Government Licensing of Industry and Minimum Wage

0:00In the middle of the forum question, and I promise to tell you about peanut butter. This is an article in Newsweek on early 1981, when the big peanut butter shortage hit. The headline was the peanut butter crunch. Listen, a lot of people get paid a lot of money for thinking about headlines like this. Anyway, what happened was that there was a big drought in 1980, a summer peanut crop, which was mostly in Georgia, of course, and other parts of the South. The peanut crop was cut by 45 percent.

0:46The peanut crop went down by 45 percent, which is pretty drastic, as you can see. And this, of course, means that, again, with price on the y-axis, quantity on the x-axis, all of a sudden, you have a huge fall, and a big increase in price, and of course, in addition to that, the supply had been cut anyway by marketing orders, by acreage controls, control and all the rest of it. In other words, this is a big increase from the free market price with huge amount of cartelizing by the government and price supports keeping it up there and all the rest of it. So there had been very high prices to begin with, and all of a sudden you have this big drop in production. The prices in the grocery store went up by In other words, quantity went down by 45% and retail prices went up from 75% to 100%.

1:54So of course this stimulated immediate hoarding of peanut butter. You see the prices going up, you try to grab it before it goes up even further. The wholesale prices for top quality peanuts, which had been, in 1979, $455 a ton, by 1980 it means one year later was $1510 a ton. That's almost tripling, more than tripling, of the price of top quality peanuts, because there are different grades of peanuts, of the Peanuts, and actually the top quality ones are the scarcest. So the big losses for peanut farmers, big unemployment, peanut crops, that sort of thing.

2:43So to keep the price up, there has been, in addition to before this hit, there has been rigid not only big price control, not only big production controls and acreage controls, but of course big import quotas, as a lot of foreign countries produce peanuts. And so, for example, there's a rigid maximum import quota, and 102 million pounds of peanuts, and which is really almost nothing. I don't know what the total production is, it's like 10 times that amount, at least. So after many months of frantic pressure by the Peanut Butter and Nut Processors Association, I'm not really a peanut butter eater, I'm not familiar with all the brands, but anyway, after many months of saying, Jesus, we can't get any peanuts in the prices double and triple and all that, the US Department of Agriculture finally agreed to let in 200 million pounds of peanuts, but only temporarily, and only for a few months, not of course permanently, So the whole thing was too little and too late to try to alleviate the peanut crisis.

4:02So what you have in the peanut business, you have a small plot, you've got to say, acreage control and production control, maximum acreage of 1.6 million acres, marketing, every farmer, every individual farmer has a maximum quota, you can't produce more than X amount of pounds of peanuts, and it's rigidly enforced. And you can do that, I guess, in the peanut business, because it's fairly concentrated in Georgia, it's not like all over the country, like wheat with ______ or tomatoes or something like that. So, as a result of all this, we've got very tight restriction of supply, and on top of that, as I said, came the crop failure. So, they finally allow next season, for example, there's a maximum growing allotment, acreage allotment.

4:53The regular one was 1.685 million acres. In other words, this was the maximum amount of acreage and no other acres could go under, could become peanuts. Because the usual thing is if you have a big peanuts failure, the next year they grow more peanuts.

5:35The marketing quotas went up by 5%. The production quotas went up by 5%. The acreage quota went up by almost nothing. I mean, whatever you see yourself, less than 1% increase. So in other words, even after this big increase, scarcity, shortage and all the rest of the tripling of the price, it still was very reluctant to even have a temporary increase in acreage as you're in production. There's also a big cheese thing, which I used to know more about, but there's a big, there're very strong farm price supports for butter and cheese. There's an enormous amount of cheese which is stored in warehouses all over the country, millions of pounds, unused, just there. Nobody uses them.

6:20They can't sell them because it's lower the price. So all these things, there are vast distortions in economic distortions of resources for the So the benefit of a few farmers, a few large farmers, and warehouse men, and an Department of Agriculture and bureaucracy, that's about it, the rest of us have to sweat for it. I mentioned payment in kind, the PICC program, which is the Reagan administration's contribution to all of us, namely that they can unload, there's a way of unloading some surplus, you unload wheat surpluses or cotton surpluses, if the farmers agree to cut their acreage The conclusion of the article, which says, excluding some short-run gains to farm labor and farm operators, large landowners in the U.S. Department of Agriculture, personally, are not allowed to sell their crops.

7:25are the major recipients of PICC largesse. Landowners will gain because the supply of land will be inelastic. Consequently, a 1% increase in returns to a unit of farmland will be matched by a 1% increase in market price of such land. Thus, land values will rise more than without PICC. Of course, the major winner is the USDA personnel which requires administrative staff and more employment for agriculture bureaucrats. Anyway, the farm, as I mentioned last time, the farmers are now are wheeling again because they went into the heavy debt during the boom period, speculating on large increase, permanent increases in their land value, and when the price fell, since the recession came, of course this means that they have to pay heavy debt with lower price farm products, and again they're being bailed out by my American U.S. government, by my bankers, which bail out The basic farm question. There are still some crops that are not under control. I think vegetable crops are very difficult to control. They're all over the place. Tomatoes and lettuce, things like that, are a relatively free market. Most of the crops are in miserable shape and getting worse for the network of competing subsidies, controls, restrictions and all the rest of it.

8:48Okay, that's basically a follow-up question. My prediction is it will not get better as time goes on. There's no political group that seems to be willing to bite the bullet on us and say, let's eliminate all this stuff and go over to free market. Now to come to the next major example of minimum price control. Yeah? What do we know about politics? It's a young city with a lot of young people who are interested in their livelihoods. There's something like that. I'll hopefully be able to analogize to it. We have people who are interested in something like taking part in it, taking advantage of it, taking advantage of it.

9:35It's really good. Some people actually do it for a reason. So what do you think about it? I don't see how that's exactly the same, the sense of bidding up the land prices, the inflation that they, yeah, land, yeah, as land gets, in other words, as land gets, let's put it this way, as land gets subsidized, the price of the land gets more valuable, like tobacco land, a beautiful example of it, everybody has to have the government right to grow tobacco in your land, so the right is worth a lot, the right can be sold like a taxing design, so as the right gets worth more, the cost of your This is, by the way, what happens in general. Monopoly returns. This is an example of monopoly return. The rights to grow tobacco is worth a lot. Say, $4,000 an acre or something.

10:22The new guy buying tobacco land from an old guy who only wants to sell out, the new guy then pays so much that he doesn't gain anything from the monopoly price because his gains are absorbed in the price he has to pay to the old landowner.

11:04Taxi License for $10. In the 1920s, there were approximately 25,000 cabs on the streets of New York. Then during the Depression, all businesses were in bad shape. Also, in the Depression, not too many people bought cabs, sort of a luxury item, so they just fell off quite a bit. So by 1937, there were 11,747 cabs on the streets of New York. So the taxi The emergency industry goes to the mayor at the time and says, we need temporary emergency help. Watch out, by the way, for any case of temporary emergency help, it usually becomes very soon a permanent part of the American heritage, it will never be gotten rid of. In this case, they said, okay, we won't issue any more licenses for a while.

11:50This has continued from 1937 to 1986. Until this day, there's a severe limit of 11,747 camps this week in New York, period. This is symbolized by the yellow color and the light on top and also the medallion, which is the shield, which is the license. So that means you can't get anything on it, you can't go down to the hack bureau or whatever and pay your ten bucks. No new licenses have been issued for fifty years. If you want to buy a license to drive a cab, then you have to buy it from somebody else who's willing to sell it, willing to retire, get out of the business, and the price of This fluctuates like a market price in monopoly licenses. During the 30s, nothing much happened because of depression. Then came World War II, a lot of people left, etc. After the war, it starts a big boom as, of course, there's an increase in demand curves, there's inflation, there's a general recovery and so forth. And so the price starts to go up, price of

12:46medallions, and it's right now over $100,000. When I first started talking about this in the 60s, This means that to own a cab in New York, you not only have to be a good driver, you not only have to buy a car, but you also have to shell out $100,000. So this means that you have to either go heavily into debt or whatever so that the price is going way up. So another thing this means is this, that the rate of return, this is true of most monopoly industries, this gets back to your question on insurance, etc., because most monopoly and the industry wind up not getting, not doing very well. I mean, there's an initially big boost to the industry for the subsidy of the monopoly or something. It's like the former.

13:31For one time they were in great shape. But then you see their costs get bid up. In this case the cost of the medallion. So now you have to, in other words, now when you invest in a cab, you have to get, your rate of return, let's say you're making $10,000 a year, you now have to consider not only what your investment in general, but the $100,000 you have to shell out. So the rate of return falls, it's pretty, no greater than anybody else. The monopoly profits that you get from the licenses has been absorbed by 100,000 bucks you have to shell out. The result of that is the taxi drivers, the taxi owners now are not making any more money than the other industries. And they feel they're not, they're always talking about how they're oppressed, they can't make out, etc. And the reason for that is the money has to shell out to buy the damn license to begin with. So the people who really benefit are the original guys, the guys who got the license, the existing

14:21people in 1937 who hung on for a few years and then when the price went up so loud, they got a monopoly gain of $10 or $100,000 or whatever it was, in other words they get the benefit. The people who buy in later get washed out. On the other hand, even though they're not making any monopoly benefits now, they fight like tigers to keep all of it because if there's free entry into the taxi business they lose the whole hundred thousand bucks, I just couldn't wipe that, because from then on we can just go and get a ten bucks and get a license, but even though they're not, there's no extra benefit anymore, they fight like tigers, like ferociously to keep the license, and not allow any expansion from 11,000 to 47,000. As a result of that, everybody loses and nobody really gains by this whole rotten system. The consumers lose, we're paying, we've restricted entry, which would have been, let's say, over here, restricted entry at a much higher price,

15:14And the taxi people don't even gain. Other people lose. The people would have been taxi owners if they had only allowed free entry or liked to be taxi owners and can't do it, have to be taxi employees, let's say, and can't own their cab because they have to shell out $100,000. So it's a system which nobody benefits, and yet the people who hold on, who have the license now will fight like tigers to keep it. So as I said last time, I think when Mayor Koch, it's a pretty ingenious plan to get around the taxi lobby, which is very powerful, especially since the absolute boss of the of Box Democracy, Stanley Freeman is the taxi owner's lobbyist in New York. To get around it, Koch offered to give each, every taxi owner one free medallion, he's giving it to them free, which is like giving everybody $100,000, provided they use it or somebody else uses it, they sell it to somebody who will use it within a year.

16:00In other words, doubling the supply to $22,000, which we can certainly absorb since, I mean, it's a real scandal to see that we have half a number, less than half a number of cabs I had in the 1920s for the much bigger population and boom, boom, pan, and all the rest of it. Sure, they would double the amount, so the price of each medallion was full, but still and all they'd pick up, you know, they'd have to bring medallions, they were too scared to do it, too afraid of any relaxation of this rotten system to accept it, and then they fought against it and they defeated it. Koch had it, even Koch, as powerful as he is politically, had it withdraw this suggestion. suggestion. So what they've built up over the years, of course, is a series of illegal cabs. Now quasi-illegal. The whole structure of cabs, because of the shortage now, because of the shortage, imposes a fantastic scarcity, means the cab owners or cab drivers, like with any other price

16:55controls, maximum price controls, they're in the driver's seat on prohibition. That's why the cab drivers, some of them knows it, everybody, when it's slight and when it The stock's drizzling a little bit. All of a sudden, the off-duty signs go on. You can't get any CAD. You can't go to Brooklyn if you're in Manhattan. You can't go to the Bronx. You can't go to Northern Manhattan. You can't go anywhere. No, we're sorry. We're going into the garage, as if to take this as an excuse. So they're ruling the roost. And as a matter of fact, somebody said in order to go from Manhattan to Brooklyn, you have to stand on the curb waving a dollar bill as a symbol. is a symbol of what they're going to shell out of these guys, and black market payments, illegal payments, so the cab driver's in the room, and of course, as I say, if it rains, snows, if it's rush hour, he can't find anybody, so if there's free entry in the cab business,

17:49why should a cab only be a full-time cab? Why should it only be yellow? Why shouldn't you be able to take a car out and rush hours in the rain, nip into the situation and so on, you know, pick up some extra change by firing people around. Obviously, that's what would happen in a free entry situation. So the result was the growing up of the so-called gypsy cab business, which was originally illegal, and the organized taxi official medallion drivers are very bitter about it. They used to beat up the gypsy cab drivers and stuff like that. They finally achieved an arrangement a few years ago where the gypsy cab drivers became And the arrangement was that the gypsies could, well, they couldn't, they could, I think they can cruise around, basically in Brooklyn and the Queens and mostly, and Bronx and mostly gypsy.

18:36It's sort of legal there. And in Manhattan, they can't cruise, they can't pick up people that can be called up, which you can't, they can't, allegedly you can't pick up people on the street. Of course, in practice they do it, but that's, I mean, it's frowned on. Also, the only reason why the official taxi people finally allowed this is they can't can't cut the price, in other words, it's a metered price. The price is regulated by the government, the city government. As long as the gypsies can't cut price, the non-gypsies don't mind too much. Price becoming a key thing, as long as you can fix this and that. Then there are also, of course, gypsy gypsies who do cut price much more informally, so you can't tell, it doesn't say taxi on the outside or whatever. So all this is a result All of this nonsense of the taxi monopoly.

19:26Some wing of economists claim what we should do is compensate the tax, just pay them off in order to be able to have a free entry in the taxi business. As you can see, the Koch plan was something like that and they wouldn't do it. They refused to go along with it. And then the same process works with tobacco farmers, with oil import quotas in the days when there were such, and with economics of slavery, which is very interesting economically. Under slavery, the slave master gets, in other words, we'll get the marginal product later, wages tend to equal the worker's marginal product. So if the marginal product saves $20,000 a year and subsistence is saved $8,000, under slavery the slave master pays the slave only his subsistence and enough to reproduce and so forth, and then pockets the rest of the money, the other $12,000.

20:17You think that the slave masters are getting a huge profit rate. In practice, however, they really don't, because they have to buy slaves. And the purchase of the slave, the price of the slaves absorbs, much like the medallion, the slave profits. You wind up, after some decades of this, you wind up with the slave masters not making any more money than any other business. And yet, fighting like hell to keep slavery, because then they lose their investment in the slave. They lose their capital investment. and so the slave masters were forced from the end to keep it even though they weren't getting an extra profit out of it. So it's a bizarre system. It's very similar even though obviously the content is different from the value of the license, taxing licenses. Okay, so that's the anyway, that's again a similar system of how the market absorbs monopoly prices and monopoly returns in different forms.

21:09If the return is attached to the asset, like a slave or a medallion. So anyway, you wind up, if you have a monopoly subsidy, let's say to railroads, first they're making heavy profits, then after a while the costs of the railroads go up, the land costs go up, you wind up with a rate of return no bigger, as a matter of fact usually lower, because they're inefficient by the time, they haven't been able to meet competition. And they start going bankrupt. This is basically what happened on the airlines. The late airlines were heavily subsidized. Competition was kept out. Rates were pushed up. But then they got so inefficient and the salaries of the pilots and the stewardesses went up so much, they started losing money anyway. They went along with deregulation and figured it's not going to be worse than this. So in the long run, the monopolists don't really benefit, but of course the long run takes a long time.

21:58Also it's a problem in the meantime. Okay, so that's the farm question. If anybody has any other questions on the farm, as a matter of fact, we'll have questions on the farm as a whole, certainly Tuesday, maybe today, at the end of the time. We now get to the next, the other major case of minimum price control, which is minimum wage laws. The labor market. Here we have the wage rates and quantity. In this case, quantity of factors hired, or the quantity of labor hired, or labor hours. And supply of workers and demand curve for labor. This then becomes, of course, different workers will get different wage rates in accordance with their productivity, we'll see later on. But the point is, the The whole labor market is interrelated, but the minimum wage law says no one should be paid below a certain rate.

22:58It's illegal, an example of minimum price control, illegal to pay something less than whatever it is, I think, what's it now, $3.25 an hour or something, $3.35 an hour, keeps going up. So, it's illegal to make less than, or to pay something less than that. So, again, what happens is you're pushing the wage rate above the free market level. This means that at this rate, the demand for labor will be less than the supply of labor, and that means there's unsold surplus, in this case, of workers. In other words, unemployment, what we call unemployment. Unsold surplus of labor is known as unemployment. And the unemployment will be, the unemployment will be permanent since the, unless there's a black market of course, which there is, unless there's a black market which pushes the wage rate down to the market clearing level where supply and demand are equal, where there's full employment, otherwise anybody who wants to work at that wage will get a job.

23:59If you push the wage rate above that, you wind up with permanent unemployment or permanent unsold surplus of labor. and the higher the rate compared to the free market level the more the worth the unemployment and it's exactly the same principles as the foreign price support program so nobody buys labor, laborers and stores them, they just remain unemployed, fortunately they don't store them. Under slavery I guess they would store them, put them in a warehouse. At any rate, so this is the, again this is part of the, you can see this directly follows from keeping the wage rate above the free market level. In many cases, there are black markets and labor. For example, undocumented aliens or illegal aliens don't, obviously don't, they work off the books, that's cool.

24:49By the way, in New York, there's a whole tradition working off the books. It means you don't have to worry about minimum wage law, you don't have to worry about social security tax. So both the employer and the employee benefits, you don't have to make out the forms and all that sort of junk. And you have to make out income taxes on a basis, this is only really going to be done with small businesses. Big businesses are on the public eye, IBM can't do it because they're constantly under inspection. But a small business can nip in and out of the market, can do it. One of the advantages of working for a small firm, a mom-and-pop firm as it's called. So of course those who receive tips, waitresses and people like that, waiters and waitresses often don't report the tips, and so they get, you know, they get such that they get around the minimum wage law that way.

25:39Although the IRS is trying to crack down on waiters and waitresses now. They have the stop-o inspection. The flying squad to inspect. Yeah, right. So, now this, now the proponents of minimum wage law, they always say that there's no relationship. This is all nonsense. There's no relationship between minimum wage law and unemployment. And the interesting thing is if this is really true, if it's really true that a minimum wage law only helps the so-called marginal workers, and notice by the way who was unemployed by this, it's the marginal workers, it's those who are, who would be getting between $2 and $3.35 an hour or whatever, it's not the high-paid workers, they don't suffer from this, it's the low-paid workers, the ones who are supposed to be helped by a minimum wage law, these are the very people who are screwed by it.

26:26Interesting situation here. The skilled mason or skilled carpenter is getting $10 an hour or whatever, $20 an hour, he doesn't care about the math, he benefits as we'll see, because his competition is being shoved out of the market. It's the people who are the lower paid workers who would have been getting this who are now disemployed by the system. The proponents of the minimum wage law claim it has no effect, it's all ridiculous, the minimum wage law does not cause any unemployment whatsoever. If this were really true, why do they stop at $3.35 an hour, why are they pikers? The Advocates, the AFL, CIO, and other liberals who advocate minimum wage. If it's really true it has no ill effects, why not go for broke here? Why stop at $3.35 an hour or a dollar? Yeah, $10, $100 an hour, $1,000 an hour, why not? It's the law, and the government passes a law, either state or federal.

27:17Well, that's the point I'm getting to. How indeed did they come up with it? What I'm trying to say is if they simply said, okay, let's benefit everybody, Let's make it a minimum wage of $1,000 an hour or something like that. The result would be 99.9% unemployment. We'd all be unemployed, right? In other words, you can manufacture as much unemployment as you want by simply jacking up the minimum wage law. If at Polly they pass the minimum wage law, say, if they said nobody can get less than a million dollars a year, we'd all of course be unemployed, the whole gang here. So the question, you asked a very good question in the back of the room there. What determines, how do they decide where to put it? Well, it seems to me they decide where to put it. The way they do it is, they disemploy just the people they don't like. They raise it enough to disemploy competitors they don't like, marginal workers, in other words, those who are getting

28:05on the marginal level, or generally non-union, or no seniority in unions, or usually blacks and teenagers, blacks, women and teenagers, who are usually kind of in the marginal area. The people they don't, they don't push it up high enough, however, to disemploy, to disemploy Union workers, white union workers with seniority, they never push it up to $50 an hour or $1,000 an hour because they have to disappoint everybody, they make it, the AFL-CIO makes it, they're usually the main lobbyists for this, make it so that the people they don't like will get shafted and they're the ones who are competing, the marginal workers are competing with the higher skilled workers or the workers with seniority, so the method of the madness here is what I'm saying, it's not random, it's not an accident, they only make the minimum wage high enough to disappoint the people they don't really care about, that they care about, they never push it so high they really start disemploying union workers

28:57of seniority, and mining workers and teamsters and all that sort of stuff. Yeah. Right. Well, it goes up for inflation, so you keep pushing it up. Yeah, but it's been, it was $1.60 an hour, not too long ago, about 20 years ago, but it keeps increasing. Yeah. Right. That's right, absolutely. That's right, absolutely. That's exactly what happens. I have some figures on this for you, but what happens is unemployment starts decreasing because as inflation proceeds, the minimum wage becomes less and less important. Then they jack it up again and make sure that the unemployment level goes up again. It's amazing. So, as I said, it can't be an action, this is exactly where the AFSL-CIO people put it.

29:47If you argue with these people, if you argue with AFSL-CIO economists or left-wing liberal economists, they'll finally admit it, they'll say, they're honest enough and they won't admit it before Congress or something, but they'll admit it, yes, yes, they'll say it's better for these people not to be employed on low-paying jobs, better for them to be on welfare and be employed on low-paying jobs, an interesting statement because they're not They're not making a decision up to the individual worker. They're making a decision for them. Yeah, exactly. Teenagers almost always have a lower productivity, as we'll see later, than adult workers. They haven't got the experience. So entry-level as its core workers, teenagers usually start with lower wage rates than adults. So they lop it off. They make it in such a way that it disemploys a lot of teenagers.

30:36And then the only thing which would help the teenagers is to cut the wage to the minimum wage law. It's a very sensible, I would favor getting rid of the whole thing, but it's a very sensible first step. And they fight like heck against it because they don't want teenagers competing with adult workers. In other words, you're getting rid of the competition. As we'll see when we get to the labor market later on in the course, the whole labor law system is a system by which one group of laborers try to shaft the other group. They're competitors. I mean, immigration restrictions are spiked like that. Immigration restrictions were put in by the AFL-CIO in 1920-24, precisely to stop the flow of foreign workers' commands, so the domestic worker wage rates would go up. And it's a pure cutthroat situation, but of course, done in the name of labor solidarity and all that stuff, but they don't say it. Although in those days they were franker about it. They're much more frankly monopolistic and racist.

31:25When we get to the labor market later on, of course, we'll go into that. Now, of course, racism is not considered respectable if they don't deal with those terms. That's basically what it is. So, another thing that happens is, you see dramatic instances of this working. Usually, in the old days, these used to exempt a lot of occupations from minimum wage law. Some of them are still exempt. Agriculture workers are also exempt. Restaurant workers are exempt. These are lowest paid jobs. They're trying to impose $20 an hour restaurant and they wouldn't have any restaurants left. They couldn't do that. They had to be careful. More of that, right? More automats. They had to be very careful with that. In many cases, they extended.

32:14About 20 years ago, they suddenly extended the minimum wage law to agriculture. had never been exempt before and the southern cotton fields, it's so dramatic it changed even the New York Times realized and even the reporters, regular reporters, say, hey, this is what happened. It suddenly extended, in other words, there had been no minimum wage law applied to southern cotton. All of a sudden it's applied to it, the price goes way, the wage rate goes way up. All of a sudden 100,000 people are unemployed in the southern cotton fields, so it's a dramatic, obvious illustration of the effect of a minimum wage law, but it usually happens much more gradually than that.

33:17In North Carolina and Georgia, there's big rivers going up, there's big ports, in North Carolina there's no real rivers, so it's difficult to bring the crabs from the coastline to the interior, there's high transportation costs, so what happens is there was no minimum wage in this whole area, and suddenly there's a fly just like that, bingo, the crab packing, and they're all thrown out of work, there's massive unemployment in the area, and plus bankruptcies of the firm, they just couldn't hack it, they had to pay these high costs,

34:15So, this is about comparable 40 cents an hour. When they impose a 40 cents an hour rate, there were a lot of people making 30 cents an hour, as incredible as it might seem now. For example, Mexican-American clam diggers in California, the whole family would go out and dig clams. Mother, father, and six kids would go out and dig clams, each one would be getting 30 cents an hour. The whole family income was pretty good then, because they When they opposed forty cents an hour, the whole gang was thrown out of work. In other words, it became uneconomic for the employers to pay forty cents an hour for clamming, clam digging, whatever you do for your clam. And there was massive unemployment among the clam people. I think Canary Row, a John Steinbeck novel about the Depression in Monterey, California, is essentially about the unemployment of the clam industry.

35:06Industry. Of course, he doesn't pinpoint the cause of it. He doesn't say it's a minimum wage law. Very few writers understand economics anyway. But he talks about the devastating effects of this. So, to say it happens dramatically like that when you suddenly impose something. And there could be a lot of people working, a lot of, quote, illegal, a lot of retired people who like to work part-time below the minimum wage, if they get above, if the employer can't afford to pay the minimum wage for things like that, like, I don't know, ladies' room

36:05If you have a federal minimum wage, it acts like a protective tariff, for example. The North is, up until recently, yes, the United States, that fixes it up, it is sort of like that. The Northeast, up until recently, the Northeast was much more heavily industrialized than the in the South. It still is, actually. It's leading out to the Southwest here. So the Northeast having more capital per worker means the wage rates are higher. We'll get to the wage market, labor market later, but the point is, you can see right away, the man curve for labor goes up in the North, which tends to increase wage rates.

36:51So it means the wage rates in the North tend to be higher than wage rates in the South, particularly, of course, if prices, of course, the living is higher, in addition to that, The real income is not that much higher, but there's often more inflation, say, in New York than there is in North Carolina, and so, in money terms, there's an even bigger difference. At any rate, so, workers tend to migrate from the south to the north and take advantage of the higher wage rates, and capital tends to migrate from the north to the south, take advantage of the lower wage costs. The long-run tendencies are for equality, in other words, the long-run tendency, it's very long-run, it's not like a day-to-day equilibrium, the long-run tendency is to equalize wage rates in the north and south. So this means that newer firms will tend to be, in the South, will tend to out-compete especially inefficient industries here in the North.

37:42So in particular you have industries in New York and New England like clothing manufacturing and printing and things like that which are inefficient. You see any printing plant or clothing plant in New England, for example, oh, decaying factories, lousy equipment and all that, and the new plants in the South will of course brand new equipment. So the Tennessee event for bankruptcy in the north and the move, the northern firm, northern capital moved down to the south and employed southern labor. So the northern industrialists or northern firms in backward industries like textiles and clothing and printing would like to be able to have a protective tariff to keep out all cheap southern labor so to speak, cheap goods produced in the south as they have a protective tariff on goods from Japan or Europe or whatever.

38:27The Federal minimum wage law is a way to get around it, a way to have a hidden protective tariff, because, in other words, if you have a, I'm talking about a federal law, not a state law, you have a labor market, and this is the wage rate, and you impose a protective The minimum wage, say, here, whatever it is, is 35 or something. What you're doing, most of these marginal workers will be southern workers because the wage level in the south has to be lower than the north. So what you're doing is then you're imposing, the northern firms are imposing especially high costs on the southern firms, bankrupting them and causing unemployment, crippling their competition.

39:17So it's a way, it's like having a barrier on the Mason-Dixon line, preventing goods or making higher cost goods coming from the north. Senator, former Senator Javits in a 1966 minimum wage fight in Congress, when he was arguing for an increase in minimum wage law, made that very point, he actually put it that way, he said, we're being outcompeted here in New York by our firms, we're being outcompeted by cheaper Southern labor, we have to impose higher costs on Southern firms, really saying the same thing. So this is one way of doing it, it's one way of a hidden protective power to try to shaft your competitors in Southern states, of course imposing unemployment on them and so on. So, in other words, what you're doing is, here the AFL-CIO, in other words, the higher paid workers, are imposing unemployment, are crippling the competition of marginal workers, women, blacks and teenagers, and also, in particular, northern firm industrialists and workers are imposing extra costs on southern firms and unemployment on southern workers.

40:17So it's a combination of the two. Yeah? I wouldn't say they'd be decreased. There'd certainly be decreased very little. Only those

40:39are directly competing with the marginal workers. In other words, I'm saying construction field, So, if there's a minimum wage and some marginal workers are disemployed, they'll be competing with higher paid workers in that area. That doesn't mean all higher paid people. Those are particularly in the areas they're competing with, right? And by the way, the AFL-CIO people would make that argument, they'd say the reason they're against a lower minimum wage for teenagers, they'd say, yes, it'll hurt some adult employment, adult workers who might have to suffer. Well, some of them might, but it'd be a small amount, obviously. It was a direct competition with marginal workers, sure. Now, the idea that everybody benefits really is just a long-run thing, where the whole economy benefits from economic freedom.

41:27Obviously, in specific situations, monopolists benefit, and people who screw their competitors benefit. Just in the long run, very long run, they lose that, too. But that's a more vaguer proposition. They might not care about the long run, but we care about it. We live in the long run. Okay, give me an idea of the striking example of, I'll do that next time, we're getting a striking example of how black teenage unemployment was caused by increasing the minimum wage law. Okay, take a ten minute break. Okay, we have a fascinating bit of statistics here. These are male teenagers. It's also female, it works the same way. First of all, I want to explain about unemployment rate.

42:17There's an important statistic. It's the so-called unemployment rate. Unemployment rate is defined as The number of unemployed divided by the number of employed plus number of unemployed. Now this, the total of the number of employed plus the number of unemployed is called the labor force. In other words, the population, the population of the United States is now something like 225 million.

43:06These are not all the labor force, obviously. In other words, not all of these people are either working or seeking work. Fiat. If they're between the ages of 0 and 10, presumably they're not in the labor force, if they're retired, they're not in the labor force for half a year, they could come back with a fact of enough warfare. In the old days, women were not in the labor force, not many of them are, and so forth and so on. So the number of people, the number of population in the labor force fluctuates. I don't know how many there are now, I'd say 160 million, probably less than that, So you have the number of employed divided by the number of employed plus unemployed.

43:51How do you define the number of people unemployed and defined by as those seeking work who can't find it? So if this number, let's say, is 120 million, and if 12 million are unemployed, then the unemployment rate is 10 percent. If 6 million are unemployed, then the total is 5 percent. So in other words, what you have is the number of unemployed divided by the number of unemployed plus unemployed. Now the unemployment rate, first of all, how do you know who's unemployed? How do you find this out? Well, it's done by sampling techniques usually by the Bureau of Department of Labor and it's done by interviewing.

44:42The Department of Labor agents are going to interview people at random, random sample, and they ask questions. Now, you define as unemployed, of course you know who's employed, it's fairly easy. But what do you do about part-time employment? It's also tricky. The unemployment statistics are always in a very weak shape for that reason. Well, you ask them, are you unemployed right now, and they say, yes. Have you been seeking work? I think the definition, you have to have been unemployed and seeking work for four weeks. In other words, if you were just fired, let's say, a week ago, you're not considered unemployed. You have to be unemployed for a certain length of time. And have you been seeking work? If an interviewer asks somebody, have you been seeking work, I almost always say, yes. I'm not going to say, no, I'm a bum, I'm lying here, you know, kind of playing my navel You tend to have a higher degree of unemployment than actually exists.

45:36In other words, people will tend to tell the interviewers what they think the interviewers would like to hear, and especially if they think the interviewer can somehow connect with the rest of the government, with the IRS or whatever it is. So there tends to be an inflation in the number of unemployed compared to those who are really not seeking work. If you're not seeking work, then you're considered not part of the labor force. You're sort of voluntarily retired or something. So on the one hand, the official statistics overestimate the amount of unemployment of those who are seeking work. On the other hand, they also underestimate, there are also people who really have been seeking work and got too discouraged. They haven't been able to find a job for six months and they sort of quit. They're still really part of the labor force and they're not counted as unemployed. You have two things going in the opposite direction.

46:22On the one hand, you overestimate the amount of unemployment because you overestimate the how people are really seeking work, not just sort of lazy, on the other hand, you underestimate the so-called discouraged workers who would be actively seeking work if they really thought they could find something. How do you figure out? There's no really way to scientifically decide between these two things. Usually liberals claim that there's an underestimate of unemployment, conservatives claim there's an overestimate. It can work either way, that's all I can say. Another problem is unemployed seeking work at what level? Supposedly the way, for example, the unemployment insurance is given to people who are seeking work who will have to accept jobs that are offered to them by the unemployment, the employment bureau, which is supposed to be comparable jobs to what they had quit.

47:12Now there are many problems with this, comparable employment. Supposing you're working as a, in the calculating machine business, the old calculating machines before calculators came in. Obviously, there's no jobs now in a calculating machine. Supposing you say, I'm, I assist in a job which is in a calculating machine, that's what I know, and that's the heck of it, I refuse to retrain the other thing. There is no comparable work for me, in that case, supposedly, you can get unemployment insurance for the rest of your life, obviously, it doesn't work that way. But the question then is, what is comparable? In other words, what's a comparable job? Should you insist on the same pay? And that's another thing, usually you're considered unemployed, you don't have to take a job and not get unemployment insurance if the job is a lower pay than when you have.

48:00Well, why should you always have the same payment? What is there to guarantee forever? You always have the same job, the same amount of pay forever. If you have to shift, for example, from calculating machines, which are now obsolete, to calculators, you might have to have a lower, apprentice job, you might not know about calculating, you might have to first start at a lower level of pay, and it seems to me to be cost, to If you refuse to take a job, which is offered to you, which is in the new calculated business. So there's a whole question here about what kind of job you have to take to be considered, what kind of job can you refuse to still be called unemployed? Again, it's a subjective estimate. You have to take any job whatsoever and still be and then be considered unemployed if you don't take it.

48:47Or what? for what? Again, it's a very elastic situation. There used to be a comic strip called Little Abner where there was a guy in Dogpatch, which was a mythical town somewhere in the Ozarks, and there was a guy who had never worked at all. I mean, he was sort of lying around all the time in Dogpatch under a tree, and Little Abner says, you're a bum, why don't you want to work there? I'm never going to work. No, no, he says, I want to work. But there's only a few jobs I'll insist on keeping. Anything else is not my, I refuse to take. And for and for example, I'm holding out for President of Harvard. I'll take no job less than President of Harvard, but since he's never been to high school, much less college, the chance of him getting it was small at best. So the question is, is he then unemployed or is he still in the labor force or not? Obviously he isn't. And there's some elastic definitions you could say he was.

49:35He was holding out for a job he thinks he's qualified for, namely President of Harvard or Professor of Nucleophysics or Caltech or whatever. So obviously, in some definitions, you can call yourself unemployed and get unemployment insurance forever because you can say, well, I wouldn't work, boy, except I exist on being head of the IBM or whatever. So obviously, these people are not really unemployed in any correct sense. Okay, anyway, you establish some kind of unemployment rate, and the main thing that once it's established, regardless of the definition, is to stick to it consistently, so if the rate goes up Okay, so, usually, in the old days, full employment meant an unemployment rate of between 2 and 3 percent.

50:35It can't be zero for one thing, people move around. I mean, people quit one job and move and go somewhere else, or they move from New York to California from Illinois to Texas or something, and in the process of moving, they're obviously unemployed for a few weeks or six weeks or whatever, so this is called frictional unemployment, and it's a question of mobility, and in the old days in England, for example, people mostly don't move at all, they stay in the same little county all their life, the full employment rate was like 1% or even a little bit less, I think in Switzerland the unemployment rate is almost zero percent, In the United States it was considered classically about 2-3% as defined as so-called full employment. During recessions, unemployment would go up to about 6% and during a major depression it would be up to 10% and during the mighty 1929-1930s depression it was 25%, 20-25%.

51:3625. That gives you some kind of range of what the unemployment rate means. Otherwise it would be a meaningless number. Right now, unemployment is going up. This is a macro theme, so I'm not going to go into this in any depth, but the unemployment has been redefined. Unemployment is much more heavier now than it was in the 1950s. Unemployment was around 2 to 3% most Now, it's minimum 6%, it goes up to about 8%. Full employment has been redefined to be about 5-6%, just like that. One way of achieving full employment is to redefine it. Just call it full employment. Hey, this is a great one, we're still in full employment, because we've upped the definition. So, recession rates are now about 9-11%. There is no depression anymore, because we outlawed the term depression.

52:28and termed depression. Never used. You have a mild recession and a severe recession. During the last recession, 1981-83, for example, unemployment rate was about 11%. It's now down to about 8%, or 7% I guess by this point. We now define it as being full employment. So this gives you an idea of what's going on as far as the numbers go. Okay, now we come to our statistics.

52:55Teenage unemployment has always been higher for obvious reasons. Teenagers go in and out of the labor market pretty quickly, so they may have a major burden of mobility, so to speak. So, in 1948, we have a male teenage unemployment rate. The white rate, white and black unemployment rate, the white rate was 8%, the black rate was 8%. And the interesting thing about this is that, and the adult rate was something like 3%, something like that, that there is now a myth in the United States that there's sort of an automatic white-black unemployment gap, as it's called.

53:47In other words, the blacks always have three times the unemployment rate as whites. It wasn't true in 1948. The difference can't be due to discrimination because there's probably less discrimination now than there was in 1948. So what's happening here? Obviously, it's something screwy here to say this is part of a structural thing in American economy because it didn't exist in 1948. In 1949, the federal minimum wage went up from $0.40 an hour to $0.75 an hour, and this is the federal minimum wage, and it was $0.40 an hour from the 30s on until 1949. Of course, as inflation proceeded, the $0.40 meant less and less, obviously. In other words, the tendency is with inflation.

54:33This is a minimum wage law. Wage rate quantity. You disemploy a whole bunch of people. If there's inflation, the man curves go up all over the place. You tend to wipe out unemployment, as somebody said here. The minimum wage rate becomes ineffective. Because right now, for example, if there's a minimum wage law of 40 cents an hour, it would have no effect. It would not mean a thing, because the free market wage rate is going way up, especially with inflation. So 1949 goes up to 75 cents an hour, from 40, and immediately the white unemployment teenage rate goes up to 11%, which is a recession level, and the black rate goes up to 14%, beginning the first sign of a gap, the famous black-white unemployment gap, the jacking up of the minimum wage law, and it happened in a few months.

55:28Then comes the Korean War boom, as inflationary boom from 1951 to 1953, and the gap disappears. In other words, the unemployment rate goes down back to about 8, 7, 8, around that. Virtually disappears. In other words, essentially, the unemployment rate goes back down on the pre-Korean War boom, the pre-1948 level. Well, the Korean War is over in 1953, and the normality begins to assert itself, and And the gap pops up again. In other words, 1954-55, the white rate is up to 10 and the black rate is up to 13. And the adult rates are lower, of course, but the major gap appears in the teenage. So again, the gap pops up again, reappearing and appear for the first time in 1949. In 1956, the federal government jacks up the wage rate once more, this time The White Rate Goes Up to 13%, The Black Rate Goes Up to 24%, The Black Unemployment Rate Then Goes Up, The First Time, Black Teenage Unemployment Rate Goes Up To 24%, It Keeps

56:53This is the beginning of the big gap, the doubling situation. It starts with the 1956 minimum wage law. In 1958, and then what happens, almost diabolical, what happens after that, the rate begins to fall. The black unemployment rate falls to about 22% and they jack up the minimum wage to $1.15 an hour and goes back up to $24. It keeps happening like that. Every time a teenage unemployment rate falls, a black rate falls a little bit, In 1966, it was still about 24% and the big discussion is should they increase the minimum wage now to $1.60 an hour? It's been going up to about $1.25. Should it go up to $1.60 in 1966?

57:41And various free market economists testified before Congress. They said, look, if you increase the minimum wage to $1.60, Black unemployment rate will go up, teenage black unemployment rate will go up to 33 percent. They said, you're crazy. It has nothing to do with the structural, it has nothing to do with the minimum wage law. Sure enough, of course, they passed it, and sure enough, in six months or a year, it's going up to 34 percent, and it's remained even higher from then on. In other words, the whole story from then on is a repeat of this story. The black unemployment rate now varies, teenage rates between 50 and 60 percent in most areas. Most Areas. Of course, this is super catastrophic, much worse than the 1929 depression levels in the black areas. And it seems pretty obvious what the cause of the problem is, what the solution is, even though liberals have a few sorts of knowledge, even just to cut the minimum wage by 15 years, by 10 cents an hour or something. What is it now? I mean, right now, it's about,

58:43It's about, I'm not sure, it's about 18 or something like that, yeah, something like that. So at any rate, it's obvious what causes tremendous social problems, to say the least, and it seems to be obvious what the solution is, and it's not war on poverty or increase in poverty bureaucracy, which is what war on poverty usually amounts to. The Johnson War on Poverty, the famous joke is, which is of course correct, the only poverty that was relieved by the War on Poverty was the poverty of the social workers who were running the program. They were in great shape. They were getting hefty salaries, which is usually what happens on these things.

59:28So anyway, this is again an idea. One way to look at it, nobody is guaranteed a job if you outlaw working below $3.35 an And once again, the minimum wage rule is not pushed up high enough to really start disemploying union workers with seniority.

1:00:08The economists now all say the same thing. I used to be in a small minority and now this is, I would say, the majority of economists. They just think the same as politically and it's impossible to put this across. The Reagan administration committed to a lot of unions, especially Pinkster's Union, a much beloved union. And even more gangster-ridden than most other unions. And so they just feel like politically they can't do it. The problem you have now, when I was teaching this stuff 20 years ago in classes, students would say, if you're so right, how come nobody else agrees with you? Well, now this is only a question, most economists would agree with almost everything I'm saying here, just as many say, well, politically you can't be put through, the press won't like it, unions won't like it, whatever.

1:00:53And so the cities won't like it, the farmers won't like it, and just haven't got the guts to try to change it politically. But among economists, it's pretty well accepted. So I suppose that's a hopeful sign, right? Is there an increase in the number of deaths in the Korean War? After the Korean War. Yeah, well, in 1956 it went up to a dollar an hour. That was a few years after the Korean War was over. That caused the whole problem here with 24% migrant employment. Right after the Korean War there was no increase. What happened right afterwards, it just went back to the 1949 level. Things went back to the 1949 level, it was post-75 cents an hour, and after the Korean War boom had gone away, and so you're back to sort of normal, pre-boom normal.

1:01:49And then they go back to here, and then the 56-cent increase, it just creates the whole and the 1224% change.