Democrats’ magical (or cynical) thinking on prices
Hugo Gurdon
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California is raising the minimum wage for fast-food workers from $15 an hour to $20. Wouldn’t it be nice if we could all get 33% raises?
But we can’t. Not even California’s fast-food workers will all get them. Despite the Left Coast’s magical thinking, it is impossible to wave a magical legislative gavel and increase everyone’s pay. Twenty dollars an hour will price some workers out of the market, and being unemployed, they will earn the real minimum wage, which is zero. Fast-food chains will replace them with machines to take customers’ orders.
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Democrats seem never to understand that raising the price of everything doesn’t increase the value of anything. Burgers and fries won’t be worth more just because Sacramento decrees it. Prices will go up, people will buy less, fewer staff will be needed, jobs will be lost.
As Thomas Sowell wisely wrote in his latest book, Social Justice Fallacies, which came out last month, “People tend to buy less at a higher price. If so, then employers — not being inert chess pieces [to be moved around at the whim of government] — tend to hire less labor at a higher price, imposed by minimum wage laws, than they would hire at a lower price, based on supply and demand.”
President Joe Biden is making the same apparent miscalculation and mess on a national scale. He is boasting in advertising in key election states that he is lowering drug prices. His absurdly named Inflation Reduction Act forces drug companies to “negotiate” lower prices with Washington. This actually means surrendering to federal arm-twisting under threat of costly penalties.
Price fixing will reduce the supply of new and existing therapies, create shortages, and put upward pressure on prices. The Inflation Reduction Act everywhere stokes inflation by spending borrowed money to subsidize services such as child care so Biden can boast about lower costs. The irony.
Concluding that interventionist governments are stupid because they fail to learn basic economic lessons would, however, be naive. When I wrote “never seem to understand,” as I did above, the emphasis is on seem. The incomprehension is apparent, not real. They know price fixing does not help its supposed beneficiaries, but they also know it wins instant popularity through the next election.
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Minimum wage hikes supposedly help the poorest and youngest workers, and reduced drug prices supposedly benefit those needing medication most. So price fixing seems to support the least powerful. The interveners seem to be standing up for the little guy. But it is mostly the youngest workers who lose their jobs when labor prices are artificially jacked up. And it will be the halt and lame who suffer most when price suppression stanches the flow of therapies. But that may all be apparent only after voters have cast their ballots.
Sowell mentions a piquant precedent: “A president of the United States — Richard Nixon — who was fully aware of the adverse economic consequences of price controls, imposed those controls anyway. His response to criticism of that decision by economist Milton Friedman was: ‘I don’t give a good goddamn what Milton Friedman says. He’s not running for reelection.’”