Tuning in to Fox News the other day, I saw a segment in which Ann Coulter was discussing the proposed increase in the minimum wage. I generally think Ms. Coulter is a sharp and amusing commentator, so I stuck around to see what she had to say. For a while, all went well. She rightly pointed out that a centrally mandated minimum wage would cost jobs, citing the universally accepted principle of economics that raising the price of something leads to to fewer people wanting to buy it.
Then, with a suddenness one only encounters on carefully timed cable news segments, she abandoned the economic high ground, snatching defeat from the jaws of victory with a poorly reasoned “solution” to the problem of low wages. What we should do, she argued, is stop letting in all those darn immigrants!
It is undeniably true that reducing the number of people allowed in the country will lift wages. When there are fewer workers to go around, employers have to pay them more, just as a flash freeze in Florida drives up the price of oranges. But to argue that this would somehow be good for the country is the same as advocating for destroying oranges groves to raise prices. Certain parties may benefit, but the country – and indeed the world – as a whole loses.
Coulter states that because Republicans “believe in supply and demand,” reducing the supply of labor will be a good thing, but raising the minimum wage will be bad, although the two policies result in almost identical effects. To see why, let’s take a look at what the minimum wage does and compare that to a reduction in supply.
A minimum wage artificially increases the price of labor, but since not all labor is the same, let’s call this the market for fruit pickers. In a free market, the wage adjusts until the number of people who want to work as fruit pickers is equal to the number of fruit pickers employers want to hire. Once the minimum wage goes into effect, the wage is higher, so more people want to work and fewer people want to hire. The result is threefold: Higher wages, fewer fruit pickers, and unemployment.
Few fruit pickers, compensated at a higher rate, means that fruit will become more costly, and consumers will not be able to buy as much as they were formerly able to. The fruit pickers who keep their jobs are better off, but the rest of society is worse off, with less fruit and less money as a result of the policy.
Now let’s look at what happens when we reduce the supply of fruit pickers by deporting immigrants. With fewer workers available, the amount of people willing to work as fruit pickers at any given wage decreases. Fewer workers means higher wages, less fruit picked and higher prices for the rest of us, the same as before. The only difference is that this time, there is no unemployment, because the excess people who would have wanted to work as fruit pickers at the going wage will have been moved across a border into another country, where they will still likely be unemployed, but will not count in our domestic statistics.
Once again, a few workers benefit at the expense of everyone else. In fact, both of these policies amount to little more than protectionism, pure and simple: the propping up, through government force, of a particular group of people at the expense of others.
It’s disappointing to see such poor economic thinking in any circumstance, but particularly when people who ought to be on the side of liberty use it to justify more government coercion. This particular fallacy crops up with alarming frequency and seems to be the result of a sort of Malthusian instinct that, since resources are finite, fewer people means more to go around for everyone else.
This is wrong, for the simple reason that resources aren’t as finite as we like to imagine. They can be made more abundant and their use more efficient through developments in technology and education. Nor are humans mere cattle, capable of consuming and nothing else. Every person is also a producer, enlarging the collective pie that makes us all better off.
If the intuition of fewer people being good for the economy still seems compelling, we can see the flaw in it by carrying it to its logical conclusion. No one would expect a small tribe of a dozen people living alone in the world to be as wealthy or prosperous as a civilization of millions. A world with more people is one with more production, more innovation and ultimately more wealth for everyone. Trying to restrict production, either through wage controls or by reducing the population, will have just the opposite effect.