Schiff vs. Ritholtz: Political Correctness vs. Law of Supply and Demand
PolicyMic says There's a Good Reason Why Everyone's Cricizing Peter Schiff.
Jon Stewart's Daily Show mocked Schiff in an amusing video interview Wage Against the Machine. The video allegedly explores "the devastating economic effects of raising the minimum wage to the poverty level."
Schiff's opponent in the interview was Barry Ritholtz at the Big Picture blog. Before the show aired, Barry explained How I Ended Up On The Daily Show.
The feedback against Schiff was enormous. Ritholtz has the details in Follow Up: Daily Show Blowback.
Political Correctness Points
I am no fan of Schiff. We have radically different views on the inflation-deflation debate. And I do find the way he stated his case to be very distasteful.
That said, it's clear the Daily Show was out to score political points, not explore economic reality.
Given that Schiff was purposely displayed in the worst light possible and Ritholtz the best light possible (Ritholtz admits retake after retake) it is not shocking in the least to see all this blowback.
Merits of the Debate
Political correctness or not, I want a sound discussion of economic principles.
In a Shades of France Socialistic Proposal (my title), Ritholtz states "The most radical idea is bit of pure fantasy: Guarantee every person in America a minimum salary".
Indeed, let's hope that remains a fantasy because it's already proven if you give things away free, people able to work, will stop working.
Here's an important corollary: If you make people work, you end up with work that has no economic justification.
Campaign for a Bigger Paycheck
On January 2, in The Campaign for a Bigger Paycheck, a New York Times stated 'When you raise the price of employment, guess what happens? You get less of it,' said Speaker John Boehner, espousing a party-line theory that most economists agree has been discredited.
Someone Please Help New York Times With Econ 101
Actually, it's the New York Times editorial board that's discredited.
Caroline Baum, in one of her last articles at Bloomberg (she has gone on to other things and I wish her well), blasted that New York Times "discredited" fiction sky high.
Here is the pertinent snip from Someone Please Help New York Times With Econ 101.
This is one of the more outrageous political statements dressed up as economic theory from the editorial board of the New York Times. They should be ashamed of themselves.Theory vs. Practice
If you learned anything from your Econ 101 class in college, hopefully it was the law of supply and demand. Lowering/raising the price of a good or service increases/decreases the quantity demanded. Similarly, producing less/more of something will raise/lower the price.
Isn't it about time opinion writers stopped using economics to justify a moral issue? Our hearts go out to those who can't earn a decent living, find a job, get laid off for no good reason or find themselves in harm's way. If we, as a society, want to provide support to those in need, fine. But the paper of record does a disservice when it makes wild, unsubstantiated claims about basic principles of economics.
Caroline Baum stated economic theory to perfection.
Let's now look at the economic law of supply and demand in practice based as opposed to political correctness of the way things were stated.
Annual Job Growth Rates Minimum Wage States vs. Non-Minimum Wage States
Here is a chart from the Institute for Research on Labor and Employment by UC Berkeley.
The chart shows lower job growth rates in states with higher minimum wages.
Bias Towards Believing Myths
I am sure you can find studies that allegedly prove or disprove anything, but things change over time and wages tend to go up over time so there is an inherent bias towards believing myths.
Europe and Excellent Backdrop for Discussion
Europe provides an even better look at the debate because of wide country-to-country variances.
Here is a rock-solid study of actual data by economist Steve Hanke, For Europe’s Youth, Minimum Wages Mean Minimal Employment.
Yesterday, in the wake of Tuesday’s State of the Union address, I poured cold water on President Obama’s claim that a hike in the minimum wage for federal contract workers would benefit the United States’ economy, pointing specifically to unemployment rates in the European Union. The data never lie: EU countries with minimum wage laws suffer higher rates of unemployment than those that do not mandate minimum wages. This point is even more pronounced when we look at rates of unemployment among the EU’s youth – defined as those younger than 25 years of age.Comedy is Comedy, Reality is Reality
In the twenty-one EU countries where there are minimum wage laws, 27.7% of the youth demographic – more than one in four young adults – was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven EU countries without minimum wage laws – 19.5% in 2012 – a gap that has only widened since the Lehman Brothers collapse in 2008.
Hanke concluded with a piece of wisdom from Nobelist Milton Friedman: "the minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills. That’s what the law says."
I conclude with: Let's not judge an argument based on bias against the person stating it.
Mike "Mish" Shedlock