Another "Mastermind"

Something is wrong with Mitt Romney, and it’s fundamental to his understanding of capitalism.  Here we have a man who governed what is arguably the most liberal state in the union, and he surely didn’t do so as a conservative, but now he’s demonstrating why liberal Republicans like him cannot win, and it comes down to the simplest of economics.  Thursday, Mitt Romney explained how he would index the minimum wage to automatically keep pace with inflation, proving that he has no Main street experience, but worse, that his alleged business sense is more about making deals than understanding economics.  Mitt Romney is no conservative, and by this pronouncement, we now know that neither is he a capitalist.

While it may appeal to some of the more ignorant in the electorate, and to the leftist intelligentsia, the simple truth is that a conservative who understands capitalism would be talking about eliminating the minimum wage laws.  Proving his expressions of Wednesday were statements of his true beliefs – that he is “not concerned about the very poor” – Romney advocates a system of wage controls that is economically inefficient, and immoral, but most importantly, in the context of his remarks Wednesday, actually disadvantages the poor, condemning them to perpetual poverty. Before you break out the torches and pitchforks to occupy my front porch in anger, let me explain to you the truth of the matter, and why it is that a minimum wage actually punishes the poor, but setting up a system to perpetually raise it guarantees increased unemployment and corresponding poverty.

In a free market unhampered by government mandates, wages are determined by negotiations between employers and employees.  That which sets the price is their mutual agreement to mutual advantage: Each believes he is getting the better of the deal.  In fact, in a free market, this is how all exchange is characterized, and it is the best determining factor available, because everybody walks away happy provided that the conditions on both sides of the deal are satisfied.  This requires no government involvement, and it requires no government coercion.  More, it is morally correct because it permits each party choice.

You might argue that the employer always wins, since he controls the purse strings.  I contend that this is not so, and cannot be, so long as men are free to choose.  If an employer makes unreasonable offers in payment for labor, he will be refused, and refused again, and this acts as the market’s signal to him.  If he does not respond, the labor will go undone, and he will lose the profit he might have made.  Since he is doubtless working for a customer, the impetus will be to complete the job to satisfy the deal he’s made with somebody else, and eventually, he will raise the wage he’s offering to get sufficient labor to fulfill his customer’s demand.

You might say “but he will only raise it enough to get a warm body,” and this could happen, but if it does, it may cost him more in the long run, because the labor will be poorly done, and perhaps have need to be re-done, or it might not be completed on time, or some variation on this general theme.  This too will act as a signal that higher wages are needed, and the under-performing employee will be dismissed and a higher wage paid to his replacement.  Notice that in this whole process, nobody has been coerced.  This is the moral superiority of the free market.

What Mitt Romney and the statist, anti-capitalist phalanx demands is a short-circuiting of this natural process.  What he contends more than anything is that you should not have the right to negotiate your own contracts in labor at a price you are willing to pay, or a wage you are willing to accept.  Imagine Newt Gingrich’s example of the kids who are paid a trivial wage for trivial chores at a school rather than to a full-time janitor at a much-inflated union wage.  That sort of thing mustn’t be ignored, because the janitor who is likely over-paid by the education bureaucracy in many jurisdictions probably produces less actual labor than the aggregate labor of the squad of wage-seeking children would accomplish in the same period.

Once upon a time, in a universe far away, as a young teenager, I got my father to co-sign with me on a contract.  It was my first crack at entrepreneurship, and it was with the local home-owners’ association to mow grass around the facilities made available to the residents by annual subscription fee.  Basketball courts, tennis courts, a baseball diamond, and a swimming pool, along with a fishing pond were all surrounded by acres of grass.  The bids were solicited on a per-cutting basis, with the President of the association to monitor and decide the frequency of the cuttings.  I came in at a bid that was a gold-mine to me, but far below any competitors.

Doing the math on how many hours it took me to complete a cutting, it was clear I was beneath the minimum wage even in that day.  Had they been forced to pay the minimum wage on an hourly basis, I would not have been able to compete, but because it was a per-job basis, I was able to bid what I thought was the minimum I could accept for my time.  I won the bidding, and that year I cut grass as my legs and arms and back muscles grew stronger under the beating sun. Mitt Romney wouldn’t understand this by any measure, but applying the minimum wage to that situation would have driven me out, because if you have to pay a minimum wage, who’s going to hire a fourteen year old rather than an adult?  One of the few virtues I had to offer apart from my eagerness had been that my low price allowed them to take a risk that at a higher price they could not have taken.

Under a minimum wage, the employee isn’t permitted to accept a lower wage so that the employer will take a risk on an inexperience though perhaps eager worker. This is the flip-side of the argument Frederic Bastiat would have called “that which is not seen.”  I don’t believe it is any government’s right to prescribe the upper limit of what I may earn, or the lower limit of what I will accept in payment for my labor.  That’s none of government’s business, and they ought to get out of it.

It has been shown repeatedly that a minimum wage increases unemployment by the process of making it too expensive for employers to try out new employees with little or no experience, or to take them on in a capacity to effectively serve as apprentices or trainees, but this is the leg up millions of Americans had used to obtain skills, prove workplace diligence and reliability, and otherwise promote themselves in an act of economic self-efficacy that fueled the growth of our nation.

These facts are well-known to economists, and well-known to all students of capitalism, and yet somewhere along the way, Mitt Romney has managed never to learn them, and I will tell you that it springs from the same place as his desire to “reform and strengthen the safety net:” A sense of collectivized charity rather than the honest desire to promote dignity of people in lifting themselves out of poverty.  The Club for Growth has taken on Romney’s suggested auto-indexing of the minimum wage on much the same basis.

The idea that Romney claims to be a capitalist has now been proven false. A capitalist would know that the minimum wage does more damage than good, and that the longterm result is inflationary pressure combined with increased unemployment among the young and the disadvantaged. Frankly, Romney should be ashamed of this pandering, but he needn’t fear because so many people suffer in economic ignorance that his tyrannical, big government idea will be seen as “compassionate” as it sentences more people to perpetual reliance upon the safety net he’s much too willing to strengthen.  Romney isn’t a capitalist, or a conservative, and he’s actually no better than Obama, and in some ways worse, because while I expect this sort of thing from a man who is not so ashamed to be tagged as a socialist, it is unforgivable from a man who claims he is not.

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