM, mts883 (< 20) wrote:

This is just more of the typical BS that comes out of the Austrian School of Economics. We have had minimum wage laws in place for decades and yet we still managed to make vast improvements in both economic growth and the standard of living. Yes, the employment situation may get worse in the near term, but it has nothing to do with a 10% increase in the minimum wage. I have been to the mises institute's website, I have read their articles, and I have no idea how anyone can take their point of view seriously. 

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#13) On April 26, 2009 at 11:19 PM, tonylogan1 (28.24) wrote:

david - It's comments like the great strawberry enlightenment #2 that make you want to just stop posting altogether... but alas, hang in there.

To add to the thread... the minimum wage also serves as an effective glass ceiling to many labororers, since many employers hiring at minimum wage know they can find someone to do the job for that wage, it can be difficult to find work even slightly above the minimum.

If there was no minimum, each employer would look to find the wage that would keep people employed, and without a near guaranteed pool of laborers available at the minimum, the wage may end up higher.

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#14) On April 26, 2009 at 11:43 PM, GADawg (< 20) wrote:

mts883,

If I follow your logic, if you get stabbed in the stomach, but don't die, then getting stabbed in the stomach is good for you?

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#15) On April 27, 2009 at 12:36 AM, starbucks4ever (97.89) wrote:

That's only a theory. In practice, the average American employer expects you to demand $30 or more, and feels about low-wage workers the same way most of us feel about penny stocks. Even if we were to remove all wage controls tomorrow (which I support wholeheartedly), there will be very little new hiring at sub-$10 levels. You should never forget about psychology, it's a more powerful force than enlightened self-interest.

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#16) On April 27, 2009 at 1:04 AM, MikeMark (29.51) wrote:

Great article David.

As a pre-teen I made $.50 per hour working for my dad on some of his construction sites in the mid 1970s. At the time, I didn't know that min wage laws existed. As I think back on it, I'm glad they didn't apply to me (or if they did, I'm glad dad's a free thinker). Working on those sites taught me alot, and made it possible for me to have and do much. Now, as a business owner, I've hired people usually at higher than minimum wage, but I demand that they have a good knowledge background. Rarely do I hire at min wage. Although that may change with the current conditions.

By the way:
Where are you now? ;)

-mikemark

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#17) On April 27, 2009 at 1:20 AM, redneckdemon (< 20) wrote:

I have picked strawberries, mayhaws, blackberries, watermelon, and apples.  I have also worked as a roofer for 45 bucks a day, mowed lawns for 5 dollars an hour, been a carny for 50$ a day, and applied for over 30 minimum wage jobs before joining the military. 

I was declined for the jobs I applied for, due to "lack of experiance", even though they were sometimes the same kind of jobs I had been doing while being paid "under the table".

 When I needed cash and couldn't get hired at minimum wage, I found a job that would pay me less, and provide steady employment.  The work sucked, but I got payed.  It sure beat being broke.

As for how anyone could take this point of view seriously, it was pretty easy for me, as I saw it firsthand.  I can't speak for the labor union thing, but a little logic and some common sence lead me to believe it to be an acurate theory.

 

Thanks for the great post, David.

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#18) On April 27, 2009 at 9:35 AM, devoish (96.28) wrote:

And once again, David, your example of a country with no minimum wage laws?

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#19) On April 27, 2009 at 10:18 AM, OleDrippy (37.20) wrote:

I agree in theory, but in practice I think it is not so clear. I've gone form dishwashing, to cooking, to enlisted military, to commissioned military, back to civilian. I also happened to marry into a very wealthy family.

Your implication is that we all are paid (or should be) in accordance with our marginal production. I don't believe, in general, our system operates like that. For one, in most cases it is extremely difficult to determine how each employee's labor translates to the bottom line. Mine is easy, since I am in sales. The strawberry picker is probably easy. What about the middle manager, the compliance officer, the secretary, the president or CEO? I believe the argument FOR minimum wage hinges on the fact that those less clear wage earners may be earning a disproportionate wage relative to their actual productivity.

Is a person making 1.5 mil a year REALLY 75 x more productive than a person making 20k? I used to think they must, but now that I've seen the inner workings I'm not so sure. I know how much that person works now, and I can see how the position and pay IS NOT due to skill and productivity (though he is skilled, I'm sure). It is mostly due to sticking with the company for a long period of time, politics, hard work, and luck. NOT skill and certainly not productivity.

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#20) On April 27, 2009 at 10:28 AM, Deepfryer (27.86) wrote:

Ok so your point is that because of minimum wage laws, companies can't hire as many people. It took how many hundreds of words for you to express that?

One thing you're ignoring is that in many cases, your logic doesn't apply at all. Example: you need exactly one janitor for your company, to come in and sweep the place every day. You're going to hire them whether it costs you $5 or $10 per hour. It doesn't really make a difference to the company, because you need to get the job done... and we're really not talking about a lot of money here. But it makes a big difference to the janitor.

Your logic may apply to situations where there are a large number of unskilled workers, but I don't think the decrease in unemployment is as large as you think, and it's offset by the fact that employers will be able to achieve a living wage, instead of working for $2/hr. If you disagree, why don't you post some examples from countries with no minumum wage laws, as Devoish asked? Do those places have a higher standard of living?

Also it's interesting that you brought up unions because I was going to do the same thing. Many unskilled workers are represented by unions, and therefore they basically already have a "minimum wage" within that industry. Why should other workers (tobacco pickers, landscapers, etc) be penalized because they happen to work in an industry without an organized union? It is so unreasonable for our elected officials to implement a minimum wage, for people who don't have a union to represent them?

"In other words, because skilled and unskilled laborers are, within certain bounds, substitutable for each other, they are actually in competition with one another".

This is absurd. Plumbers and electricians know how to do their jobs. You can't hire just anyone off the street to do these jobs safely and competently. If I need electrical work done, I would much rather have 1 skilled electrician than 100 or even 1000 unskilled workers trying to do the same job. This applies to almost every industry.

"I wouldn't think so, but it's a good question.  Higher employment leads to greater competition.  Greater competition among businesses leads to advances in productivity.  Societies generally don't create as many technological advances in environments where competition is stifled."

Now you're just contradicting your own example of the elevator business, and the fact that elevators are now automatic. You don't think automatic elevators and automatic dishwashers are more efficient and productive than doing these jobs by hand?

There's a reason why only white, conservative, high-income people "understand" your points and oppose the minimum wage: because your points are a bunch of crap.

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#21) On April 27, 2009 at 10:29 AM, Deepfryer (27.86) wrote:

Ok so your point is that because of minimum wage laws, companies can't hire as many people. It took how many hundreds of words for you to express that?

One thing you're ignoring is that in many cases, your logic doesn't apply at all. Example: you need exactly one janitor for your company, to come in and sweep the place every day. You're going to hire them whether it costs you $5 or $10 per hour. It doesn't really make a difference to the company, because you need to get the job done... and we're really not talking about a lot of money here. But it makes a big difference to the janitor.

Your logic may apply to situations where there are a large number of unskilled workers, but I don't think the decrease in unemployment is as large as you think, and it's offset by the fact that employers will be able to achieve a living wage, instead of working for $2/hr. If you disagree, why don't you post some examples from countries with no minumum wage laws, as Devoish asked? Do those places have a higher standard of living?

Also it's interesting that you brought up unions because I was going to do the same thing. Many unskilled workers are represented by unions, and therefore they basically already have a "minimum wage" within that industry. Why should other workers (tobacco pickers, landscapers, etc) be penalized because they happen to work in an industry without an organized union? It is so unreasonable for our elected officials to implement a minimum wage, for people who don't have a union to represent them?

"In other words, because skilled and unskilled laborers are, within certain bounds, substitutable for each other, they are actually in competition with one another".

This is absurd. Plumbers and electricians know how to do their jobs. You can't hire just anyone off the street to do these jobs safely and competently. If I need electrical work done, I would much rather have 1 skilled electrician than 100 or even 1000 unskilled workers trying to do the same job. This applies to almost every industry.

"I wouldn't think so, but it's a good question.  Higher employment leads to greater competition.  Greater competition among businesses leads to advances in productivity.  Societies generally don't create as many technological advances in environments where competition is stifled."

Now you're just contradicting your own example of the elevator business, and the fact that elevators are now automatic. You don't think automatic elevators and automatic dishwashers are more efficient and productive than doing these jobs by hand?

There's a reason why only white, conservative, high-income people "understand" your points and oppose the minimum wage. Hint: it's not because you're right.

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#22) On April 27, 2009 at 10:31 AM, whereaminow (< 20) wrote:

imeasure,

As always, good to hear from you. In a similar vein, there was an economist that once tried to make the case that raising the minimum wage increased employment.  So, in response, we ask him, why doesn't every country with high unemployment just raise the minimum wage?  The answer of course is that his theory was false.

mts883,

Is it possible that advances in economic growth and standard of living have happened in spite of the minimum wage, rather than because of it?  Since we can prove without a doubt that a minimum wage is detrimental to society, the answer is the latter.  Now if you can show that minimum wage increases economic growth, then you will have an argument.

tonylogan1,

Agreed on all points, but I don't let posters like #2 bother me. I just have fun with them, which some view mistakenly as arrogance.  It's not. I'm just having a good time.

GADawg,

That's pretty much the logic he employed there.  Thanks for the comment.

zloj,

Things never change overnight.  Employers would have to adjust costs to reflect the new labor pool available.  I do suspect, however, that if wage laws were repealed the market would adjust very quickly. It usually does so long as the State does not interfere.

MikeMark,

Good points all. I'm still out here in the desert. Thanks for asking!  I'll be travelling through California, Chicago, and DC in May-June however.  Hopefully i can check in and say hi while I'm on the road. :)

redneckdemon,

Thanks for sharing your story! Great stuff.

devoish,

Qatar has no mimimum wage, nor does the UAE, and surprisingly Sweden which uses collective bargaining for all wages.

http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country

David in Qatar

 

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#23) On April 27, 2009 at 10:31 AM, jdgee2 (< 20) wrote:

To devoish (comment #18),

Good point. I'd guess that most country's with no minimum wage laws, have impoverished 3rd-world-like conditions. If true, that suggests to me that minimum wage laws probably wouldn't workout very well in those countries either, but for different (from USA), reasons.

Ask any small business owner what their opinion is, on this topic. If a person automatically dubs the non believer of minumum wage law as a "fat-capitalist-pig exploiting employers", than I'd conclude the difference of opinions is based on much-more than the miminum wage issue. 

To:David in Qatar -> I like free books! Thanks for the link (reference comment#3)

Best Wishes,

Jon

 

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#24) On April 27, 2009 at 10:36 AM, Deepfryer (27.86) wrote:

Sorry for the double post.

Oledrippy is obviously correct in his reasoning. The CEOs of Citigroup, Bank of America, etc, are obviously being paid more than their marginal production. Can marginal production be a negative number? :)

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#25) On April 27, 2009 at 11:34 AM, whereaminow (< 20) wrote:

ALCON,

It is irrational to judge a policy by how many countries have adopted it.  Zimbabwe has a minimum wage.  What does that prove?  The policy must be judged on its own merits.  Nearly every country in the world has adopted a plethora of horrible and counterproductive policies throughout history. Shall we start making a list of all the horrible ideas that countries, governments, kings, democracies, and tyrants have enacted?  Does the fact that these policies were widely accepted prove their superiority? Of course not.  The policy must be judged on its own merits.

Arguing that a policy is good merely because it is supported is not an argument. It's a debate tactic.  Nothing more.

On its own merits, minimum wage laws are a failure.  It has been shown time and time again that they harm the very people they intend to benefit.  This is not theory.

In fact, it is minimum wage law that is theory.  Human society operated without a minimum wage for thousands of years.  During that time, no economist ever said, "Hey this is all good in theory but it's nothing more than that."

Instead, economists paid by the State worked out a tremendous number of theories that would increase State involvement in economic activity. One of these theories is the minimum wage law.

Deepfryer and OleDrippy,

Companies make mistakes in valuation all the time.  That's part of business.  Now, what happens when a company repeatedly hires employees at a higher marginal production rate than their labor would justify, whether it be management or labor?  They go bankrupt.  Unfortunately, what you are witnessing is government intervention in the marketplace, which props up big business under the guise of saving labor.  Nearly every industry in America is cartelized, particularly the banking industry, in order to protect big business at the expense of labor.  Yes, there is an example of negative marginal production - the end result of government intervention.

David in Qatar   

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#26) On April 27, 2009 at 12:10 PM, OleDrippy (37.20) wrote:

David:

I am not even considering the bank situation. Beating up on the bank CEOs is too easy. I am talking your general, run-of-the-mill, businesses.

It just appears the compensation pool is extremely skewed and concentrated in the hands of a very few. Those very few, IMO, are hoarding insane amounts of wealth not due to expertise or production, but because they have "played the game" the best.

I used to be an Ayn Rand fan and free market zelot. I now find myself realizing that markets are NOT efficient and they certainly aren't free. Textbook theory and economic assumptions do not translate to human behavior or reality. I am not sure what the alternative is, but I am saddened that my ideals I held so strongly have been shaken to the core.

For the record: I appreciate your intelligent posts and, honestly, I wish you were right.

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#27) On April 27, 2009 at 1:05 PM, bostoncelitcs (45.38) wrote:

The United States does not torture. 

God help us to be human.

 

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#28) On April 27, 2009 at 1:12 PM, devoish (96.28) wrote:

Dave tells us: 

 Qatar has no mimimum wage, nor does the UAE, and surprisingly Sweden which uses collective bargaining for all wages

Perhaps you could help me to undestand the use of the term "minimum wage" in article 14 of the Qatari Labour Law then? It reads to me as though the Ministry of Civil Service Affairs and Housing sets a minimum wage based upon its judgement of the value of that labor and does not leave such a decision to people who may be choosing to enrich themselves at the expense of their Qatari employees or the machinations of a purely imaginary free market.

Article 14:

The vocational training contract shall be in writing and therein shall specify the type of the trade or craft on which the Apprenticee is to be trained, the period of the training, its consecutive stages and the wage to be paid to the apprentice provided that the wage to be paid to the apprentice in the last stage of the training shall not be less than the minimum wage prescribed for similar work.

The wage of the apprentice shall not be fixed on the basis of the piece or production.

So while the minimum wage of a camel jockey might be less than the minimum of a carpenter, there certainly is a minimum wage in Qatar and the free market is not allowed to function unimpeded.

Curiously, Qatari labor law does not apply to agricultural workers or domestic servants.

 

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#29) On April 27, 2009 at 1:18 PM, whereaminow (< 20) wrote:

devoish,

Thanks for the clarification.  You really are learning a lot about Qatar. Hopefully, you'll come to visit here someday.

It still does not matter. As I said, every country in the world could adopt the policy of beating horses with tennis shoes. That wouldn't prove the merit of the policy, just the stupidity of political leaders.

As silly as that sounds, at one time or another, every country in the world has adopted some nonsensical, or tragic, policy.  Does the fact that a policy adopted prove that it is a good policy?  Or does it simply prove that some people are very good at exercising power over others?

David in Qatar 

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#30) On April 27, 2009 at 1:38 PM, jmt587 (99.84) wrote:

I think Ole Drippy up in # 19 has it right.

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#31) On April 27, 2009 at 1:53 PM, devoish (96.28) wrote:

David,

I have read much of what you have linked to.

Mises is a marketing campaign designed to persuade me to surrender the meager power of my vote. No deal.

No different than a McDonalds commercial, just longer.

jmt587. Agreed, Ole Drippy is correct.

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#32) On April 27, 2009 at 2:00 PM, LawfordCap (99.74) wrote:

the only point I would make is that your argument does lean heavily on equilibrium theory and the premise of rationality....and we all know that there are cases where you can question these assumptions in modern markets.

You may not have absolute monopolies but I think geographically you have pseudo monopolies tied to the natural barriers to free movement of information and labor…which can lead to asymmetries in the bargaining power of the different participants. Bush showed it is not always wise to focus on your narrowly conceived power imbalances as the basis of interaction. There is another way a way where we don’t get caught in the prisoners dilemma of individualism.

From a different angle we could ask does greater income inequality lead to great contentment. You could argue that a social safety net for the unemployed, the disadvantaged and the discriminated acts in a similar way to a minimum wage, as an individual will weigh up the opportunity cost…. Not all humans are born equal…is it fair that those where fate cast a shadow, be forced to shine the shoes for a pittance of those who were lucky enough to be born with the skills needed to succeed in sterile mega cities?

From and evolutionary point this is not even where we came from and I would bet the current culture of individualism is not going to last forever….. man is more content when his living is at the  community level rather than at a competitive survival mode level? A child needs a stable home environment to be able to explore and develop his natural creative abilities can you not take the same view of society at large…do we not all have a child in us? Social safety nets and minimum wages are very similar in that they help provide the stability needed to take the risks that often lead to creativity. If this is not the case I would still argue that when the child of a single parent matures they will pay back society more than the social cost of a minimum wage at wallmart…really those extra hours spent helping with home work can really make all the difference.  Failing to realize this is really naïve and please don’t even attempt to give me the argument that Wallmart does not have a monopoly on employment in some geographic locations and that single parents can be dragged around from place to place where ever the economic winds may happen to blow. The greater the asymmetries in information and power the less likely we will resolve the prisoners dilemmas we face.

Well I guess it turned into rather a long point but its hard to balance simple logic

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#33) On April 27, 2009 at 2:03 PM, LawfordCap (99.74) wrote:

Maybe my simple spelling a grammar will do the trick ;-)

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#34) On April 27, 2009 at 2:12 PM, OleDrippy (37.20) wrote:

# 32 ) LawfordCap

You made my point better than I. Well said, sir.

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#35) On April 27, 2009 at 2:57 PM, whereaminow (< 20) wrote:

LawfordCap,

"The national average for regular hourly Walmart wages is nearly twice the federal minimum wage, and higher in urban areas." 

http://walmartstores.com/FactsNews/

Is your argument based on the premise that WalMart pays minimum wage? They have always paid much higher wages than the minimum. They can afford to pay for higher skilled labor thanks to their superiority in distribution.

On the flip side, WalMart has consistently lobbied for a raise in minimum wages.  They do this knowing full well that it will have no effect on them (again, WalMart's lowest labor costs are well above minimum wage).  Rather, they know that it will drive marginal retailers out of business, those that depend on lower skiled labor for a competitive advantage.

Even similar stores such as K-Mart can pay lower wages, and that can make the margin of difference. K-Mart pays over a much wider range, as low as $6.75 an hour. A major competitor is mainstream grocery stores, where workers do indeed start at minimum wage. Target too pays starting employees less than Wal-Mart, if the Target Union can be believed.

Once again, we see that minimum wage laws disrupt compeitition, run counter to Social Justice, and work in opposite of the intentions of those who support them.

David in Qatar

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#36) On April 27, 2009 at 3:12 PM, whereaminow (< 20) wrote:

LawfordCap,

Rationality is not a requirement for a functioning market economy, nor am I aware of any premise of irrationality in economics. 

If I were to advise someone to act rationally, I'm not denying the capability of that person to act irrationally.  I am only advising a rational course, knowing full well that it is superior to an irrational course of action.  Rational and irrational action are human nature.

The only economic system that I am aware of which requires rational action to be viable is Socialism.

David in Qatar

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#37) On April 27, 2009 at 3:55 PM, RVAspeculator (29.57) wrote:

David... 

I was going to post quite a few things to back up your post but I see you have already covered them in the comments section....

 "Rationality is not a requirement for a functioning market economy, nor am I aware of any premise of irrationality in economics.  "

ding ding ding!

Preach on David...  There are those of us out here that still believe a REAL free market system actually works, we are just becoming harder to find and less vocal in these times we are living in.   :)

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#38) On April 27, 2009 at 4:24 PM, LawfordCap (99.74) wrote:

the argument is not with the points you make but rather an attempt to point out the ones you leave out...

It is the implicit assumption that monopolies do not exist...we all know that cartels can persist for far longer than our theories about them.

But please don’t read that i am saying that Wal-Mart is part of a cartel... i am just pointing out that maybe the disadvantaged the "aborigines" are not all that lucky to have the blessings of capitalism even with all its associated "freedom". What is the freedom to work for 1 dollar an hour...i will get to the Mexicans in a bit?

Sure you may have less people with jobs...BUT that should not always be viewed as lower unemployment... why can it not be seen as more mothers investing in the next generation or more people retooling their minds with education?

Mexicans do not have these same options they do not have the safety nets hence 1 dollar an hour can be seen as a great option...but acting at the country level for the citizens of that country there is another way...but lets not start considering the value Rome has to the non citizens just yet that can be another day when we consider the value of different rates of evolution or change. Or the value of global safety nets even say the IMF

I am rather making the point that redistribution from those who were born with a greater competitive advantage over others at a particular point in time can even benefit from redundancy cover... safety nets...sovereign wealth funds...or even pinoches copper price buffers if you like ;-)

I argue to things that are both related... there is value in stability and society will get greater returns from investing in the freedom to reeducate for those who need or want it... and the ability to effectively educate the next generation.... i am certain that the value of investing in these measures will surpass the "what ever" can be made from investing that which is left from a 1 dollar per hour wage into some ponzi scheme.

We all need hope and the opportunity of reeducation…. 1 dollar an hour generational poverty trap does not really do it.

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#39) On April 27, 2009 at 4:52 PM, LawfordCap (99.74) wrote:

ravaspeculator:

 

Think portfolio theory and the value of stability... you can add an asset that even takes a loss as long as it is anti correlated. You just need to think it in terms of sharpe ratios. Heavens forbid....this is where you could also find the value of certain targeted subsidies. But you dont need that you can also think interms of the value of the moon landing, fundamental research, art galleries, going toWW2, or even 1 person one vote.

Additionally if you want the rational of irrationality in economics

 http://www.informaworld.com/smpp/content~content=a783684256~db=all

The irrational in economics is to assume its only rational

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#40) On April 27, 2009 at 6:44 PM, whereaminow (< 20) wrote:

LawfordCap,

I am happy in the fact that we both share the same goals. We want to improve the lives of others through our ideas.  My point here is to show that this particular idea fails in that respect. Now I can't possibly know whether people out of work are retooling their education or caring for their children, although it's fair to point out that many people do those things while working if given the choice. So I can make no further comment on that. I will however suggest that minimum wage laws remove the choice for those individuals. They can not choose between working and not working in order to fulfill these other desires. They are coerced out of work. 

I do not deny the existence of inequalities from birth, nor the need to give assistance to those who suffer from inequalities. I do, however, have faith in my fellow human to be charitable when necessary. I don't know of any study that has shown humans to be uncharitable people. The standard dogmatic view of government interventionists is that only the government can be the vehicle for equitable charity. I dispute this on the basis of historical fact, as governments have typically been absolute trainwrecks in their attempts to help those in need, e.g. Minimum Wage Laws.

I am also aware that certain geographical limitations make it virtually impossible for citizens in Karachi, Pakistan to see significant improvement in their well being due to free market capitalism practiced in a far away land.  However, that leaves out the question of why that citizen suffers from such a horrible economic situation in the first place, particularly the presence of despotic, corrupt, and overbearing governments for centuries. 

The market is not a panacea, nor is it intended to be.  For the religious, only the supreme Lord is the panacea.  I don't have the answers to those questions.  I do, however, understand that without a functioning market economy anywhere in the world, that poor chap in Karachi would still be in a terrible lot. 

History shows me that we were once all in the same situation as that poor Pakistani. Now, however, many people are significantly better off. I don't assign all of these improvements simply to the advancement of the market economy, but I'm not going to deny its record either.  

David in Qatar 

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#41) On April 27, 2009 at 8:49 PM, LawfordCap (99.74) wrote:

 

I am for free markets just not 100%

can you not argue that some form of income redistribution if it relates to developing the resources latent in the future generation should result in handsome payoffs when the assets bear fruit…its like investing in fundamental research, science maths and arts. We cannot predict which child will be the next warren buffet so we invest in the way Markowitz did with his retirement fund… Evenly in all asset classes…he knew future correlation is not very predictable.

It is the Austrian school I argue against those that believe there is already a price mechanism for this? Or if there is not its not understandable in economic terms. In my view the Austrian school has little relevance to the human condition because it fails to realize that on the Savannah the individual does not exist for long. Sure there is charity but our natural tendency to charity evolved in small communities where we know each other and we know we are playing multiple games when we interact with an individual. When populations rise above our limits to remember all those in the society, and the probability of meeting the same disadvantaged person again drops  we have a transition from something like infinitely repeated games towards finite games or even single games. If you can see what i mean. It is rather the 100% efficiency of capital markets to capture all forms of human and social value that I question...it is constanly increasing but it is not there yet and that is not because we do not understand it as the Austrian school would say but rather that markets have not yet developed the ability to capture the long term view. Like the problem with over fishing to name just one.

http://en.wikipedia.org/wiki/Repeated_game 

 

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#42) On April 28, 2009 at 1:17 AM, streetflame (30.14) wrote:

David - Your discursion on unions and race is nonsense.  US unions are about 14% black and 12% Hispanic.  Union leadership supported the Civil Rights Amendment in the 60s and now supports amnesty for illegals as part of immigration reform.

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#43) On April 28, 2009 at 2:25 AM, DaretothREdux (36.76) wrote:

 streetflame,

The article was written in the 70s....clearly the numbers have changed, but the politics have not.

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#44) On April 28, 2009 at 3:05 AM, GADawg (< 20) wrote:

LawfordCap,

I'm equally suspicious of government as you are of private parties. You seem to argue that we can't trust private parties to be equitable in their dealings, so we should remove their choice and trust our government leaders to be equitable. Given that government leaders are people too, the only difference between the two alternatives is that your preferred system results in a loss of freedom for private parties. I say the only thing worse than an inequitable situation is an inequitable situation without freedom.

To paraphrase Churchill, it's been said that capitalism is the worst economic system except all the others that have been tried.

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#45) On April 28, 2009 at 6:16 AM, LawfordCap (99.74) wrote:

GADawg

In your assumptions regarding freedom you are assuming freedom increases linearly...hence the sum total of global freedom is independent of income distribution. I would argue that the increase in the quality of life... the freedom an individual has is in fact highly nonlinear and follows something more like a log distribution with income...(the rate of increase at lower incomes is faster than at higher incomes). Doubling the income of those on the poverty line has a larger impact than doubling the income of you or me. Hence you need to consider that the freedom income relationship is in fact curved and as such income redistribution can have benefit to society, the point then becomes what levels of inefficiencies in redistribution can be tolerated.

I am pro the free market for sure but in the areas that have been effectively monetarized...I am a trader for starters.

I am all for evolution... the trouble is people do not look at what evolution has created, they do not realize that multi cellular organisms came from unicellular ones...there is both facilitation and competition in ecology and valuable systems higher than the level of the individual do in fact exist. Where did goverments come from? Maybe we need to consider that evolutionary can also occur at the community level at the ecosystem level and if you want to go that far at the global level. The Austrian school ignors this.

One needs to recognize that not all that is of value to man has been monetarized yet or can be framed in terms of individualism. Evolutionary processes occur outside the monetarized sectors and the monetarized and non monetarized sectors can influence each other in a positive way…. Consider in a broad way what the US was built on? The Austrian school assumes that that which is not monetarized can not have a value assigned to it because it assumes that if they have a value the market will find the way to monetarize it. But what if the financial tools are not been created yet…. Taking the Austrian approach one has to assume that there is no value in stopping over fishing, stopping cutting down rainforests and government funding to battle swine flu or to even do research into epidemiology.

How do you propose we effectively monetarize the value of a child or the value of the fish in international waters, maybe one day we will be able to but are we there yet? Financial innervations do not yet cover all that is of value in Life. I would argue that the Austrian school is wrong and we should not ditch all that is not yet monetarized.

Long live evolution at all levels.

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#46) On April 28, 2009 at 10:50 AM, whereaminow (< 20) wrote:

LawfordCap,

Your argument is incredibly materialistic.  While at no time during this discussion have I, the author I quoted, or fellow free market advocates ever tied success to income levels, you have done so on several occasions.

We do not deny that income inequality exists. We just don't care. We don't care because we judge success by accomplishments not by money, as the two are only partially related.  We measure success by what we overcome to be successful, by how much hard work we put in, not by the amount of income we receive.

Your preoccupation with material wealth as a measure of success is what drove me away from modern liberal thought. I only have to flip on the Bravo channel and watch 20 minutes of the Real Housewives of NYC to see the materialism of Socialists in full detail.

If one were to only judge success by what value they provide to the market place, then money would be the ultimate judge of success in a free market.  Thankfully, free market advocates are not stupid people.  I know of no free market advocate who thinks such nonsense.  Not Rothbard.  Not Mises.  Not Hayek.  Not Friedman.

However, if we take of read of Ludwig Von Mises' essay The Anti-Capitalist Mentality (available free here), he pinpoints many of the psychological problems that lead Socialists to focus on material wealth as the ultimate measure of happiness and success. 

In the free market, no man can make excuse for himself.  Should he fail to provide any value to the market, he will find himself in poverty rather quickly.  In today's market, he can scam the system, but of course these scammers are a product of the State's university system, and they are quite adept bureaucrats and nothing more.

So the man who looks at a college dropout that has made himself a fortune by providing value is ashamed.  He can't blame it on the whims of a cruel lord or bureaucrat.  The intellectual who spends years theorizing about the Irrationality of the markets can not comprehend the simple idea that the market is just a collection of individual actors, each acting irrationally and rationally.  "How can these fools earn such great wealth?  Isn't the service I provide just as great?  There must be something irrational about all this," says the Professor.

The final flaw in your analysis is the belief that State education can solve the inherent deficiencies as you refer to them by bringing out the latent abilities of our disadvantaged children.  You obviously know very little about the methods employed in State schools. 

Explain to us why the State changed the definition of Learning from:

"The drawing out of a person's talents and abilities by imparting the knowledge of languages, scientific reasoning, history, literature, rhetoric, etc. - the channels through which those abilities would flourish and serve." - The New Century Dictionary of the English Language, 1927

Into this:

Learning is the result of modifiability in the paths of neural conduction. Explanations of even such forms of learning as abstraction and generalization demand of the neurones only growth, excitability, conductivity, and modifiability. - An Outline of Educational Psychology, 1934

You are expecting the State to take our resources and use them to bring out the innate abilities of the disadvantaged, yet you seem completely unaware that the State education system views children as merely "human capital" and a set of neurones that make up an input-output system to be modified.

David in Qatar

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#47) On April 28, 2009 at 12:01 PM, OleDrippy (37.20) wrote:

Excellent debate.. I really appreciate # 44 by GADawg.. It appears no matter what the power remains in the hands of the few.

It would be nice to have the ability to open a salon in CA without going through the bureaucracy of attaining 11 licenses (not that I really want to open a salon). I wonder who really benefits from that legislation, the little guy trying to open a salon, the entrenched salon business owner, or the politician?

 

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#48) On April 28, 2009 at 12:58 PM, LawfordCap (99.74) wrote:

I agree with you whereaminow there is huge value in the part of our living that is not monetarized. I would be stupid to point out the value of the Theory of relativity of pointing you to teh economic value of GPS..…but now we both agree on this. However basic research does partly depend on the monetarized sector.... or are you suggesting that our current crop of potential Einstein’s be forced to work in a patent office before they can study if their parents happen to be poor? Or have I mises the point.

 

I am all for capitalism…I just recognize there are some benefits to be had by some level of income redistribution. You dont want to modify the income distribution too much because you dont want to significantly alter the incentive landscape.

But you need to be open to the possibility that just maybe inequality can have a cost that is greater than redistribution costs and the cost of modifying the incentive landscape just a little in the tail end.

 

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#49) On April 28, 2009 at 1:04 PM, bostoncelitcs (45.38) wrote:

The market is not a panacea, nor is it intended to be.  For the religious, only the supreme Lord is the panacea.  I don't have the answers to those questions.  I do, however, understand that without a functioning market economy anywhere in the world, that poor chap in Karachi would still be in a terrible lot. 

I'd rather have a minimum wage for "migrant workers" who come to our country to pick fruits and vegetables to raise their families.....who are NOT , I repeat are "NOT" terrorists.......than support no wage rates for highly skilled radical extremists with H1B visas who come to our country intent on destroying our way of life who overstay their visas through bureaucratic loopholes!!

American's got lazy!  It's time to start cutting our own lawns.....play the public courses and give up the country club memberships.......trade in the Escalades and Hummers for fuel efficient vehicles, and INVEST in our childrens education!

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#50) On April 28, 2009 at 2:05 PM, LawfordCap (99.74) wrote:

If i sound academic I thank you...

I would like to point out that the paper you point me to is a 50 year old paper written by an old academic who never actually worked in your real world and lived off the charity of benefactors. I recognize that to produce his stimulating insights just like those of Einstein, benefactors can be of help.

But unfortunately his paper was written in a time when the understanding of complex and evolutionary systems as well as behavioral economics and open systems was limited.

Poor Ludwig Mises many points central to the human condition.

I can understand the desire to live in a tax haven but just don’t try to justify it to others by telling them its for mans good that you live there.

If the benefits of living and bring children up in Qatar are so great why don’t we take a moment to consider where the world’s most livable cities are?

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#51) On April 28, 2009 at 2:15 PM, whereaminow (< 20) wrote:

LawfordCap,

Let's not move the argument outside of the realm of the current discussion.  My reasons for living in Qatar are my private business.  It has its advantages and disadvantages, of which I have detailed in great length.  I am no fan of any government, but this one has its plusses and minuses.

I can understand the desire to live in a tax haven but just don’t try to justify it to others by telling them its for mans good that you live there.

I don't understand this personal attack, as I have never criticized you personally. I am here on this post discussing one particular government policy, showing quite simply that it works in counter to its perceived benefits.  There is nothing personal about that.

As for Mises, arguing that a man's work is incorrect simply because it is old (50 years is not old at all in academic work), is not an argument.

Finally, in response to the idea that we need to monetarize our future prosperity with income distribution, the short answer is no. The long answer is "Ought Presupposes Can."  This paper is only 4 years old, so I'm certain the author is familiar with both Mises and behavioral economic theory.

David in Qatar

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#52) On April 28, 2009 at 9:01 PM, imeasure (< 20) wrote:

Lawford, for a person who subscribes to the evolutionary hypothesis, you seem terribly concerned about things like opportunity, equality, and economic freedom. How do you come by your concern for other humans? Should you not (by pure evolutionary logic) prefer systems that stratify and place inferior humans at the lower rungs of the economic ladder for the overall advancement of the species?

 

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#53) On April 29, 2009 at 5:39 AM, LawfordCap (99.74) wrote:

I am sorry for the personal side David...as you can see i am passionate about protecting the cities i and many others love...my passion sometimes gets hold of me and takes me away from where I want to be I apologize to you for this.

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#54) On April 29, 2009 at 6:08 AM, LawfordCap (99.74) wrote:

Imeasure:

evolutionary logic does not only preach about individuals… if it did you would have to ask the question how did individual humans stay alive when confronted by a lion on the savannah…or hunt bison on the great plains. Or if you really want to get into it why people live past reproductive age.

Evolution not only happens at the individual level…or else how do you understand the emergence of multi celled life forms. It also operates at the community level…you could say community against community but then you only need to see the next level of organization up where you have evolution at the species level…this is the level where the species at its entirety, evolves in relation to other species and the ecosystem it lives in (consider the field theoretical ecology one of my many passions)….. and then we also have evolution at the ecosystem level……and then finally at the global level …..the level where life forms modifies the global atmosphere which in turn modifies life. (Now consider some of the human governmental institutions we have in the world that have evolved from what came before)

We have these different levels in us all…just as your kidney cells are individual cells but also part of you…we operate at all levels…..hence our family level, community level and all the way up to a desire to protect our environment is in us all.

The question then becomes this: Does the monetary portion of our existence cover all these levels ….many people would try and tell you that these are separate sectors of our living….but in fact they are  intimately connected as you are to your kidney cells.

My argument is only this there is value in making community level decision because we also operate at the community level…this is the reason why democratic government evolved out of what came before in the first place.

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#55) On April 29, 2009 at 12:59 PM, whereaminow (< 20) wrote:

LawfordCap,

No problem friend. I've said all kinds of stuff on these blogs that I wish I could take back. Thanks for the apology.

Great discussion all.

David in Qatar

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#56) On April 30, 2009 at 2:14 AM, FleaBagger (28.14) wrote:

It all comes down to whether or not you have the right to force me not to work for $1/hr. Do you? I say you don't. You and 51% of the rest of the country say you do. That is the tyranny of the majority, or mob rule.

I happen to think that the minimum wage is bad for the economy and unskilled laborers in particular, but that it is immoral is inherent in the tyranny of forcing your will on two other consenting, adult third parties.

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#57) On April 30, 2009 at 2:23 AM, FleaBagger (28.14) wrote:

To clarify, the last sentence means: the economic impact may be debated, but the immorality of tyranny is immanent and obvious. That is a point on which I am unyielding.

Also, the previous comment was directed not at David, but at those taking the opposing position.

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#58) On April 30, 2009 at 3:15 AM, DaretothREdux (36.76) wrote:

Hong Kong has no minimum wage and is considered the freest economy in the world by the economic freedom index.

The only thing that could make Hong Kong more free would be if the government didn't own all the land, but even so property rights are strongly protected (with pirated software as the exception), and leases are granted with contracts strictly enforced.

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#59) On April 30, 2009 at 11:02 AM, Deepfryer (27.86) wrote:

FleaBagger:

Ahh, more talk of "tyranny". Is that really why you oppose minimum wage laws? Regardless, I don't think the majority of these unskilled laborers want you to free them from this "tyranny".

Do you also want to free the auto industry from the "tyranny" of having to install seatbelts in all of their vehicles? Or the "tyranny" of being forced to provide safe working conditions for their factory workers?

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#60) On April 30, 2009 at 12:44 PM, GADawg (< 20) wrote:

I think it's too convenient for proponents of minimum wage laws to argue nonprovable points in opposition to an established effect of the laws. We know empirically that raising the minimum wage also raises unemployment among the lowest wage earners. If you want to argue that supporting those workers through government welfare is more desirable than those workers creating wealth for themselves and their employers, at least frame the argument in economic terms.We can apply economic theory and mathematics to such hypotheses.

Arguing that unemployment is more desirable because the unemployed would be teaching their children French and using the time to invent the next world-changing widget is naive at best. Arguing that desirable social evolutionary paradigms result from higher unemployment is nonsensical rhetoric meant to ignore the proven economic effects that the poster finds inconvenient.

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#61) On April 30, 2009 at 1:57 PM, LawfordCap (99.74) wrote:

The driving test and having to drive on a particular side of the road..... is this also the tyranny of the collective repressing individual rights? Which parts of state level organization help us and which does not?

 

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#62) On April 30, 2009 at 2:08 PM, GADawg (< 20) wrote:

Deepfryer,

Since you've introduced the issue of motivation, do you really support minimum wage laws to help the poor? Are you sure you don't have a vendetta against small businesses and would like to drive many of them out of business, increase the misery of the poor, decrease the freedom of the general public, and increase the power of government bureaucrats? Because we can demonstrate that the latter is the actual effect of increasing the minimum wage.

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#63) On April 30, 2009 at 2:43 PM, Deepfryer (27.86) wrote:

No, you can't demonstrate anything of the sort. Where is your evidence that the minimum wage hurts small businesses? And where is this empirical evidence that you speak of, which proves the "increased misery" of the poor?

I'm hearing a lot of eloquent and articulate phrasing from your side of the argument... but not a lot of empirical data or math, which you claim to be a big fan of.

And you can call my points "unprovable" if that's the only rebuttal you can come up with. I think they're just common sense.

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#64) On April 30, 2009 at 3:57 PM, wrparks (69.40) wrote:

Lawfordcap,

 I completely disagree on your ideas of evolutionary theory and would be curious to know how you come about them.  All evolution acts upon individuals.  It sounds like you are equating evolution and ecological dynamics.  It may appear that groups evolve, however, it is only the individuals in a group that evolve, leading to the appearance of group evolution.

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#65) On April 30, 2009 at 5:20 PM, MikeMark (29.51) wrote:

GADawg, Deepfryer:

Look, here is something to recognize:

Without minimum wage laws, the businessman can employ someone at a lower rate in a situation where he could not employ that person with minimum wage laws preventing him. Without minimum wage laws, this person who thinks it's better to work for a low wage than no wage, has a job and an income. Without minimum wage laws the economy is made better because someone is employed doing something useful for the economy. With minimum wage laws, fewer people are employed and there is no intervention in the negotiation for the wage. Intervention has a cost in two ways, first it reduces the number of gainfully employed people, second it will require a governmentally taxing support structure to enforce it which will also reduce the number of gainfully employed people.

Minimum wage laws help no one. The poor aren't able to get a job at a low wage, and the businessman isn't able to employ someone to help at a low wage. Both lose. No one gains. These laws appear to help those who are just barely employable, but the reality is that they reduce total employment and thereby reduce economic production. 

 

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#66) On April 30, 2009 at 5:24 PM, MikeMark (29.51) wrote:

One other comment here:

In the global economy, minimum wage laws cause export of jobs to countries where there are no minimum wage laws. Which is part of why we are where we are today.

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#67) On April 30, 2009 at 6:33 PM, LawfordCap (99.74) wrote:

Where are you from GADawg?... I am glad the comments caught your interest I really hope you will stay in the community. Please forgive me for the length of the following:

Is not the point of minimum wages in the context of redistribution?...the money is coming from somewhere and going somewhere else? So any analyses of the social justice of minimum wages without considering why redistribution is half baked to say the least. You have to ask why does redistribution exist at all in economic and biological systems? Why at a particular point in time do you have a transfer of energy from that which is productive to that which is at that point in time unproductive?

Please note I would never use the term "social justice"...my argument is not an ethics argument it is an energy/economic argument that explains why we find this type of redistribution in an evolutionary context.

Is it not highly convenient to focus on minimum wage laws outside the context of the role of redistribution. Talking about the value of minimum wages while ignoring income redistribution and poverty traps is like talking about the value of speed limits and seat belts outside the context of safety and human lives. Why are you spending on seat belts...why do you consider minimum wages in the first place?

 

By restricting the argument in this way they skip the issue that poverty can be a trap and that redistribution can be an investment....they ignore that poverty can sometimes lead to more poverty not only in this life but in the life of the next generation.

You can think of poverty traps in terms of the escape velocity a rocket needs to leave earth. Once the rocket, child, adult…or even a business venture for that matter gets past a critical point its all clear sailing and they can then run under their own energies, or capture the economic winds.

It is this escape velocity that the minimum wage should be discussed in the context of...it can be one part of a tool set to prevent poverty traps...it does not have to be a minimum wage!!!...all it has to be is an allocation of energy to those that are in a poverty trap so they have the ability to get free.....it is a form or redistribution from those above the activation energy to those below it ...

..it is an activation energy just like in chemistry. Once they reach the activation energy they are free to participate in all sorts of interesting chemical reactions.

You can think of the people with less capital or energy then the activation energy as being in the solid phase…their contribution to the dynamics of the economy is minimal, they may be vibrating a little in their solid state but they have nowhere near the vitality that they could have if they managed to escape their rigidity of the poverty trap state…

think about a column of water…near the surface it is heated by the sun deep down it is freezing…. there are human resources down deep but the convection currents don’t get down that far to melt the ice down deep…now imagine you place a copper material running the length of the water column, copper is a good heat conductor and  its going to make the temperature gradient less…you  put enough copper in the economy to make the people stuck in the ice far from the sun make the transition into the liquid phase…then the convection currents start flowing through the whole system…and  the nutrients that were trapped at the bottom become available and the whole ecological system benefits.

If you still can’t think of how a poverty trap could occur...think about this:

To find a new job...to reeducate...to even relocate....in order to follow the dynamic ever changing economy requires a minimum amount of energy/investment of time and resources to chase or to keep up with the every changing evolutionary landscape.

Why give the ones that get caught in the solid state of poverty or that have never got a chance to get out of it in the first place a little energy boost? Because the community benefits as a whole when these resources are liberated...so the economic convection currents then flow more freely through the system.

We are a community level species…we did not evolve as individuals on the savannah.

You have a function like this:

Return on investment =  ln (resources invested in education)

Return on investment =  ln (resources invested in job search)

Return on investment =  ln (resources invested in health)

If you don’t invest enough to get over the break even point you have a  negative return on investment

This is the same when you invest in a child.... the Childs future value to the community is nonlinearly related to that which was invested by the community/parents...also return on investment flattens off eventually it flattens off eventually. Redistribution can also benefit by maximizing the sum of all these investments across the community. But that’s a slightly different discussion that we can go into some other time.

If these trapped people invest less or we as a community invest less than the critical amount to escape... we actually have a loss….they will result in failed attempts to reach the escape velocity ….if the disposable income of a household is less then this critical amount they are in a poverty trap…and only external energy can get them out. Obviously if you put too much in it can also be a loss.

Redistribution either via, minimum wages, education grants, health grants…help people reach the escape velocity….

All forms of organization at different evolutionary levels have the buffers that shift energy around in space and time. Its important to realize that these mechanisms that exist at the higher levels of organization all have their own evolutionary landscapes.

The Austrian school is 50 year old narrowly focused thinking that ignores evolution at the community level. Mises misses a key property of all evolutionary systems.

 

 

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#68) On April 30, 2009 at 6:47 PM, LawfordCap (99.74) wrote:

wrparks

would you say the same about the cells in your body?

Evolution is dynamic in time if that makes it easier.

Selection occurs at all levels...consider tribes competing with each other or wolf packs competing with each other.

 

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#69) On May 01, 2009 at 8:26 AM, wrparks (69.40) wrote:

Evolution is not dynamic in time.  Evolution is defined by a response to conditions over time, but the forces of evolution are static (mutation, migration, drift, selection, mating system).  Yes, I would say the same about cells within my body.  There is zero selection going on within your body, except possibly in the case of gametes.  It is possible, as Dawkins pointed out, that there could be selection for say, faster swimming sperm, more porous eggs, etc.  But, that is still individual level selection.  Even a post-maturation internal mutation that just happened to be advantageous (highly unlikely)would not be evolution, because it has no inheritance potential since the gametic germ line is set prior to the mutation.  

 There is no selection for tribe or pack traits.  What you see are the resutls of selection on the fitness of individuals, within the context of it's surroundings.  Everything is in the context of environment, but that doesn't change the unit of selection at all, just the level of it's noticable effects.

 The simple models of gene selection are fully sufficient to explain all variation we see within the earth, though the steps may not be obvious ex post.

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#70) On May 01, 2009 at 9:59 AM, LawfordCap (99.74) wrote:

wrparks

Thank you for your comments… I am sorry i was not clear, but I think these papers will help you…I am only a physicist but I do build evolutionary models to explain group selection and the emergence of sexual selection… I don’t just talk about these things in a wordy way like i have done in this financial blog.… if you want to find more about this area message me or follow the leads in the papers and what i write below.

RE-INTRODUCING GROUP SELECTION TO THE HUMAN BEHAVIORAL SCIENCES

http://www.bbsonline.org/documents/a/00/00/04/60/index.html

abstract:

In both biology and the human sciences, social groups are sometimes treated as adaptive units whose organization cannot be reduced to individual interactions. This group-level view is opposed by a more individualistic view that treats social organization as a byproduct of self-interest. According to biologists, group-level adaptations can evolve only by a process of natural selection at the group level. During the 1960's and 70's most biologists rejected group selection as an important evolutionary force but a positive literature began to grow during the 70's and is rapidly expanding today. We review this recent literature and its implications for human evolutionary biology. We show that the rejection of group selection was based on a misplaced emphasis on genes as "replicators" which is in fact irrelevant to the question of whether groups can be like individuals in their functional organization. The fundamental question is whether social groups and other higher-level entities can be "vehicles" of selection. When this elementary fact is recognized, group selection emerges as an important force in nature and ostensible alternatives, such as kin selection and reciprocity, reappear as special cases of group selection. The result is a unified theory of natural selection that operates on a nested hierarchy of units. The vehicle-based theory makes it clear that group selection is an important force to consider in human evolution. Humans can facultatively span the full range from self-interested individuals to "organs" of group-level "organisms." Human behavior not only reflects the balance between levels of selection but it can also alter the balance through the construction of social structures that have the effect of reducing fitness differences within groups, concentrating natural selection (and functional organization) at the group level. These social structures and the cognitive abilities that produce them allow group selection to be important even among large groups of unrelated individuals.

Here is another:

The evolution of group-level pathogenic traits

http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6WMD-4S39MT2-3&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=ba28f9e7bbdae1192f2af151e3489af3

Abstract

A group-selection model for the evolutionary origin of phase-variation in E. coli is proposed. Populations of commensal strains of E. coli populating mammalian hosts modulate its immune defenses through population-level control of the expression of fimbriae. At any time only a proportion of the population expresses these cell-surface adhesins. Collectively they elicit a host-based nutrient release if the fimbriae expression is low. Too high levels of fimbriation would provoke an inflammatory response and thus intolerable conditions for the cells. The optimal level of fimbriation is a group property and its evolution is difficult to explain by naive individual selection scenarios. This article presents a computational model to simulate the evolution of fimbriae. The two main conclusions of this contribution are: (i) the evolution of this group property requires the population to be partitioned into weakly interacting sub-populations. (ii) Given certain scenarios evolution consistently under-performs, in the sense that it does not find the optimal level of fimbriation.

 

You will probably also find slime molds interesting: they make a very interesting transition from individual dynamics to group level dynamics as environmental stress levels change.

In physics consider.

The order that emerges at the community level in convection cells in silicon oil the pictures are really amazing:

This is self organization at the community level….you lose a lot if you force yourself to only talk about individual silicon molecules in this system.

Why do you get this order in these systems? It’s nothing more than this is the fastest way the system has found to dissipate the energy flowing into it.

All community level structures have come about because it is the fastest way the system as a whole has found to dissipate the energy entering the system. Companies exist because they speed up the flow of economic energies.

All life lives in the flow of energy from the sun (ignore nuclear)….it exists only in the second law of thermodynamics.

I did not expect to have to go this far to make my point I hope you don’t mind David,  and I hope it helps to point out the same thing in many different ways rather than distracting people.

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#71) On May 03, 2009 at 9:35 AM, jdgee2 (< 20) wrote:

[quote byLawfordCap-comment#67] "The Austrian school is 50 year old narrowly focused thinking that ignores evolution at the community level. Mises misses a key property of all evolutionary systems." [end quote]

If true, than why should Walter Block say this? " I think humans are hard-wired, based on sociobiological consideration, to be anti-freedom. We, as a species, have lived for millions of years in groups of twenty to thirty in caves and forests, where markets couldn't, or anyway, didn't function." [end quote]

http://mises.org/story/3431

Best Wishes,

Jon

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#72) On May 04, 2009 at 8:58 AM, Deepfryer (27.86) wrote:

Still no response from GADawg. It looks like all his talk of "empirical evidence" was nothing more than a bluff ;-)

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#73) On May 04, 2009 at 6:54 PM, LawfordCap (99.74) wrote:

 

jdgee2

Who has more freedom a lone man on the Savannah or those in a tribe? It’s not about instantaneous freedom…its integrated though time…over years…lifetimes and possibly even over generations.

I will take another tack:

As you know the stability/volatility of a portfolio is important because of the asymmetry in gain and loss. Hence one constructs a diversified portfolio….the asset that does well in one year may not do well in another but if you have diversity of assets you smooth returns through time…

but you need to bind the assets together so that they cover each other so that you can expand your portfolio as a whole not just the asset component that happens to be doing well in a particular year.

What does binding mean? Think of how a wolf pack or lions distribute food…there may be some “trend following” but there is also “mean reversion” operating at the pack level. These properties buffer the system and create the conditions needed for sustainable growth.

All you need to do now is consider the issues we face at a global level….issues that fall into the metaphorical class of “what side of the road do we drive on”.

Freedom is strongly related to persistence…the freedom to live… the freedom for our kids be able to eat north Atlantic cod….to be able to experience the natural world as we experience it today…

Hence, this means considering our species level impacts so we don’t drive ourselves into an evolutionary brick wall by focusing on the assets that happen to be doing great today.

Judgee1

I know Dr. Block from the Mises has written a book titled “The Privatization of Roads and Highways” indicating that in all cases road privatization is the best for mankind…….

Well sure road privatization can work for sum roads, I am not against that…...

but there are still going to be some flood levies and dykes that are vital to our survival at a species level and no amount of competition between fire fighters is going to put out those fires before they burn down the whole community.....

Because in many respects we all live in one tower block or high rise…...where a fire on one floor is a concern for all floors….

we only have one planet and whichever way you lean I am sure you will still appreciate these;

Carl Sagan’s pale blue dot and a earth from Jupiter snap.

 

http://www.youtube.com/watch?v=luAteAz3WQ0

http://www.msss.com/mars_images/moc/2003/05/22/earth_jupiter_100.jpg 

 

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#74) On May 12, 2009 at 3:25 PM, GADawg (< 20) wrote:

Deepfryer,

Sorry for the delay in responding. I was out of town. I referred to empiral evidence because I've looked at supply and demand curves. Raising the cost of labor via a minimum wage necessarily reduces the demand for labor from employers. You can't legitimately argue otherwise.

If the theory eludes you and you would like to see specific research on the subject, try the 2007 paper by Neumark and Wascher that reviews the literature on the subject and concludes that, "among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries."

http://ftp.iza.org/dp2570.pdf

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