Labor Unions and the Minimum Wage: A Debate

0:00I'm now here in my other capacity. I'm delighted to have this debate with Professor Blundell. I'm a big believer in John Stuart Mills' On Liberty, where he says that it's very important to have debates, not only the students like to see professorial blood on the floor, John Stuart Mills didn't say that, but that it helps promote truth.

0:50And I think that one of the ways of achieving truth in these complex matters is to hear I hope that this debate will be more civil than the previous debate that we've had in the literature. My opponent has called me, in my views, bizarre, flat-earth, incoherent, no sense, not even good enough to be wrong, hydro-headed monster, not honest. That's the good stuff. You ought to see the... No, I'm kidding. That was the bad stuff. I favor civility, but if you want to not, that's okay, I guess, although I'll try to be civil about these things. I think they're very important, and we should focus just on the substance and not on pejoratives.

1:39Before we get to wages and unions, which are the basic discussion that we're having, let's ask a more basic question, and that is why work at all? Why do we have to work? And the answer is that we have scarcity. Our desires are greater than what we have. Therefore, I don't think you can have, quote, more workers than work. If you had more workers than work, you wouldn't be having scarcity. The work is limited by scarcity, and scarcity is, I wouldn't say infinite, but indefinitely large. We want many, many things. I'd like cure for cancer, cure for AIDS, like to live on the moon, Mars. I'd like a Rolls Royce in every garage. We have unending wants, and as long as we want more than we have, there's plenty of work, so there can't be more workers than work.

2:29What determines wages? Well, as a first approximation, what determines wages is a thing called marginal revenue product. And what is marginal revenue product? Well, marginal revenue product of the two hundred and first worker equals Total Revenue Product of 201 Workers minus Total Revenue Product of 200 Workers Now, if we assume that 200 workers can produce $10,000 worth of stuff and 201 workers can produce $10,010 worth of stuff and we attribute the extra $10 per hour to the 201st worker Well then, the 201st worker's marginal revenue product is $10.

3:24That's his contribution. Now, there are three possibilities. Wage could be less than marginal revenue product. Wage could be more than marginal revenue product. Or wage could be equal to marginal revenue product. Well, there are problems with two of these. If wage is greater than marginal revenue product, suppose marginal revenue product is ten, as it is in all three cases, but the wage is fifteen, well, the guy's going to go bankrupt. He's going to be paying somebody fifteen for something that is producing only ten to lose five dollars an hour. You can't do too much of that. You'll go bankrupt. We don't have to worry about that.

4:12Suppose that the wage is less than marginal revenue product. Suppose that the wage starts out at $4 an hour. Well, at $4 an hour, the total revenue from this guy is $10. The total cost is $4. Therefore, the profit is $6. That sounds like a good idea. You're exploiting labor the way a good capitalist pig should, and all is well. It just so happens, though, that this is not a stable equilibrium situation. There are tendencies to change. Namely, somebody else is going to offer 401. And at 401, the profit turns out to be 599, and someone else will offer 402.

4:57Where will this bidding go? Well, in equilibrium, the only stable point where these market forces are not brought to bear to change it will be at 10. So we say that the wage tends to be equal to the marginal revenue product. What determines the marginal revenue product? Well, natural talent, how hard and how smart you work, how much human capital you have, education, formal and informal, job training, physical capital, The physical capital that you're working with, you can do more productivity with a steam shovel than with a regular shovel, and more with a shovel than with a spoon, and more with a spoon than with your fingernails.

5:42So the more capital, physical capital you have, the more productive the worker can be. And what does that depend upon? Well, political stability, security and economic freedom. So if you want to help workers, the way to go is to promote all these things. savings, investment, economic freedom, political stability, that's the way to help workers. Not to artificially have higher wages as in a minimum wage or unions. Now there are some exceptions to this rule. This is just the first approximation. One important exception is that it's not really marginal revenue product of the worker himself, rather This marginal revenue product of the worker in his second best alternative, because if your productivity is $10 an hour in your main place, but your next best marginal revenue product, say, is only 7, next best equals only 7, then there's no reason why the bidding Banking process should go all the way up to ten. Then it would be somewhere indeterminate between seven and ten. On the one hand, the employer, the employee has, his next best

7:07option is seven, so he won't take less than seven. On the other hand, he is producing ten dollars worth, so the guy would be willing to pay a maximum of ten. So somewhere in between Between 7 and 10, depending upon bargaining power, will be the wage. It's sort of indeterminate as far as economic theory is concerned. Another exception or complication is that marginal revenue product is just an estimate. We're just estimating this. We don't really know any of this stuff for sure, but people who know make more profits than people who don't know, so the market tends to weed out those employers that can't estimate marginal revenue product. We have good examples of that from sports. The guy who got Shaquille O'Neal knew that he got a guy with a high marginal revenue product. The guy that got the second best, or maybe somebody ahead of him didn't. And companies and basketball teams prosper or not depending upon how they can discern future quality or present quality or future quality

8:11of workers. Another exception or complication is this thing called monopsony, where there's only one buyer. The usual case here is Hershey, Pennsylvania, where they're, say, the only people who are making chocolate. And if you're an expert chocolatier, there's no other place for you to go. The other place you can go is, you know, being a truck driver for much less wages. The point there is, though, that usually there's more than one place where you can make chocolate, and also if the wages differ greatly from the marginal revenue product, it sets up incentives for people to go to Hershey, Pennsylvania to hire these guys and pay them a higher wage. We have real world examples of this in the case of Mexico. People in Mexico are getting paid way below their marginal revenue product. Growers from California to Wisconsin go down to Mexico with big buses and trucks, grab the people up there and pay You pay them twice or three times as much, then you have evil people like Cesar Chavez,

9:13a union leader, who tries to keep the Mexican workers out because they're being paid too little or there's not hot and cold running water in their cabins or something like that, whereas these Mexican workers would give their eye teeth and do give their eye teeth to get up these jobs because they might be getting five or ten times more than they would get in Mexico. Another complication or exception is supply. See, the marginal revenue product curve is the demand curve for labor. Then here's the supply curve for labor, marginal revenue product, quantity of labor, wages. Together that determines wages. Where the supply comes in is in this thing called compensating differentials.

10:00In other words, your marginal product might be such, but if you're working in a garbage Average dump, where it's either boring or dangerous or disgustingly yucky, then fewer people would want to work there, so the supply curve would shift to this way and the wages would be slightly higher even though it's the same old marginal revenue product as these other guys, but you get higher wages in order to entice you into these dangerous, boring or disgusting jobs. I had a complication that I just went over in one of my classes unsuccessfully, a very complicated thing. It's called DMRP, Discount and Marginal Revenue Product that depends upon how far off in time is the job that's going to be covered, and I won't go into that. I've written, I've published on this. I still can't explain it to the satisfaction of my classes. I'll be working on this. That's my homework assignment.

11:00It's a complication that I don't think we need to go into here. It's sort of complicated. What about unions and minimum wage laws? What I've said is, here's how wages are determined. Here are some exceptions, but the rule is, the more productive you are, the more money you make. That's the general rule with some exceptions. Well, some people say, well, the poor people are making too little. We've got to raise their wage and the way they see the minimum wage is sort of like a floor under wages and you raise it and you raise it a little more and all the wages rise and only people of bad will would be against that because if you want to help the poor, most of us do, how better to help the poor than by raising their wages and if the minimum wage truly sets a barrier under wages or a floor under wages below which wages can't fall and you raise it from 5.15 to 6, well then everybody gets up to 6. You raise it to 6.50

11:59Everyone gets to $6.50, you raise it to $7, that sounds pretty good. It's false. This is the wrong metaphor. The proper metaphor is that the minimum wage is more like a barrier over which you have to jump in order to get a job in the first place. And if there is no minimum wage, then everyone can jump over it and get a job. If the minimum wage law is $5.15, then anyone whose productivity isn't equal to $5.15 Can't get any job. For example, suppose my productivity is only $4 an hour, and the employer has to pay me $5.15. Well, he's going to lose $1.15 on me. That's no way to get me a job. See, the minimum wage law isn't a law that promotes jobs. It's a law that promotes joblessness.

12:49Specifically, it says, it shall be illegal to pay anyone less than $5.15. But you don't You don't have to pay them anything. You can just say, toot-a-loo, I'm not hiring you. And if people are worth less than that, they won't be hired. When it goes from 5.15 to 6, then people whose productivity lies between 5.15 and 6 will suddenly be out of a job. Not suddenly. Sometimes it takes a while because you have to wiggle around like the very next day, nobody's going to lose a job because the transactions take a little time, but eventually it happens. I remember when the minimum wage law went from $0.40 to $0.75, which was the highest percentage increase ever. The very next day, elevators in those days were manually operated.

13:34You think anyone lost his job the very next day? No. You have to keep those elevators going. But over the next few months and years, the elevators went from manually operated to automatically operated, and all of those elevator operators lost their jobs. I remember when I was a kid you'd pull into a filling station and you'd be attacked by five people. One would change the oil or look at the oil, one would check the battery, one would look at the tires, one would put the gasoline in your car. Nowadays you go in there and it's self-service. All those jobs which were at the bottom of the economic pyramid or the bottom of the economic ladder, they're no longer with us because it doesn't pay to hire people like that.

14:20And yet, this sort of on-the-job training is the way that people from time immemorial got into the labor force through apprenticeships. You get into the garage, you're only changing the tires or whatever, and eventually you learn from being on the job. With regard to unions, I regard unions as sort of tapeworms. What they do is suck up any extra profits, and they beat up scabs, and they pass labor legislation which compels employers to deal with unions whether they want to or not. Yes, sometimes temporarily unions can raise wages, but when they do, you get the Rust Belt. You get the phenomenon of companies from Pittsburgh to Boston closing down. Nowadays that's happening in Detroit. And they open up where? In Birmingham, Alabama, where there are very few unions or unions are much less powerful and wages are lower.

15:16So, I think that, to summarize, the best way to promote the well-being of the poor is to increase their marginal revenue product, their productivity, through education. Thanks for your attention. Just to be clear in the format, Dr. Blundell will give a 15-minute opening statement and then proceed to a 10-minute response. So back-to-back, it'll run 25 minutes. Okay, thank you very much for having me. This is a new environment for me and I appreciate Professor Block's hospitality because I'm not that far removed from graduate school that I don't appreciate free food. Forage is an essential skill. You'll have to excuse Excuse me if it seems like some of my responses or some of my opening statements seems like a response to what Professor Bloch just said. It's simply the fact that he has rehearsed many of the things that he put in writing in the series that you have in front of you.

16:31I would like to make an original point because in him is, I'm not sure if his final response was included in this set, the final longer response that wasn't published in the Maroon On the issue of civilized discourse, because in fact all of the things that he accused me of as far as the words that I used are absolutely true, and I would maintain are absolutely civilized, the point of civilized discourse is to take away the issues of substance, as Professor Block put it, take away the issues of attacking someone's ideas or someone's argument versus attacking someone's feelings. and the point of civilized discourse is that if you have the discourse completely in the realm of ideas without engaging in ad hominem and personal pejoratives that enables you to free up to discuss the ideas with a great deal more vigor and so I would just point to the fact that the nasty things I said about Professor Block were not about Professor Block they were about Professor Block's ideas

17:36And thus I will continue to operate in the same fashion. That if I find something that I believe to be incoherent, I will say that it is not even wrong and attempt to demonstrate it. If I find an example that is repeated after being challenged as not being representative, I will talk about terms of intellectual dishonesty. These are just simply academic, civilized discourse terms. I would like to frame the issue here in a way that allows us to see, I think, the primary difference between the way Professor Block approaches the issue and the way I approach the issue. Because what we have up here is some very interesting stuff that over the last couple of months I've been forced to read up a little more and relive some of my economics major and undergraduate There's one thing that needs to be remembered. One is, what these are, are models that will tell you what should happen.

18:47In the case of the most fundamental statement, and let's remember the statement that started this off on the front page, This is not a theoretical statement that's determined through a model. It's an empirical statement, and it's false. And the fact that it is false, that it is demonstrably false, over and over again throughout the literature, undermines the theory itself. As with any scientific theory, you can have a good model, it can be coherence, it can be sensible, it can even be intuitively appealing. And I would say that this theory satisfies all those criteria. But it's in the case in every science that when you take a theory like that, and then you look at reality and see whether the facts on the ground match up with what your theory predicts.

19:40Whether it has any predictive power. And in this case, not so much. So I would like to continue to treat this question as an empirical question, because that's what it is. I am an ethicist. I think about things in terms of the real world. Now, I want to shy away from a few of the comments I was going to make. I'll save them for my response. But let's put this on the table. Some actual data. That wages and salaries now make up the lowest share of the nation's GDP since we've been keeping records.

20:27It's an empirical fact that wages have, in the last 10 years particularly, but in the last 25 years generally, become divorced, become uncoupled, disconnected with productivity growth. So the median wage has become disconnected with growth and productivity. Everybody agrees that productivity has grown and grown apace, and we can get into specific numbers if it becomes appropriate later. But it has shown that the growth in wages that would be necessitated by this model, due to the growth in labor productivity, not just productivity in general, but labor productivity, would in fact indicate a much higher level of wages than we presently have.

21:15And let me also point to one of the dangers that can often happen in talking about this when we actually deal with empirical questions, the difference between mean and median income. So the mean income, the mean wage, is the average wage. You take everybody in the room, you add them up. So, we have Elliot, who's 20, and we have Woody, who's also 20, and we have Professor Kaplan, who we'll say is 25. And then we'll have me, who's 35. And so we have four of us, equaling up to 100. And so if we divide that by four, because there's four of us, the average age is 25.

22:02And then if we introduce a fifth person into the equation, who's 25 years old, the average age stays the same. But let's say the fifth person is not 25 years old. Let's say the four of us in a room with the average age of 25, and Professor Block walks into the room, and let's say for realm numbers that Professor Block is 100. Now we've gone from four people to five people, we've gone from 100 to 200, and the average age has shot up from 25 to 40. But the median age hasn't changed, or at least it's changed very little. Still looking at 25 years old for a median age. And so looking at the middle worker in a distribution is a much more reliable indicator, although average still should be examined.

22:48In fact, the more indicators that you can bring together in your analysis, the better. But the median worker wage, the middle worker in the distribution, is a very important one to look at. And the fact of the matter is that it is the middle worker's wage that has been slowly, not just not keeping up with productivity growth over the last 10 years, it's that the middle worker's wage against when indexed for inflation has actually been declining. Now why is this? How did they become uncoupled? What is it that happened 25 years ago that started the uncoupling of wage growth and and Productivity Growth. Well, some argue that it was the union-busting legislation that started to be introduced in the 1980s.

23:39I think it's a fairly reliable, I think it's a fairly cogent piece of analysis, although we should be clear here that unions are not some sort of panacea. I'm not sure who Professor Block thinks he's arguing against. I'm not exactly an overwhelming fan of unions. I think they're in some cases a necessary evil. Nor am I not a fan of capitalism. I think capitalism is one of the best ideas that's ever happened in human thought. I'm a huge fan of Adam Smith. What I see coming from these articles has very little to do with what I read in Adam Smith, but I am a great believer that you want to have maximum freedom. And so let me use an analogy to try to help figure out where we should be going here.

24:27Because we do not live in an economy. We live in a society. And so the economy is an integral part of that society. Without a functioning economy, a society cannot function. Without a vibrant economy, a society cannot be vibrant. Now, if we think of an analogy, we can think of a car. The economy is the engine. The economy is what makes the car go. And the better the engine, the faster the car can go. The more places you can get, the farther you can travel. But the car itself is the society. And what seems to be being proposed here is that we are supposed to do things to make the engine bigger and better and faster. And I would in fact think that the things that Professor Professor Block proposes that you abolish the minimum wage, that you get rid of unions, would in fact get the engine bigger and faster. The economy would grow, the GDP would go up.

25:35Unfortunately, the other aspect that Professor Block seems to be very much against is the idea of legislation. It goes so far in one of the articles as to call this immoral. This This legislation that impedes, that would in fact enable unions to work and that would protect workers' right to organize as an immorality, which is of course not an economic point, it's a political point. And so, here I would say that the laws in our analogy of the car represent the steering. In other words, because we want our economic car to go faster, and we want our engine to get bigger, and we want our power-to-weight ratio in our car to go faster, Professor Block is advocating that we rip out the steering column.

26:25And here's what will happen. The car will go very fast, and then it will go into a ditch. Because you just simply cannot go without proper levels of steering. You want your economy as vibrant as possible. And to have your economy as vibrant as possible, you need the maximum flow of capital, you need the maximum freedom to negotiate that you can afford to have. But what you need there is not unlimited, because the engine is not the only thing in the car. Another thing that you need is social cohesion for the car. You need something that will stick the car together. And if the earnings of the top part of the society get too far away from the majority of the society, You will end up with civil unrest. That's not our model. That's empirical. That's what happens, historically, every single time.

27:19And so, you have an interest. One of the things that has maintained the United States in particular, and the modern industrialized West in a larger sense, The sustained economic growth over the last 75 years is precisely unionization, that a greater number of people in the society have felt that they have a stake in the prosperity of the society, that they're not continuously listening to how prosperous their society is when they have no part in it. And there are senior financial analysts at places like Morgan Stanley who are now expressing some reserve because they feel that the uncoupling of wages and productivity growth that has happened over the ten years is going to lead to a sort of civil dislocation, a lack of hope, lack of motivated workers because they don't feel that their work will get them ahead.

28:17That is ultimately going to hurt the economy as a whole. In other words, without the steering column, the car starts to fall apart. Now, to close, I should mention something about unions. They are not always necessary. I have never claimed that they are always necessary. In many industries, they are not necessary at all. In other industries, they are absolutely essential. And those industries are precisely the case where, and Professor Block has talked about, you know, workers having choices of places to work, and that somebody would hire the worker away, and that would drive wages up to the MRP level.

29:07And completely ignoring the reversed trend, which is that when there are more low skilled workers than there are the available work for them, and thus that exerts a downward pressure on wages, because if the individual does not want to work for that price, I can find someone who will. And therefore I will accept, I will force you, I will have greater bargaining power to force you to accept less because I can find another worker and you will have a great deal of difficulty finding another job. So the elasticity part of the economic equation, in that case, favors. Thus, highly mobile, highly skilled computer programmers and other financial services do not need unions. Unions would be horrifying in such a case.

29:59in this case. Those really quick moving industries that have to quickly adapt would be killed by the presence of unions. But lower skilled labor, where it's much easier to measure output, unions are absolutely essential. And I'll respond more to Professor Block's statements, oh I guess right now. This about wraps up your first 15 minutes, but you have a 10-minute response. I now have a 10-minute response. Where do we start?

30:39Let's start with the minimum wage. That unmitigated evil of the minimum wage that drives people to unemployment, That hurt those poor elevator operators, those multiple gas station attendants, and that very social evil. Let's talk about that for a second. Because the great evil that was perpetrated, apparently, by the minimum wage was joblessness. Now, first I have to make an ancillary point, because I find that such a bizarre example. Because the elevator operators, which because they were no longer super cheap labor, were put out by elevator automation. Well, elevator automation is in fact a productivity increasing invention, the ability to automate.

31:30And Professor Block, in the response that you don't have, but which you can find available online, if you just type Block Blundell into Google, I think on the Mises site that Professor Block works with, points out the fact that if I were to invent something that would absolutely eradicate tooth decay, I would put a whole bunch of dentists out of business. But that would not make me evil, that would make me a hero. Because those dentists being out of business means that they could then go off and do other work that would be available, that previously we just did not have the labor power to do. To think otherwise would be to fall victim to the lump of labor policy. Now, it strikes me that that's exactly what happened to the elevator operators, that because there was a better technological advantage, the automation, they were able to go off and do other things. But let's say they weren't. Let's say that what happened here is that

32:30people were driven into joblessness, and perhaps they're more likely than the dentist to do so because it's the lower skill, arguing that they're at the bottom of the labor pool. So We have a minimum wage of, what is it at, $5.15? A federal mandated minimum wage of $5.15. And thus, anybody whose productivity is below $5.15 is suddenly forced into unemployment because I would wholly agree that a business cannot sustain paying their workers consistently more than their productivity because then the profits are negative.

33:07So why do we have a minimum wage? Well, the problem is that if the worker's productivity is worth $4 an hour or $3 an hour, that person would have a job but still be unable to live. What's the point in that? So you make $3 an hour, you work two jobs, and you still cannot live in the society. You just won't take the job. And what will increase? Crime, social unrest. You will find, thus, the risks of doing something illegal become outweighed by the rewards, because you have no hope of living at that level.

33:54Minimum wage is not an economic decision. It is a social decision. It's about how to keep the car on the road, not how to make the most powerful engine. So, minimum wage may lead to a certain level of joblessness, and thus you need some sort of social safety net. I think that was actually too evil to even be mentioned, as far as its effect on the economy. Some sort of welfare. Nothing fell on me. That you need some sort of welfare to back that up. because as a social question our society has every interest in having as few as possible as few number of people as possible be in a desperate situation you cannot afford I cannot afford we cannot afford people who are not in this situation cannot afford to have people in desperate straits because people in desperate straits do damaging things to the entire society they rip the very The very fabric of the common good. And the more people are in those desperate straits,

35:02the more people who will behave in ways which are destructive to the society. They will break down the car. That's why the car will end up in the ditch. And so we need ways to protect this. And one of the ways is having a minimum wage. Another way is allowing people to organize so that their productivity and their wages do start to match up better. So minimum wages, Unions are both things that you want some of, but not too much of. And I would love to get into a conversation of just how much unionization is necessary. But we can't get past that until we get past the basic empirical question that unions do raise wages. That's an empirical fact. So somehow we have to move beyond that before the sort of more realistic conversation can take place.

35:54Secondly, that unions are not some unmitigated social evil, they need to be controlled, they need to be legislated, there's such a thing as too much union power and there's such a thing as too little union power. And then we can have the intelligent discussion of what's the various social advantages and economic advantages of having unions versus what are the social and economic disadvantages of having unions. in Unions. But, in a way, that's going way too far in the discussion we're having because we're caught at these original empirical questions, which, for most of the people who discuss these kind of things, just don't even exist. Of course, unions, health rates, wages, it's an empirical question and it's been proven true. So unions are not always necessary. Some sort of minimum wage is always necessary because you need your people who are working to have an incentive to continue to work and not continue at a way that is a living wage.

36:50This is one of the oldest things in Catholic social teaching, by the way. In the 1890s, Leo XIII was writing about the idea of a living wage. That wages have to be available that you can live on, and that's what determines what the wage should be set at. The minimum wage should be set at.

37:13How much time do I have? You have another six minutes? Six minutes? Okay. Four minutes? Ah, I can see. Let's talk about Shaq. I don't want to talk about Shaq. I mean, if there's anybody that is so clearly and obviously representative of nothing, there's anybody who's so obviously a freak of nature in every way possible, and thus is not representative of a general case, it's Shaq. But after I pointed that out, Professor Block continued to talk about Shaq. And this is where I started to say, you gotta stop. I mean, we've shown this. You haven't responded, you haven't shown that he is somehow representative, but you've continued to use the example. Shaq, very popular, very gifted athlete, puts a lot of people in the seats, puts a lot of eyes on the television, produces, very productive.

38:06And so what I said was, Shaq is also in a union. Shaq is in a union for a reason. Schacht is aware that, without the Union, he wouldn't be able to make what he makes. To which Professor Block responded, Schacht's productivity would be roughly the same for the Knicks, the Lakers, the Hornets, or his present team, the Heat. Apart from that, he could play in a European, Asian or South American league, with only a slight reduction in second-best MRP, and hence, wages. There's two parts. Let's talk about the more central one. He can make the same amount for the Knicks, the Lakers, the Hornets or the previous team, the Heat.

38:51Here's one of the reasons, and I've stated this on my column. The Lakers are not a standalone business, they are a franchise in the NBA, which is a business. The Heat are not a standalone business, they are a franchise with rules that go along with that franchise of a centrally owned business, the NBA. The reason Shack could potentially move from the heat back to the Lakers or to the Hornets is due to a device called free agency. Familiar with free agency? Guess what? Free agency is a union negotiated benefit for players. Prior to unions, they didn't have free agency.

39:37Shack was not free to move in those kind of things, that was a union negotiated deal. And finally, the idea that he could move to other leagues, well of course other leagues do not have the same sort of revenue streams, they do not have the same sort of popularity, he would have to take a massive pay cut. If Shack did not have union backing, he would not make nearly the money he makes now, which is again, not a theoretical position, it's It's an empirical position. You go back to the great players in the sports, Gordie Howe, Will Chamberlain, you go back to the pre-union eras and find out what these most productive players made, as I demonstrated in my article, and it's just not true that their productivity and their wages will coalesce. Thanks.

40:27I think there's more to civility than a refusal to engage in ad hominems, and I certainly admit and compliment my opponent, Professor Blundell, for not engaging ad hominems, but I don't think that that exhausts civility. For example, I could say, I'm firm, you're stubborn, and he's a pig-headed fool. It means the same thing substantively or cognitively, but emotively it's very different. Or I could say, he differs from me. Or I could say, he's mistaken. Or I could say, his ideas are bizarre. It's very different. But I think civility, the good part is that I not say that his ideas are bizarre, maybe not even mistaken, I'm not sure about that.

41:19Probably best, which I can't always achieve, is just different. I don't think there's any disconnect between wages and productivity. Productivity is very hard to measure. The best estimate of productivity is wages. Even wages are hard to estimate because you have different amounts of, I don't understand the difference between mean and median, although I'm glad that he characterizes me as 100 years old. I hope that one day I'll achieve that status and still be up here. I think once you get large numbers, the mean and the median get really close, so it really doesn't matter.

42:07So I didn't see the point there, but what the heck? With supporters of the market like Professor Blundell, I think the market is in trouble. He's not really a supporter of the market. If he's a fan of Adam Smith, I don't know. I also favor laws. I'm not against laws. And I agree with him that laws are like the steering wheel of the car. The laws I favor are laws against murder and theft and rape and fraud and things like that. I certainly don't favor minimum wage law, which unemployed unskilled workers. I think that's vicious, because according to the preferential option for the poor, which is another mainstay of Catholic social teaching, you're supposed to look at every law primarily as to how it affects the poor.

42:52Because if it hurts the rich, they become middle class. If it hurts the middle class, they become poor. If it hurts the poor, they starve. Well, the minimum wage is a pretty nasty kind of business. Because it focuses on the very poorest people and it unemploys them. It's hard to see why that wouldn't be immoral.

43:16There's the claim that you can't get today's jobs with yesterday's skills. Professor Blundell was giving us a version of that. I think you can, at a certain wage. It depends upon what the wage is. Out of low enough wage, you can get any sort of job with any sort of low skill. It's interesting, the mentally handicapped, physically handicapped, I think isn't so bad. Arms and legs are just conveniences. The real bad stuff is mentally handicapped people. They have very, very low productivity. And yet they've learned that if mentally handicapped people ought to have good lives, they have to work, and somehow they are able to see the difference Did you ever see the difference between actual work where somebody depends on them and make work projects?

44:02Well, in the early days of minimum wage law, what happened was that they used to be hired at very low wages and you'd have to subtract their productivity from the cost of their overseer or the person that was monitoring them. And then before the minimum wage started, mentally handicapped people had jobs. The minimum wage of 25 cents and all of a sudden 25 cents was higher than their productivity and they couldn't get any jobs anymore. So guess what? You had to have an exception for them. You had to have an exception for mentally handicapped people so that they could get jobs. Well, if the minimum wage law is so bloody good, why do you need exceptions for it? I mean, the law of rape is a good law, but we don't have exceptions. We don't say, well, if it's a rich guy, rapes a poor woman, that's okay, but the other way not. No. Rape is is bad. So the minimum wage law is not like a law against murder. Okay, it's okay for left-handed redheads to either murder or be murdered. No. There are no exceptions. You just don't murder.

45:03Well, if the law is so bloody good, it shouldn't have exceptions. Another exception is during the summer, everyone is mouthing off about hire the teenager, hire the high school kid, please hire the high school kid. Nobody wants to. Why? Because high school kids have low marginal revenue product, low productivity. So guess what they do? They have an exception. They say, OK, here is the 515, but we'll have a T minimum of 3 or 4 or something like that to just get them jobs. Well, if the law is so great, if it's a floor under wages, why do we have an exception for it? Why don't we raise it a little higher? Why are we so niggardly and only 515, 6, 7? Why not raise it to $100 an hour? Then we'd all be rich. This is silly.

45:49You don't get rich by passing laws saying we should be rich. He says there are too many unskilled jobs going begging. The reason is because of the minimum wage law. That's why these kids, these unskilled people, can't get jobs because of the minimum wage law that he favors. You can't live at $3 an hour. Well, which is better, $3 an hour or $0? $3 an hour is better than $0. With a minimum wage, well, you get $0. Because if your productivity is $3 an hour, and you have to be paid $5.15, and that means you're going to lose $2.15, who's going to hire you? Who's going to hire you? Nobody's going to hire you. $3 is better than $0.

46:35Now, with this business of welfare, he is guilty of violating Ceteris Paribus conditions. Here is a minimum wage, here is a non-minimum wage, here is welfare, here is no welfare. I'm going to assume the minimum wage law of marginal revenue productivity of 2, 40 hours, and welfare of 100. Since you picked the 100 for me, I'll pick the 100 for this example. Now, if we have a minimum wage and no welfare, well how much do you get from welfare?

47:20Well, since there's no welfare, you get zero from welfare. Well then, from welfare, since there's a minimum wage, how much do you get from work? You get zero, because the minimum wage is $5.15, your productivity is $2, so you don't get any jobs, you get no work, your grand total is zero. Everyone with me? Suppose there's no minimum wage and there is no welfare, well then from welfare, you get zero, since there's no welfare. From work you get 80, since your productivity is 2 and your hours is 40, so you get 80 for a grand total of 80. Which is better? 80 or 0, holding welfare constant, namely no welfare? Obviously 80 is better than 0. Now let's try it with welfare. Well, if there's welfare, how much you get from welfare? You get 100.

48:10How much you get from work? Well, there's a minimum wage, so you get 0 from work. Why do you get zero from work? Because your productivity is only two and they have to pay you $5.15. They're not going to hire you. They're not going to hire you. So, from welfare, you get $100. From work, wait, now we're in the non-minimum wage, so you get $80. I'm sorry, I should have stayed here. There's a minimum wage. How much you get from welfare? $100. How much you get from work? $0. You get $100. Here you get the same 100 from welfare. From where you get 80, you get 180. So in other words, if you hold constant welfare, which you should if you want to be logical, you have to hold other things constant to see the effect of one thing.

49:02If you hold the welfare constant, either with welfare, 180 is better than 100, or with no welfare, 80 is better than 0. No matter how you slice it, you shouldn't confuse two things. If you've got two things zigging and zagging, it's a mess. Let's talk about my man's shack. Will Chamberlain was probably the shack of his day. He made very little. There were no unions. So we deduced from this that during a non-union situation, we were poor, and during a union situation we were rich. Well, we were very free in 1780. We're not very free now.

49:48So I deduced that economic freedom is no good. What mistake have I made? I'm not holding things constant. I'm engaging in a violation of the Ceteris Paribus argument. There are two kinds of unions. There's unions. There are some unions that limit themselves to a mass quit. Those are legitimate unions. Then there are other unions that beat up scabs or get employers to bargain with them whether they want to or not. The analogy is, I want to divorce my wife, and then what I do is I surround a house with my friends Alright, we're going to go to 15 or 20 minutes of question and answer.

50:41Here's the supply, here's the demand, here's the quantity of labor, here's the wage. When you have a wage above equilibrium, you have a surplus. This is called a surplus. The reason we have a surplus is because we've artificially boosted wages. Then what is the point of a job that you can't let go? Is it?

51:23That's not really the argument. That's not the argument. The argument is that you can't live on points, right? I can live better on three than zero. No? No? Tell me you can live better on zero than three. You have a minute left. Say that $80 is better than zero is much like saying that you're caught 20 feet underwater because I can bring you up to the first 15 so that you have enough air to swim up 15 of those 20 feet. That's better than being stuck at 20 feet. The problem is that in both cases you're going to drown because you're never going to hit the surface. And so the So the minimum level of living is a floor that, partly getting the way up to the floor, is simply not useful.

52:16And in fact, if it's just a case of absolute numerical stuff that more is better, well I'd like to ask all of you. Is 95 not better than 85? Right? As a grade? In 95, not better than 85, in A, it's not better than a B? Yeah? Did that keep you away from Kudibrams last Friday? Did that keep you from doing any extra-curricular activities? Did that keep you from maintaining friendships? In other words, don't you make other decisions other than just based on numerical, right? That you want a full student, you want a full life. In other words, if I have to work a hundred hours a week and I still can't survive, not only do I not have enough to survive, I have no time to do anything else.

53:04I'm going to try to move around and clarify this direction. Well, this just goes off on that note. I want to know if I'm wrong in this. When you were talking about low, menial jobs with five guys who would come to service stations and service your car, weren't those filled by like teenagers in high school whenever those the low-paying jobs what I'm saying is is I think a defense of this that we're trying to wrestle with right now is that these low-paying jobs are the ones that younger people get in order to learn how to work learn how to show up to work on time learn how to stick around learn how to get a good ethic so So it's not like when you're 40 years old, you're meant to be working a job that pays $3 an hour because with 40 years of experience on life, you should have a higher productivity than $3 and you should be able to get a higher job, like I just don't...

54:02The minimum law wage is somehow very, very bad because it has exceptions. The handicap in the youth minimum wage, which I grew up with the youth minimum wage, where I grew up, it seems to me that any intelligent set of laws has exceptions. And only in the most extreme cases do laws not have exceptions. It's against the law to speed, but if you happen to be at work driving an ambulance, you're allowed to speed. And speeding laws are not stupid because you're in a particular job. That enables you to speed. They make an exception to the law, which is intelligent for cops and ambulance and drivers and people who are doing things like that. In fact, you try to come up with a law that doesn't involve someone dying, that doesn't have any exceptions at all.

54:51It's one of the reasons we have such that a just society has a complex legal system precisely because you need exceptions to get justice. It's precisely the same case in the minimum wage law. You can also set your minimum wage law stupidly by the way. If you suddenly jacked your minimum wage law up to $10 right now, overnight, then that would be not just an economically catastrophic but a socially catastrophic thing to do. It's not like the minimum wage law that there's some that you can keep pushing up and it gets better and better and better. No, as with many things, it's about finding the correct balance. The idea that you would have a youth minimum wage that was different than your adult minimum wage, that would allow people to get into apprenticeships, that would incentivize businesses hiring in these low-skilled labor so that people would become trained in these things, that's a great idea.

55:39It's an excellent complexity. It's complexifying of the law to achieve greater justice. I very much reject the idea that the analogy here is like drowning in 15 feet of water versus drowning in 20 feet of water. I don't see that at all. You're drowning and you're drowning. The gentleman, what's your name in the back? Rick. I can't get through to Rick that $3 is better than zero. I wonder why I can't get through to him there. It's better to have $3 an hour than to have zero.

56:27Now, I reject Jordan's point as sort of too compromising. What you're saying is, well, they're young, they're not relying on their primary, they're not the primary breadwinner, they're just 17 years old, this sort of adds to the family. This is all well and true, but I think we have to take a firmer step against this law. What this law does is very cruel and vicious. It unemploys unskilled workers. In the good old days, in the bad old days, you used to have apprenticeship programs. People learn on the job, but if they can't get on the job in the first place, how are they going to learn? They don't teach them much in school. They teach theoretical crap to these kids, and they have public schools where it's a zoo, and they commit crimes over this.

57:18Professor Blundell was talking about crime. Where are you going to commit more crimes? If you can't get a job at all, or if you can get a job for $3 an hour and learn some sort of skill. The minimum wage law is very vicious and cruel because it creates crimes on the part of young people. So, these young people are told by law that you can't work. You see, he still adheres to this idea that the minimum wage law is like a floor under wages, and as you raise it, it raises everyone's wage. That's wrong. Think of it as the minimum wage law being like a high jump barrier over which you have to jump to get a job, and the higher it is, the harder it is to get a job.

58:04Well, first, you said that all laws have exceptions, but that's not true. Laws are black and white. If you're speeding and you're in an ambulance, you're speeding. It's just a cop decides not to pull you over. The law is you're speeding. So I understand why you say all great laws have exceptions, but that's not necessarily true. But also, would you agree that we don't have children working anymore because of labor loss, or because of wages and the way we work and our productivity has increased so much, and that's why they don't work? Because I feel like you would agree that children shouldn't work because they're children, but not like, you know what I'm saying?

58:53Let me read something from Professor Blundell. The reason nobody says this is a figment of Block's imagination. The gains in working conditions and wages that were made by unions have now been codified in law. It is the laws that guarantee basic workplace safety, minimum wages, and so on. I can't see my way clear to agreeing with that. Notice I'm not calling this worse than that. The reason I can't see my way clear to agreeing with that is that if this were true, that if near-legislation was sufficient to increase prosperity, why don't the people in Bangladesh and in Costa Rica get off their rear ends, the people in the legislatures there?

59:49Why don't they pass laws? Why don't they pass laws that the minimum wage should be a little bit higher? And that unions should be supported and that we should have better working conditions. This is magical thinking, thinking that a law can make itself. Why didn't they do it in 1820 in the US? The reason is because that's not the way things work. The way you get prosperity is not by legislating prosperity. It's by having higher productivity. This is just common sense. This is empirical. This is obvious. Yeah, of course, the claim that he made was not of how things increased. My statement about minimum wages and workplace safety was the fact that it would stop the decline.

1:00:39That if unions were to vanish and there was no way for workers to collect the bargaining power, It's the laws that would stop a precipitous decline down to the very dehumanizing labor conditions of the 19th century. Because, of course, legislation cannot force prosperity. Only a robust and vibrant economy can give you prosperity. The economy is the engine. The laws are the steering wheel. I did not say that the laws were the engine. So you need to have a vibrant economy, but you need some sort of laws to control that. Go to your question and it's good because I don't think my analogy on the fly there was perhaps clear enough. The exceptions to the minimum wage law, just simply say that there is a minimum wage, right?

1:01:27But it doesn't apply to the entire population. If you're under 18 or if you're mentally handicapped, The two examples that Professor Block chose, then a different set of laws applies. So the idea that a different set of laws applies to you, that is also a law. In places where there's a student in the wage, that's a law that can't be broken. It's a black and white law. You can't pay the student less than $3 an hour. You can't pay the adult less than $5.15 an hour. Those are laws that are black and white as you're right. They can't be broken. But what he was saying is that, not because there's exceptions to the law, Law, but because the Bumble Age Law is not applied to the entire population evenly, therefore it is a bad or incoherent law. And I'm simply saying that there's a fair number of laws that we have for which we make exceptions, especially on the basis of age, voting, drinking, driving, being the most notable. The fact that at the age of 16, say, you can drive,

1:02:25and under the age of 16 a different set of laws applies and you can't, or at 15 you I want to address the issue. You were saying you can't live on $4 a day, and then you give the virtues of welfare. Well, if you actually look at the numbers of how much money people are given on welfare, they live on $4 a day. Well, not $4 a day, but equivalent to if they had a $3 or $4 an hour job. So if you just simply look at the numbers, how much money you get from welfare, it's like $300 a month. So, for you to say there's no possible way to live off of that is to negate your other statement that welfare somehow helps you, because welfare is an equivalent to an $8 an hour job, it is just that, it's like bare minimum.

1:03:11And back to Dr. Block's statement, you know, what's better to be just sitting around all day in the projects, not doing anything, you know, getting yourself in trouble, or you have a job that can actually lead to something? I've had good friends who didn't get a college and they got a job as a dishwasher, six months, moved to a fry cook, and on and on. They don't have an outstanding job because they started out with a small job making them more waged, or a wine cook that makes $10 more and more. So I don't see how it's preferable to get the same amount of money doing nothing and just being in a bad environment, having all the trouble in the world. The World, as we know, idle hands are the devil's workplace, and how is that better than, I mean, people are surviving up $34 equivalent wages, because that's the welfare it is.

1:04:02Yeah, you've probably said that your welfare system here is inadequate, because those people, what they're doing is often, they're repeatedly over-describing it in some ways, are doing something criminal, because it's not enough to live with. This is a whole kind of canard that I wish I hadn't brought up because it deters from the real thing, which is that somehow minimum wage is this huge barrier to employment. When in fact, we've had minimum wage for quite a while now, coming up on half a century, and we've experienced a fair number of times when the level of unemployment in the country has rubbed up against what could be accounted for just by fractional unemployment. which is that you have a zero set of actual unemployment where all the unemployment can be accounted for by people who are just in transition switching jobs.

1:04:52So in fact is that you can have minimum wage and full employment and that's again not theoretical, it's empirical, we've had it. So can the minimum wage be too high and thus damage it? Your unemployment levels? Perhaps. Absolutely. In fact not perhaps, absolutely. This business of ambulance drivers driving faster than ordinary drivers, I don't think that's an exception. I think we have two rules, one for ambulance drivers and one for ordinary drivers. There's no exception there. We have a law against rape, and the law against rape has no exceptions.

1:05:42Now look, we have exceptions for teenagers and we have exceptions for mentally handicapped, but that is compatible with my analogy of the barrier over which you have to jump. It's not compatible with the floor business. You see, he's, I think, guilty of contradicting himself, pardon the expression. On the one hand, he thinks that wages are raised by minimum wages. On the other hand, he acknowledges we should have exceptions. Well, why? Is he a cruel, hard-hearted person? Is he against mentally handicapped people? Is he against young people? No, I don't think so. I think his economics is different than mine. Namely, he thinks that a floor under wages will raise it.

1:06:27Well, if it'll raise it, why not do it for the handicapped? Why not do it for teenagers? No, he realizes that it'll hurt them, so he says no, but that's on the one hand, but on the other hand he goes back to his analogy of raising wages. No, the fact that you have to make an exception, thank God, you have to make an exception, shows that there's something wrong with the underlying rule. We don't have to make exceptions for murder and rape, we never do, we shouldn't. If the minimum wage law were like that, we wouldn't, but we do, which proves that there are problems here in this view. Okay, now we end with five minutes each.

1:07:13Yeah, we've just done 15 minutes of questions, so we're going to wrap up with five minutes of closing statements, if that's alright? And because of the order Dr. Block went first and Dr. Blundell went after him. I went first. He goes first now. Well yeah, but if you go first at the very beginning, then he gets the last word at the end of the debate. Ah, okay. I stand corrected. There's also a racial element in this. The unemployment rate, he was saying that it's sort of, we've had the 5-15 and it's sort of getting close to the natural rate of unemployment. Well, one reason for that is that the 5.15 hasn't been raised for a long time, and inflation has reduced the real value of it.

1:07:58I think it's been 5.15 for about 10 years, during which time we've had a lot of inflation. So the real value of the minimum wage law has been coming down and down and down, thank goodness. Now with the Democrats in, it'll go up in three stages, and then the unemployment rate will go up too. But the unemployment doesn't hit all groups equally. It hits young people more than it hits old people, because young people have lower productivity than old people. It also hits black people more than it hits white people, because most employers are white, and there is such a thing as racial discrimination on the part of white people. Let me tell you a little story. The deer is a very fast animal.

1:08:43If it weren't fast, it would perish. It only has a compensating differential, if I can use economic words, of speed. The skunk is a very powerless animal, except it has, too, one advantage, that it enables it to live, namely the smell. The porcupine, too, without its quills, by the way, you know how porcupines mate? Very, very carefully. Without its quills it too would be a very powerless animal. Thank goodness nature or God or whoever it is endowed these animals with these abilities. Well, here I'm going to be called a racist because I was called a racist on a TV program where I try to pull this one on people.

1:09:28So I'm used to it. People who are the victims of discrimination too have a compensating differential. What is their compensating differential? Their compensating differential is the ability to work for low wages. If you take that away from them, they are very, very heavily victimized. The teenage unemployment rate is about double the adult unemployment rate. The black unemployment rate is about double the white unemployment rate. The unemployment rate for black male teenagers, a group most in danger, is about quadruple. Now, it might be that we're running up with the regular minimum wage of $5.15 at virtually no unemployment.

1:10:19I doubt that. But it's certainly not true for black male teenagers. Their unemployment rates are in the double digits. Why? Because they don't have the ability to work for a lower wage. If they did, they would reduce racism. The example I sometimes give is if you have a black and a white and the marginal revenue product of each is $10 and the wage of the white is 10 because marginal revenue product equals wages, but the wage of the black is only 7 because of racial discrimination. Well, if I'm a non-discriminating employer, or an employer who discriminates in favor of green, as in money, I'll hire the black, and I'll be able to under-price the racist employer.

1:11:09This will get rid of discrimination. But only if blacks are allowed to work for a lower wage. That's why I was called a racist, because I sort of favored this. The reason I favored this is because I'm against racial discrimination, and this undermines racial discrimination, but that was too difficult a point to get across. Hopefully this group is more sophisticated, and we'll get it. But what the minimum wage law does is it takes away the skunk smell, the porcupine's quills, and the deer's fleetness of foot. Let me make one last point, because Elliot is vicious. Professor Blundell talks about how unions are really responsible for all sorts of great things. Can unions raise wages? Yes, so can bank robbers.

1:11:57Unions are, in addition to an economic tapeworm, they're a criminal group. That is, when they avail themselves of beating up scabs or relying on labor legislation which coerces employers to deal with them. When they are not a criminal group, when they don't use force, whether legal or illegal, then they're a fine group and I favor them. But there's a limit. When they raise wages, they cause rust belts, they cause runaway shops, they cause automobile companies to locate in Alabama and out of Detroit because Detroit is union town. There are many high wages in non-union areas. Professor Blundell mentions Morgan's... Already? What about that five bucks I gave you?

1:12:53The minimum wage law is consistent. The minimum wage law is absolute. All primary breadwinners have to be paid a minimum wage when they work. If you're not a primary breadwinner, or in the case of the mentally handicapped, We have two issues and I'd like to return to my opening statements that we have the fact that when we are talking about minimum wages and we are talking about unions, we are not simply talking about economics, we are also talking about social issues, because we do not live in an economy, we live in a society. We are also dealing with empirical facts, not simply theoretical models. And the fact of the matter is that countries and states which do have viable minimum wage laws, minimum wages that exceed the federal minimum, nonetheless economically do very well, have low unemployment and have very successful economies.

1:13:46So this barrier to employment turns out not to be quite the barrier that it's made out to be. I'm leery of stepping into the morass of discrimination, although I have a fair number of things to say it. I'll begin by saying that I don't think Professor Block is being racist when he says it, but I think that the results of such behavior would nonetheless be racially catastrophic. I simply don't think that's the way they're motivated, because it's simply by far from undermining racial discrimination doing away with the minimum wage so that you could create a permanent underclass with no incentives away from racial discrimination because you could simply continue to get those workers at that level, at that $2 or $3 an hour level.

1:14:38I mean, the social implications of that are pretty serious. Let me close by saying that the final statements that Professor Block made about unions being criminal. Well, what's criminal is defined by what operates according to the law. And insofar as unions operate according to the law, they're not criminal enterprises. Do unions ever break the law to try to intimidate workers? Yes, this has happened and they should be prosecuted. Do employers ever break the law trying to intimidate workers? Absolutely. This catalog, last year 23,000 people were fired for trying to form a union.

1:15:23Which is illegal, but it is impossible for single people to mount the sort of legal defense, the legal prosecution that's necessary to do it. The differential in power is so great that the illegalities on one side go unpunished and unremarked upon While the illegalities on the other side, which do exist, they're not very common. Really, I assure you, they're not very common, because they're too overt and easy to prosecute. And the individuals who would do it don't have a large backing with which to defend themselves legally. These things happen on both sides. The question is, do you want your unions to be less powerful or more powerful? And that's a question, that is a discussion that is worth having.

1:16:09What kind of limits do you want on your union activity? How prevalent do you want them to be? What effect do they have? The advantages of unions is that even in cities in which unions are highly dense, the non-union workers make more, right? Because the unions have raised the wages for everyone in the thing, because the threat of unionizing exists. This is an extraordinarily important part of the way our economy functions and the way our society is held together. And I have a minute left, but I don't need it, other than to thank you very much for your hospitality. Thank you very much for inviting me, Professor Block, and I hope to see you all around campus.