Free-Market Conservatives Are Just Wrong

This post originally appeared at Blog for OurFuture as part of the Making It In America project.

There are things you can see in front of your face, and then there are things that conservative "free market" ideologues tell you.

One example is when they talk about the minimum wage. (An increase in the national minimum wage goes into effect today.) Conservative "free market" ideologues tell you that raising the minimum wage "costs jobs." They say that if employers have to pay a few cents more per hour they won't employ as many people.

But then there is something you can see in front of your face: whenever the minimum wage is raised, things get better. Things obviously get a little better for the people who work at the minimum wage, and for their families. As this works its way up the food chain things get a little better for the people and stores these workers rent and buy from. But also, studies looking into the effect of what actually happens after the minimum wage is raised show that the net effect is no loss of jobs.

Here is why. Employers hire the number of people they need to get done what needs to get done, according to demand. Ideally they employ the correct number of people to fill orders, run checkouts, stock shelves, etc. They don't just have extra people sitting around for the heck of it. Of course there are some tasks where a calculation of a few cents in wages can make someone "not worth it," but in the aggregate any jobs lost from this are offset by the new people hired to meet the increased demand created by people spending the higher wages. More people with more money to spend increases demand, which is good for business. Profits for some employers may be reduced a bit by the increase in labor cost, but these are also offset by increased profits for others due to increased demand.

Even so, conservative free-market conservative ideologues continue to make the claim that increasing the minimum wage "costs jobs" anyway. It's what they do. They make a bad thing out of paying American workers good wages and benefits. They complain about workers getting pensions and health care. They just don't seem to like it when regular people are better off. But here is a warning: never, ever dare suggest to a free-market conservative that a CEO or a trust fund child should pay some taxes - you'll get an earful about how this would just ruin the economy.

The free-market conservatives are just wrong.

A second thing a free-market conservative ideologue wills tell you is that it is good for more and more of the things that used to be made here to be made in other countries instead. They say that by moving factories to other countries we all benefit because "we pay lower prices." They say we benefit because "foreign competition encourages greater productivity" (even though we are talking about moving our factories from here to there.) They say that moving factories to other countries, "unites people in peaceful cooperation and mutual prosperity."*

They say that moving factories to other countries, to make the same things that the factories were making here, should be called "trade."

But we can all see right in front of our faces that none of this is so. Moving jobs out of the country to make the same things that were made here is not "trade" and it certainly hasn't brought us prosperity. It is just moving our jobs out of the country to make the same things that were made here, so a few people can pocket what was being paid to the American workers, while they stick the taxpayers with their unemployment pay and the costs of trying to keep their devastated communities alive.

Free-market conservative ideologues seem to believe that society works better when a few people get paid a lot, while the rest of us have very little, and advocate policies that bring that about. They have been the dominant force in our country's policymaking for many years, and we can see in front of our faces that the result is that a few people are getting paid more and more and the rest of us less and less. (Bailed-out Citigroup is paying one person a $100 million bonus, 738 others bonuses of $1 million or more, and Merril Lynch paid 696 people bonuses of $1 million or more.) They have put in place policies that stick the taxpayers with the costs and the wealthy few with the benefits.

We can all see that moving factories out of the country has destroyed lives, torn apart communities, created massive debt, created a very few massively rich people at the expense of the rest of us ... oh, and ruined the economy. That, too.

It is time for us to realize that these free-market conservatives are just wrong. They get paid to say that stuff, but it is just wrong. Moving a factory out of the country to make the same things it made here is not "trade." It does not benefit anyone except a few, and when the purchasing power inevitably dries up it doesn't even benefit those few either. They made a short-term profit and now we all suffer a long-term loss.

it is time for us to come up with new policies, new plans, new strategies and new rules of the game.

*Actual claims at Cato Institute's Center for Trade Policy Studies

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Comments

[guard]

Not to criticize the general content of this particular blog, but it contains an error common to many discussions on this site. The public is forced to deal in Federal Reserve Notes due to legal tender laws. There is no choice. If you try to get out of it you will be fined or imprisoned. If you resist at any point in the process, you will be shot. The Federal Reserve system is the very basis of the economy, therefore there is nothing free about the "free market" - It is essentially robbery under arms. We need to challenge the use of this term and talk about the issues with honest, clear language.

[moneyman1]

A politician is someone who works to get as many poor people as possible to vote for him while convincing as many rich people to financially support his campaign while promising to protect each group from the other. Maybe Lenin had abetter way !!!

[mtt04]

Left leaning pinkos unite!!!

[WASanford]

No! it's "Workers of the World unite!" Slaves always try to escape their masters even if it means killing them. If you'd bother to learn a little history, you'll see that's a theme that repeats itself over and over again from the beginning of history to the present.

What? you expect a little name calling to change that? Silly you!

[dadw5boys]

Over paying executives lowers the value of the dollar for every one.

[marijam]

Conservatives really miss slavery and that's what this "free market" stuff is really all about.

[dadw5boys]

Barrier to Entry laws killed any Free Market we had .

[TheLastWallStreeter]

The unintended consequences of simple ideas are always the problem. Pretty much why in macro-economics, "simple" ideas are usualy wrong.

For example:

If you raise the minimum wage, you increase the cost of labor, not just for the lowest on the specturm but for virtually everyone because that business that was offering a "hihg" entry level wage has to raise it too to make it high enough to tempt the better potential employees. The people who are good and deserve more than the entry people need their wages upped to create the incentive for others to be "good." This carries all the way up the wage curve, and sometimes hits even faster due to union contracts based off percentages above the minimum wage.

You increase the cost of labor, you either buy less of it (i.e. employ fewer people) or you look for other lower cost of labor manufacturing, i.e. you move your production out of the country.

To combat this move out of the country, the government imposes tarriffs which increase the cost of goods manufactured elsewhere. Great - production comes back here.But since business need to make a return that is equal or better than the risk adjusted cost of capital, businesses have to raise their prices, i.e. inflation. This is compounded by the imposed tarriffs on imported goods which also increase their costs.

Wage increases without productivity increases have no effect on purchasing power.

[marijam]

Yeah, right. And that's exactly why wages have been STAGNANT for 30 years.

[TheLastWallStreeter]

And purchasing power, depending on the basket of goods you use, has increased. Energy and food have recently (thy are tied together of course) caused a this to change a bit, but in general, prices for many consumer staples such as clothes have actually decreased in the last $30 years - in real and in inflated dollars! That is globalization having its impact. Not always good for everyone though - Wal-Mart puts a lot of people out of business, but its prices are lower, significantly so.

[TheLastWallStreeter]

By the way - I love how you didn't bother to argue any of my points.

[traveller77]

Typical neoClassical Economics approach. Look; you forced us to try your foolish economic principles for thirty years. They don't work.

Here's a clue: If you increase minimum wage, you barely increase your costs of goods because Labor is a miniscule fraction of the cost of goods and services today. For example; Walmart pays only six percent of its net as payroll. If WalMart increased employee wages by fifty percent, they'd only have to raise the retail prices on the products they sell by three percent, to cover that very substantial raise. They can get that much back, by simply renegotiating their lighting bill.

Remember that every employee in town is also a customer. Lay off an employee; you decrease your general market for goods and services by one customer. Raising wages always increases your market for goods and services. Something they obviously didn't teach you at MBA boot camp.

tt77

[Antifascist-08]

Excellent. All these "free market" to ols always forget the other end of the equation.

Yes, fo ols, what do we do when no one has a decent job any more? Who buys anything/

WalMart crap is cheap right now for those who want it, but with people like this in control eventually there won't even be WalMarts.

[TheLastWallStreeter]

Actually labor is a great deal of the cost of almost anything you buy, in fact, it is the vast majority of the costs - commodity materials are for the most part cheap. Wal-mart's prices and margins include the labor to manufacturer and transport those goods in their cost of goods sold line. Increasing just the labor cost of the last part of the supply chain doesn't do much, you are right, but increasing it across the entire supply chain does a ton!

By the way, high labor costs are why Wal-mart looks for its goods overseas: it can buy them for less over there because of labor cost differences.

[TheLastWallStreeter]

Just so my point is clear: the reason that a minimum wage increase in the U.S. has little impact on prices at Wal-mart is because all of Wal-mart's goods are purchased from overseas. Selling it in a giant barely maintained superstore is the least labor intensive part of the process, so even a major change in the minimum wage here will have little effect.

Of course, it will likely drive some more manufacturering out of the country.

So, if you want a big impact, do a 50% raise in the minimum wage and a ban on imports. Then you will prices at Wal-mart increase by a whole lot more than 3%. Oh, and if you didn't notice, that was my original point.

By the way, this isn't just neoclassical economics, Krugman and Keynes would agree with me on this one too.

[TheLastWallStreeter]

Let me see if I get this right: if I pay more money to an employee beyond the market rate for that employee and beyond what is necessary to retain that employee than there is a chance that they will come back and spend some of that money on my product for which I likely only get a small margin on anyway, right?

Yeah that makes sense.

[WASanford]

You seem to be forgetting that a business has to have customers to survive and that those customers also work for wages. The amount of discretionary money they have to spend depends on how well they are paid. So, when you only look at the cost of labor and do your best to lower it, you indirectly are working against the viability of your own business. Henry Ford was famously criticized for paying his work force too well. He responded to those criticisms with "I want my employees to be able to buy the cars they're building." I like to call that the Henry Ford principle. Let me state it this way: An employer who denies his workers a decent wage lowers the value of his/her products and thus the value of his/her business. If every business participates in this folly, the economy which they have as their charge, fails!

[TheLastWallStreeter]

And you are forgetting that since markets are global, companies will adjust their production to get the lowest priced production and focus their sales on where they will get the greatest sales,

Also, Ford wasn't the saint you believe and during his lifetime, very few of his employees could buy his cars. He paid better because he wanted to limit turnover which is a smart idea. He didn't pay enough for his employees to buy Model Ts.

In the end, all businesses must not pay more than the marginal value they can extract from that labor.

[dadw5boys]

Ask free-market conservative what BARRIER TO ENTRY LAWS do ?

Prevent Competition !!!!!!

Ask free-market conservative what enviormental laws do ?

Allow Corporations to get NARRIER TO ENRTY LAWS PASSED and TAX BREAKS !!!!!

Why do Major Corporations support Enviormentist ?

Cost $100,000 and they get $2,000,000­,000,000.0­0 in Tax Breaks --- excellent return on investment espically if the Corporation is fiances the law suits against itself and uses inhouse lawyers !!!

[Eggsackley]

Can you give a concrete example of how a corporation gets 2,000,000 in tax breaks for every dollar they spend supporting "environmentist"? Sounds like a fairy tale to me.

[dadw5boys]

Exxon !!!!

[TheLastWallStreeter]

Not many companies are getting $2 trillion of anything - considering our entire economy is about $14 trillion...

[dadw5boys]

2 Billion a year for the last 12 years !!!!!!

[Debbie1996]

I really want to thank HP for giving us this wonderful article. It's fabulous that we can have an ex-software developer who's attempt at entrepreneurship flamed out, that now is a "blogger"- can "educate" us on economic theories. As has been demonstrated in both the article and the comments below - knowledge about ones subject matter is no impediment to a forum here - great job!

[Dave Johnson - Huffpost Blogger]

Cute.

[Antifascist-08]

Well, at least i will congratulate you for pointing out the obvious.

And i don't say that with total disdain. A lot of people in this country need to start their economic education at square one. So be it.

[Sundialsvc4]

Henry Ford was definitely no saint! But in the apocryphal tales that have sprung up about him there is nonetheless a germ of truth: people spend wages. It's the only thing that most of us have to spend.

The "system" that we have now has reached the point where it is obvious that Rumpelstiltskin was someone's "business advisor." The situation has turned out to be a raw deal, not only for Americans but also for Chinese; and also for most of their investors. The reason why is ... this arrangement cannot possibly work, other than perhaps for a small handful of greedy men who also think that selling trillions of dollars worth of worthless paper (say, to other people's retirement accounts) is "a grand idea."

The Bible might have been a short-story had it not been for a man named Joseph, and a Pharaoh who was wise enough to listen to him.

A farmer who makes his seed-crop into tasty cakes will eat sumptuously indeed ... in the Fall ...

We know how to be wise, if we will but choose to . . . and if we demand to.

[DuganS1]

Regarding Henry Ford, the reason automobile sales continually escalated in the early 20th century was because the price of autos continually went down, making them affordable to more people. Ford increased wages for auto workers to reduce turnover, which was an incredible 600% per annum at his factories. Ford was also notorious for outsourcing work to lower cost contracting companies. Plus, Ford fought FDR militantly against unionization.

[iblogleft]

Great read.

I think the bottom line on the subject is this; Capitalism seeks out the highest return on investment.

Capitalism has no patriotism or country, no morality or conscience, and certainly no remorse. It treats the commodity of labor as it does sugar, buying it as cheaply as possible, wherever it is.

In a global economy, we can either bring our standards of fair labor, benefits, environment and safety to our trade partners, or bring ours down to theirs. It is far more profitable to bring ours down to theirs, so that is what is happening.

Businesses should have a problem with a minimum wage when asked to compete on a severely sloped field, however simple trade rules could eliminate those arguments.

Unfortunately, we seem to have chosen a pretty cloudy definition of fair trade, and while corporations are loving what it does for their bottom line, it continually degrades global standards of living.

[Eggsackley]

Great point. One of my major criticisms of the Bush administration was the failure to enforce fair trade laws on the books. I guess too many of their influential friends were making big money moving plants overseas.

[WilliamP]

I think most of the neo-classical economists argue against minimum wages because they inhibit prices from moving downward. This is because labor, as an imput ,determines the costs of goods. But, opposing minimum wages is unrealistic. No one really wants to do away with contracts, which also keep prices from being able to move downward by creating enforcable agreements on future prices. I think the benefits of minimum wage laws outweigh the unrealistic benefits of doing away with them.

Free trade, however, isn't entirely a conservative idea. Nearly all economists agree that countries should specialize in producing goods that they produce efficiently and trade with others. This will, in fact produce more wealth between all countries involved since they can all produce more goods. There are costs with refocusing an economy though, and the government should be more active in helping the economy readjust to make up for those losses and create new jobs.

[Sundialsvc4]

Q: What's the inevitable conclusion of "a race to the bottom?"

A: A crater. A smoking hole.

A2: By any other name, "famine."

[WilliamP]

Q: What does that mean?

[marijam]

Oh, really? Ask the farmers of Mexico and of Haiti how free trade has worked out for them.

[DuganS1]

Free trade has always been a liberal policy, especially back in the 19th century. For many decades companies were protected by artificial tariff barriers so they could keep prices and profits high. These companies profits were subsidized via the higher prices that US consumers would have to pay for those protected company's goods and/or services.

[berkawoo]

I think that these supply siders and those who want to minimum wage to stay low want this country to be more like Mexico. The middle class in Mexico has been hanging by a thread long before it has in the USA. The income gap of the super wealthy and the very poor has been prevalent in Mexico from the outset. Mexico could have had a North American Economy much like the US and Canada with all its resources, but the very rich are very entrenched and abusive. I believe there are conservative anti union anti minimum wage increase job outsourcing aficionados that would love this country to be more like Mexico. They envy the power that the most wealthy have in Mexico over the middle class and the poor.
You can count W.Bush/Cheney Gingrich Phil Graham and a whole cadre of Neocon thugs that would love to see the middle class beat down in this country like in Mexico. The middle class/working class in this country has taken a beating but not like in Mexico.

[RandVictims]

Why are you even arguing with the supply-siders? They're a joke. Their Ayn Rand theories are jokes. Atlas Shrugged could have easily been ghost-written by JK Rowling.

There's nothing left to discuss, move back to Keynesianism.

[jekyll]

First off to say that the supply-siders are for a free-market is outright laughable. They are NOT!! Also to say that we need to go back to Keynesiani­sm....hmmm­m where did it go???? It is exactly bwhat our policy has been for decades.

[RandVictims]

It's not about right or wrong, it's about lies. I read as much as I could of "Atlas Shrugged" and now I'm pretty sure it was JK Rowling ghost-writing for Rand.

The debate is long over. Supply Side, Neoclassic economics was proven a farce almost a hundred years ago but the same lies about "Free Markets" are perpetrated every few decades by those looking to build plutocratic empires based on slavery and pillaging.

Capitalism only worked when it was HEAVILY dilluted with Socialism and times were good for 60 years with that formula until Americans allowed a intellectu­ally-chall­enged failed actor talk them into accepting another ride on the Gilded Age, eliminating consumer protections and demonizing the labor movement that gave us a middle class all because they too f**king stupid and/or lazy to pick up a history book.

How's your life under Reaganomics, kiddies????

[jekyll]

The collectivists of the 20th century would be soooo proud of you!

[Rhetticent]

I'm guessing that was about the first two pages, right?

Why do liberals fear any exposure to opposing viewpoints? I hear liberals talk about how they'd NEVER read the WSJ, NEVER listen to Rush, NEVER read Mark Levin's book. The Left is unbelievably narrow, and refuses to even SAMPLE opposing viewpoint.

I'm here on HuffPo to read opposing viewpoints. Why you people are so afraid of it that you avoid it entirely is beyond me. Maybe you should try reading EVERYTHING, all the way through. Start with the Federalist Papers.

[quindy]

We don't need to read WSJ or listen to Rush we only need to look around and see how we live and it's clear that Reaganomics didn't work and will never work. Cutting taxes for the rich has never produced wealth to the middle class it has only made rich - richer.

[dadw5boys]

Want us to sign up for mind washing 101 too????

[Antifascist-08]

You haven't read the things you mention. if you had you wouldn't say the things you do.

Come clean.

Liberals have a much wider set of ideas than the st upid neocons. You are the ones who don't read other ideas. My God, do you really expect anyone except your own silly little friends to believe you?

[quindy]

You are absolutely right.

[WASanford]

If I remember "Atlas Shrugged" all the rich folks moved to Colorado and left a vacuum in our countries' economy. I've often wondered why that hasn't happened. Could it be that the rich cannot support themselves without having the rest of us to exploit?

[Antifascist-08]

Amen. Ayn Rand was just a woman spurned by one of her cadre. She admitted later in life that a lot of what she wrote wouldn't actually work.

Funny how these id io ts worship someone who new nothing about real life economics. Someone who never did any of the things she preached.

Simple things for simple minds. Actually, maybe that should read simplistic things for simple minds.

[research]

Plutocrats can never see that reducing wages and general impoverishing the 99% of the people will reduce productivity and crash the economy.

[DuganS1]

No, it doesn't. Prices always come into line with wages and the availability of credit. When wages aren't growing, then prices can't go up either.

[research]

See? plutocrats think that staving poor homeless people will still buy stuff.

[quindy]

Prices will always come into line with wages? You must be kidding! Maybe you can explain now how is it that the real income of middle class has shrunk for the past 20 years? Why can't the middle class afford what the previous generation could? Because the prices kept the line with wages?