Free Markets and Labor

Free Markets and Labor May 1, 2008

Libertarian and Austrian School economist Thomas Woods offers what he calls a Catholic Defense of Free Markets over at InsideCatholic.  I will delve into parts of it here.

A proposal that arises in many Catholic circles is for a “living wage,” which would allow a worker sufficient income to allow his family to live in reasonable comfort. Just the other day I came across an article in a traditionalist Catholic newspaper offhandedly calling for this very thing. Not even for a moment did the author suppose that the matter could be more complicated than this, that there might be any negative consequences, or that an entire field of study exists whose purpose is to understand the various interrelationships that constitute the nexus of human exchange. Wages aren’t high enough? Why, we’ll just pass a law and force them up.

Vainly barking commands at the economy cannot make reality otherwise than it is. We may as well harangue the law of gravity for dashing our hopes of soaring through the air. All people of good will would be delighted if suddenly, for the first time in world history, everyone earned a wage we considered comfortable. But if the human will alone could make everyone prosperous, then what Bangladesh lacks is not capital and secure property rights but enough protests and vigils. In what other field do Catholics feel justified in making solemn pronouncements without knowing the first thing about the subject at hand?

I have half a mind to just excerpt all the condescension.  Unfortunately I would probably run afoul of fair use.  Let’s unpack this a bit.  One presumes he is holding the U.S. or at least the Western world in contradistinction with Bangladesh here.  Since the U.S. does have secure property rights and enough capital to consume over a 1/3 of the world’s energy, are we still in a state where it is possible for the poor to enjoy equity?  Is he seriously arguing that the reason we have people going untreated for cancer in this country is because we lack a sufficient capital infrastructure to support it?  Then what is he arguing? 

I lack the space here to explain just how destructive and ill-considered living wage proposals are.

In other words, the actual defense is not going to be put forth, nor is he actually going to engage his critics.  But he will give his happy talk about what he knows, which I’m sure is valuable for those enured with Austrian economics.

What I can explain is why a market economy tends to make real wages rise — and show that the process has nothing to do with, and succeeds very much in spite of, the countless interventions into the economy that are supported out of a combination of ignorance and envy. …

The forklift made it possible to move and stack far more pallets than a worker could have done in the past, and to reach heights that would have been impossible with his bare hands. Likewise, a steam shovel can do the work of many men with regular shovels.

So what the bishops and everyone else who isn’t an Austrian doesn’t know is that productivity improvements allow for an increase in the standard of living.  The only problem is on the empirical side we aren’t seeing these productivity improvements being passed along to the workers in this country.  During the Clinton years almost the entirety of the wage improvements among the poorest 40% were a direct consequence of the minimum wage hike.  This was despite massive productivity improvements.  In England, incomes among the poor grew at the same rate or slightly better than the wealthy.  (See here.)

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