Minimum Wage

0:00Welcome to the third session of this week's seminar, and I'd like to start, as usual, with a moment of silence.

0:12Okay, today the topic is minimum wage, and the point I would offer for your consideration is that free enterprise, Private property rights, economic freedom is a recipe for peace and prosperity and a reduction of poverty. Whereas laws such as the minimum wage not only are counterproductive in the sense that they don't achieve the goals that the advocates of them favor, but it's worse because many of the advocates of minimum wage do not even aim at this. But that's a point that I will make as I continue in this discussion.

0:58Now, last time during the free trade discussion, we said that all trade is mutually beneficial. And I gave the example of a tie versus a pen. The same principle applies in the labor market. If I hire you to give me piano lessons and I pay you 20 bucks for those piano lessons, it must mean that I value the 20 bucks more than, rather, it must mean that I value the piano lessons more than the 20 bucks. And it must mean that you value the 20 bucks from me more than you value the alternative costs of your time. You could have been doing something else, giving someone else a piano lesson or sleeping or whatever it is. So the principle of mutual benefit in the ex-ante sense pervades the economy.

1:48It's not just ties and pens or purchases of cars. It also applies in the labor market. There is no exploitation in the labor market if it's a free market, or if you want, you can say each one exploits the other, but that sort of violates the whole idea of what exploitation means, namely taking unfair advantage. And as I mentioned here, a better way to put it is that it's mutual cooperation and mutual benefit.

2:19Before I get into the evils of the minimum wage, first I want to ask a more basic question and that is why do we have to work at all? Why work at all? The obvious answer is we live in an era of scarcity. We didn't live in an era of scarcity. If we were in the Garden of Eden, we wouldn't have to work and wages wouldn't arise because wages are the payment for work and there'd be no such thing as a minimum wage. It's all God's fault or it's our fault for him kicking us out of the Garden of Eden. I'm not sure how to put that. I'll have to ask our theological friends on that. But the point is that we don't live in an era or an epoch or what have you, a situation, a milieu of post-scarcity.

3:04We are in a scarcity. We are in a scarce situation. Will we always live in a scarce situation? Can one day if Bill Gates gets churning and more people invent stuff and eventually you sort of wish for a bicycle and a bicycle pops there and you wish for chicken dinner and you get a chicken dinner? Well that's possible. I think even on Star Trek the guy would say The computer, you know, the English accent, that bald guy, John Picard or somebody, Luke Picard, and they'd say computer, give me, you know, this and the computer would give it to him. Is it ever possible? And I think the answer is no. Because there are certain things that by their very nature have to be scarce.

3:49You can only be at one place at one time. You can only do one thing at a time. There are wishes that we have that may not be reciprocated, for example the guys may want to date Britney Spears or the gals may want to date someone like Ben Affleck or Murray Rothbard who I think is cute, but we won't go into that, but they might not want to date you and now it's possible to make a blow-up toy Murray Rothbard or a blow-up toy Britney Spears but if you want the real thing there's only one and and thus there's a necessary scarcity so I think that we better get used to you know set back relax you know we're in for scarcity for the foreseeable future so we might as well get used to it okay given that we have to work why don't we all work for ourselves what's this employment crap you know it's exploitative it's hierarchical I'm kidding I don't think it's

4:53exploitative or it is hierarchical but there's nothing wrong with that as we hopefully established yesterday well why do we have employers and employees why don't we each work for ourselves well one of the answers for that is you know we could work for ourselves we do have independent people working on their own But there are advantages of people hiring other people, for example, economies of scale, some jobs you need four or five people or four or five thousand people to do them. Well, how does it all start? Assume everyone is in independent practice, we're all single member firms.

5:40How does anyone ever get to hire someone else? You know, the Marxists would say they're exploiting or something, they're evil, but that's not it. What it is, is that someone saves a little bit of money and makes an offer to someone else and says, look, I'll give you, you know, five bucks an hour or something and you're only making four bucks an hour on your own, but I, because I have these great skills and I can mobilize you and cooperate with you, I can raise your productivity. And someone else comes to work for him and that's how it starts. It starts out of mutual benefit, so there's nothing wrong with employment or being an employer or an employee. The employer makes a better offer to a person who is now self-employed. What is it that the employer offers to the employee? Well the first thing What he offers is time.

6:37Suppose we want to go into the business of making these podiums here and we want to start from scratch. What do we have to do if we want to do it independently or as a workers co-op where there is no employer? Suppose I'm the employer and you guys are workers and you're bitching and moaning and whining that I'm exploiting you. You could start a factory doing this. What would you have to do? You'd have to buy or rent a factory. Then you'd have to buy or rent saws and get wood and find out where you could sell it to. This would take weeks or months to do, right? During this time, what are you guys doing for salary? Well, you're basing on savings.

7:23And if you don't have much savings, you can't do it. Because the time that the first one of these rolls off the assembly line and then gets sold is going to be months. So what I'm doing as the employer is I'm staking you to time. I'm saying, look, I'm going to pay you a salary all the way through, even though I'm not going to get the first one sold for months, but I'm paying you a salary. So the first thing that I, the employer, give to you, the employee, is time. The second thing is risk-bearing, because suppose that that great and glorious day six months from now, when the first one of these rolls off the assembly line, no one wants to buy it. They say, what, it's wood and killing wood is evil, you know, we have a new PETA, only not people for the ethical treatment of animals, but people for the ethical treatment of wood.

8:17Don't laugh, you know, it could happen in today's new year. And no one wants to buy it. They want plastic or metal podiums. Do I now come back to you and say, Hey, guess what? I got bad news for you. Remember that salary I paid you for the last six months? Well, it didn't sell, so give me the salary back. I can't say that. Namely, I'm bearing the risk that these things will sell. If you guys had to do it on your own, either individually or as a worker's co-op, you would bear the risk. The third thing that the employer offers is the initiative. I had the idea, I mobilized you. This isn't necessary because you could have conceivably had the idea and come to me and say, hey Block, how would you like to be the residual income claimant?

9:02And you give us time and risk, and it's our idea. So it could be that way, but usually it's not that way. So the employer gives time, risk bearing, and entrepreneurship. And he becomes the residual income claimant, namely he makes a contract with the employees and pays you a certain amount and then any difference between the selling price of the final product and what he has to pay in the form of wages and salaries and raw materials expenses, he keeps and that's the employer-employee relationship. Okay, what would wages, well before I get into that, I want to raise another question.

9:48The Marxists have this idea that there's a reserve all made the unemployed, and wages will be bid down, and there are problems with automation, you know, that take away jobs. Let's raise that first question about automation taking away jobs. and there's only so much work to be done and there'll be a reserve arm of the unemployed because we won't have enough things to do in order to create jobs for everyone. So the question is, from whence do jobs come? Where do we get jobs from? And this is just a different way of giving the answer of scarcity, but let me go through it anyway because it might be of help to you.

10:35What I have here is the idea of a wish list and a wish list, you know, what we do is I go around and say, okay, Prem, what do you want? And he says, oh, a yacht. And I go over to Ben and I said, Ben, what would you like? He said, oh, he'd like a chicken dinner or something like that. And what we do is we make a wish list by asking everybody what they want. And we go to all six billion people and we ask them, what do you want? And you get a very, very, very long wish list, six billion times everything that anyone ever wants. How far down do we get on our wish list at any given time?

11:23Well, we get, say, this far and think of this list as, you know, millions of things. How far down do we get? Well, it depends upon how hard and how smart we work and with how much capital equipment, which pretty much depends upon how much economic freedom we have. Okay, now suppose somebody comes up with an invention. Let's suppose I invent the cure for tooth decay. Now we have vast unemployment on the part of dentists. and not only dentists but the people that make drills and things like that and secretaries and nurses for dentists so isn't this horrible, aren't I public enemy number one for inventing a cure for tooth decay because I created unemployment and now if you get into the Keynesian twist what's going to happen is the dentists are going to stop buying things, they'll stop buying bicycles and then the bicycle manufacturers will all go broke and you know they will stop Stop buying baked goods and the bakers will go broke and you get this reverberation.

12:32So aren't I a bad guy? Shouldn't I be put in jail even though I didn't initiate any violence? I created vast unemployment? You'll be happy to hear the answer is no. I'm not the bad guy. Because what happens is that we free up labor. We can now go a little bit down on our wish list, thanks to me. Because all the dentists that used to be having to cure our tooth decay are no longer needed because we don't have tooth decay. I sort of went poof like that and no one has tooth decay. Well, now they're freed up to create things that they couldn't create before and we can get down further on our wish list. Another way of putting this is with the production possibilities curve, you know, here you have guns, here you have butter.

13:18What we've now done is increase the production possibilities. That would be the more technical way of saying it, but I like this wishlist idea that what you're doing is you're freeing up labor to create things that couldn't be created before. That's why we live a civilized life, because we've allowed innovations or free trade or what have you. Another point that the Marxists make is that wages would go down to subsistence levels if we had markets, It's because wages are really determined by employer generosity and you can't trust employers to be generous. And I would say that the counter argument to that is, and this is an empirical claim, is that if people's productivity really was at subsistence level, What would you pay for a slave?

14:19Now look, I don't want anyone interpreting that I'm favoring slavery. I don't favor slavery, it's a course of activity. But just as a purely economic matter, what would you bid for a slave if his productivity was at subsistence level, namely he couldn't produce any more than necessary to feed him? Zero. You wouldn't bid anything for a slave who couldn't produce more than that was necessary to feed him. And yet, we have had slavery tens of thousands of years ago when presumably productivity was way lower than it is now. Which shows that we never were at a productivity level below subsistence level.

15:06Okay, okay, you know, there's a storm or a typhoon or something and then, you know, everything is screwed up and productivity's levels might go below subsistence like in Africa where they have these problems, military fighting, what have you. You can have below subsistence level productivity, but it can't be as a general rule because it's incompatible with the institution of slavery and slavery, as we know, exists all throughout history. So all throughout history we deduce that productivity levels were above subsistence.

15:44Stiegler offers an analysis of what you need for subsistence and he has the following.

15:58Let me see if I can work this machine here. This is what will probably be a better diet than the diet we have now. 370 pounds of wheat flour, 57 cans of evaporated milk, 111 pounds of cabbage, 25 pounds of spinach, 285 of dried navy beans. If you ate that, you would subsist for a year and probably do better in terms of just physiology And he estimates the cost of this as $8 a month, but this was in 1950, so you'd have to increase it a little bit. So the point is that subsistence is a very modest sort of a thing.

16:49Okay, what I want to now do is claim, well what I want to do now is to claim that wages in the free market will tend to be equal to marginal revenue product. So first they have to define what marginal revenue product is, and what marginal revenue product is, is this stuff. Marginal revenue product is the change in total product when you hire one more worker. So, for example, let's assume you have 100 workers and you're thinking of hiring a 101st worker.

17:36And you know that 100 workers will create for you $10,000 worth of widgets. And now you hire 101 workers and somehow the total product rises by $5. And what you're doing is attributing $5 to the marginal worker. Now, this is an estimate. People don't come, workers don't come with a little sign on their forehead or a little lapel like this saying, you know, $5 an hour. The employer has to estimate that. Employers who are accurate estimators of this, as we'll see, will make more money than employers who can't estimate their way out of a paperback. Employers who are accurate estimators of this, as we'll see, will make more money than employers who can't estimate their way out of a paperback.

18:26They all tend to lose money. Okay, so now I say having established that the marginal revenue product of our worker is $5 an hour, I want to ask what will his wage be like? And I say there are three possibilities. Either the wage will be higher than marginal product, or the wage will be equal to marginal revenue product, or the wage will be less than marginal revenue product. And to put a numerical example on it, suppose that the first possibility is that the wage settles at $7 an hour, given a marginal revenue product of $5. And there are problems with this, because if you're paying workers $7 an hour for stuff that they're giving you $5 an hour's worth, When you're losing $2 an hour on every worker, you're not going to last too long.

19:15So we can pretty much eliminate that as a reasonable possibility. Okay, let's take the third case. Suppose the wage gets established at $2 an hour and the marginal revenue product is $5 an hour. Can the firm long endure? Yeah, they're making money hand over fist off the backs of their workers. They're exploiting workers in the lexicon, not only of the Marxists, but even of the mainstream economists. We Austro-libertarians, if I can use such a phrase, and amalgamate the normative and the positive, would not say that. What will happen? Well, what will happen is that the wage will tend to rise.

20:01Because, well, let's go through a drill. Suppose that I am an employer and I now have a worker for $2 an hour. And you guys are fat capitalist pigs too, not just me, we're all capitalist pigs here. And Maximilian, since you're sitting in the front, I'll pick on you. What would you do if I had a worker and I was paying two dollars an hour but he's producing five dollars an hour worth and you're a competing employer, what would you do? Three dollars? I'm kicking you out of the fat capitalist pig club.

20:48That's too generous, remember what you want to do is maximize profits. You don't want to be so generous, the workers get uppity and you know They get snarky and they don't tip their hat and they don't bow and scrape if you give them too much money. Prem, what would you offer? Two dollars and one cent. Two dollars and one cent is the right answer. And the next employer would be 202 and 203 and we'd go on up toward five dollars. We might not ever get to five dollars because, you know, there are costs of finding workers. See, the theory is not that wages tend to equal marginal revenue of product, but rather, not that it'll equal to it, but rather it'll tend toward that direction.

21:38Because any gap is a profit gap and just as nature abhors a vacuum, so does capitalism abhor a differential or a profit. In equilibrium, wages will equal marginal revenue product. In equilibrium, there'll be no profits. We're never at equilibrium, we're always moving toward it, and of course, there are forces moving us away from it because things change, you know. People change their productivity, new machines come in, substitutes, complements, it gets complicated, things change. But wages tend to go up toward that level, one, through the bidding of employers. It's not for nothing that growers in California go down to Mexico with trucks and buses, and they get those workers and they bring them up to the U.S. in California, get them to pick stuff, and the wage in Mexico is very, very low, and they bid up the wage by two or three or four fold, and then the liberal do-gooders start moaning and saying, Well there's not hot and cold running water in the shacks that they put them in when they're forming

22:50and Cesar Chavez who is a hero on the left but is one of the most evil vicious people known to man well he's not up with Hitler and Stalin but you know he's not a good guy because what he was doing is trying to keep the Mexican workers out of California because they're you know taking jobs away from his unionized workers. So they go down there, they don't go down there with whips and guns, they go down there with offers of something multiple of what the Mexican workers are getting, and then the people in San Francisco and other hippies, you know, I'm sort of like, what's that guy in South Park that hates the hippies? Cartman, I'm sort of like Cartman on the hippies, hippies are evil, you know, these Wine and Breed types in San Francisco that don't know economics if it hit them in the head think that César Chávez is a hero But he is really the villain because he's preventing Employers from going down and bidding wages higher than than what they are bidding them up toward

23:57Productivity levels now this How dare you cough in my class Lauren I've got a present for you. These, this process of going 201, 202, that would only be theoretical, just to illustrate what the Tarton month or the bidding process would be. Actually, it would might go to three or four or something would go quicker, because the tendency is for wages to equal marginal productivity. And it not only comes from the employer side, But also from the employee side. Employees get together in a bowling league and they chat and they say well what do you make and what? You're making twice as much as me? I'm going to quit my job and come ask your boss if I can work with you. So from both sides, wages tend to equal marginal revenue productivity.

24:52Okay, now we introduce the minimum wage knowing why and how wages are set on a free enterprise system. Notice that the minimum wage law is an unemployment law on the face of it, not an employment law. Because the minimum wage law doesn't say you should raise wages to $7, it just says it shall be illegal to pay anything less than $7 an hour. Let's take that as an example of a minimum wage. So anyone who doesn't have a productivity of $7 an hour is in equilibrium going to be unemployed. So it doesn't compel anyone to raise wages, it just forbids anyone to pay below a certain level. That's what the minimum wage law is.

25:41Do you people know what the high jump record is? The Olympic high jump record? About eight feet? I don't know, this would be about eight feet. There are guys that come and run up and jump over eight feet. I mean, that's just spectacular. You get a world-class athlete who can do that. Most meets, you know, 7'6", which is still pretty high. A good high school athlete might be able to jump over 6 feet. Elementary school people who are trained for this, or middle school kids, you know, 4 or 5 feet. I want to demonstrate to you some physical ability.

26:26Just watch this, and I want a little applause if I make it. Watch.

26:38No applause, coins. I just jumped over this chair. It's about three inches high. Different amounts, different athletic ability will get you over different barriers. What I want to say is that the minimum wage law is not a floor under wages which, as it rises, raises everyone's wage, which is the usual view, the view in the religion departments and the sociology departments and the view of most people. Boy, I'm out of breath from that physical one. This is pathetic. Rather, the minimum wage law is like a high jump thing. You have to jump over it to get a job.

27:25And different people have different skills, just as in physically jumping over obstacles. They have different abilities to jump over minimum wage levels. And what is their ability? Their ability is their productivity. So if they're very productive, they can jump over it. If they're not very productive, they can't jump over it. And the higher the minimum wage is, the harder it is to jump over it, right? It's easy to jump. Suppose the minimum wage law was 10 cents an hour. Most people could jump over it. Are there people for whom 10 cents an hour in the United States, in the modern era, is a reasonable productivity level?

28:13Yes, there are such people. They're not physically handicapped, they're mentally handicapped. Mentally handicapped people have very low productivity levels. And yet, it's been determined by psychologists and such like people that mentally handicapped people can be helped by having a job. Because if they don't have a job, it's sort of boring. I'm not into this. I'm not an expert on why it helps them psychologically. But somehow it's been determined that it helps them to have a job. What kind of jobs can they have? Well, maybe stringing beads, things like that. And you have to subtract from their productivity the costs of the person who guards them or is their nurse or whatever because you can't let them out alone because they'll just, I don't know, do weird things because they're mentally handicapped.

29:10I often think that if I lost an arm or a leg, I'd still be me. You know, I'd be in a wheelchair or whatever, but I'd still be me. Whereas if I lost my brain or, you know, my ability to think, I wouldn't be me. So in a sense, you know, arms and legs are just conveniences. Whereas mental handicapped is really bad stuff. And these people need all the help they can get. And it used to be before the advent of the minimum wage law that they would have jobs. And they would work at very low wages but they would be paid and it paid employers to hire them because they could make a profit off of them. I mean it sounds horrible making a profit off of the helpless, but really what it's doing is cooperating with them as I've tried to establish.

29:56Then came the minimum wage law and no longer would it pay anyone to hire them because I think the minimum wage law, The first minimum wage law was 25 cents in the 40s, and these people were way below 25 cents in the 40s, you know, a penny to an hour or something like that. So what they did, you see, they could have got them in make-work jobs, like raking leaves and paying them, but they're not really working, but that didn't work. Somehow, even though they're mentally handicapped, they sensed that they weren't being paid for a job. And happily, compassionately, they made an exception for mentally handicapped people. And you didn't have to pay them the minimum wage. But the point is that if you have to make an exception for the law, what good is the law?

30:45A second example is teenage workers during the summer. You know, everyone's having, you know, please hire teenage workers during the summer, otherwise they'll riot or whatever. And then you have an exception for teenagers, in other words if the minimum wage, I don't know what the minimum wage law is now, it keeps changing, is it 5.15 or 5.35 and it's scheduled to go up in groups of time, I don't know, every year it'll go up another 50 cents. Well, teenagers, a lot of them don't have that productivity plus it's hard to tell which teenager can work well because at that level what's important is that you show up for work on time and you don't sass the boss and you don't sass the customers and I mean they're big and strong but that doesn't mean they have productivity if you have to keep them from fighting with each other or fighting with the customers, you know the productivity is negative if they do that. So it's very hard to determine what their productivity is.

31:42And they've come up with exceptions for minimum wage laws and such is the level of knowledge of these things that when they did this in France, there was an actual riot. What happened, here's a riot, and let me read the, I guess you can't see this, or can you, well I'll read it to you. Plainclothes police arrest the Young Man Center after rioting broke out during a demonstration. Tens of thousands of workers and students marched in Paris and a coarse-skinned city yesterday to protest the jobs policy of the Premier of France, specifically his plan to allow a below minimum wage for young people entering the workforce.

32:35So here they're making an exception, a compassionate exception for the minimum wage law just to enable teenagers to get jobs and the teenagers are rioting. because they have the view that the minimum wage law is a floor under wages and as you raise it, everyone's wages rise and they see this compassionate program as a way of stopping their wages from rising whereas actually it's a barrier over which you have to jump and the higher it is, the fewer the people can get over it but they don't realize that I told you yesterday that I had an honors class and after two or three weeks of going over this intensively, this young lady who was a magna cum laude graduate said, I see your point and I agree with it, but I don't like it. There's something viscerally hateful about this idea.

33:31I have a hard time wrapping my mind around it, why it is so, but it seems to be. Well, if it were so, suppose the minimum wage law really were a floor under wages and by raising it you could raise wages. Why be pikers? Why be skin flints? Why just have a minimum wage law of five or six or seven dollars an hour? Why not make it ten? Well, I shouldn't say that because at Harvard and other such places of ignorance they're now trying to have a living wage for the janitors and ten dollars an hour seems to be what they want. Why ten? Why not a thousand? Ten thousand an hour. I was once in a debate on the radio with a unionist, and I'll be speaking about unions in a second, and I said, you know, why be so skin flinty about, you know, advocating five or six or eight or ten?

34:25Why not ten thousand? And he said, that's too theoretical. We had a very high-placed libertarian come to campus and I will mention his name because I don't want to embarrass him. And somebody asked him, well, if you couldn't vote for the libertarian, who would you vote for, the Democrat or the Republican? And his answer was, that's the stupidest question I've ever heard. And his answer was to my students. And when I heard about this later, I said, you know, there are some people who have an IQ above room temperature. For them, theoretical questions are okay. It's part of the academic apparatus.

35:15And there are other people with IQs down there who can't tolerate the idea of a theoretical or a hypothetical. So this unionist was, well, I don't know, if I was on that side of the debate, I'd probably say the same thing. I don't know what else you could say. It's too theoretical. It sounds okay. But the point is that they know in their bones that if the minimum wage law was $100 or $200 or $300 an hour, virtually everyone would be unemployed, with the exception of some high-priced lawyers or Madonna or somebody like that who makes more than $100 an hour. Heck, even I make more than $100 an hour when I do consulting. I had the instance where some government employer wanted me to consult with him and I said 400 an hour and he said okay.

36:07Then, you know, he wanted me to consult with him on how to improve Iraq and I said, well, you know, the best way to improve it is to get the U.S. out. Sort of hung up on me, but that's part of the question. Okay, so what determines who jumps over the bar and who can keep employed in the face of minimum wage is productivity, marginal revenue productivity. And who's got it? Well, when it comes to jumping over a bar, teenagers are much better than people my age. I'm 64 and you saw the barrier that I could jump over. I'm sure kids here in age 20 could jump over the chair upright with a little running lead. I couldn't. I'm just too old and fat to do that. Well, here we have an example of who jumps over the bar.

36:57And we look at the unemployment rate of teenage males and adult males. And we look at the minimum wage law with a step function. The minimum wage law is getting higher and higher. And the teenage male rate is getting higher and higher. And before the advent of the minimum wage law, the unemployment rate of teenagers and adults was about the same. But now all of a sudden, teenage unemployment is rising. Why? There's no other reason other than the minimum wage law. Teenagers can't jump over the minimum wage barrier, even though they could jump over a high jump barrier. But it's a different contest. It's not a physical ability to jump over a teenager. I'll bet you most of the teenagers in this audience could jump over this table.

37:42table, whereas the adults couldn't, whereas the adults have more productivity because you know adults have more experience and adults know better what they're good at and then have switched jobs whereas teenagers don't and it's a well-known fact that people in their 40s 50s and 60s have more productivity than and people in their teens and that's why young teenage males have such bad employment experiences. Okay, I want to now consider a whole bunch of objections to my thesis. My thesis is that the minimum wage law is a horrible thing. The first one is the following diagram.

38:29Let's have a supply and a demand curve, quantity of labor and a wage. Whoops, I'd better make it a little smaller. Okay, and let's suppose that right now there's no minimum wage and these people's productivity is $5 an hour and there are a thousand workers and what is the wage bill? What are they all being paid? Well, they're being paid $5,000. Okay, that's fine. I'm simplifying. In reality, the wage wouldn't be exactly $5, but what the heck? We're talking rough now. Okay, now we have a minimum wage law, and the minimum wage law is $7 an hour.

39:15And we have unemployment, and now we have 900 workers who are working. And what is the wage bill? The average bill is now $6,300. Well, first of all, 100 people lose their jobs, so that's one point on my side. But on the other side, on the side of the objector, you could say, well look, let's all the workers band together. Under the old system, the average worker was getting $5. Under the new system, if the 900 workers will share their pay with all 1000, the average worker could make $6.30 an hour, which is better than 5.

40:03So isn't this good? Well, this is one objection. Now you might say, well they wouldn't share, but at least theoretically it shows that the minimum wage law can work and it can help. So that's one objection. The problem with this objection is, the problem with this objection is that the man curves, their elasticity changes based on the length of run. Now let me introduce this in the following way. When a baseball pitcher winds up, notice this prowess here, you know, and he throws the ball, and he throws it at around 80, 90 miles an hour.

40:52Why does he throw it so fast? Stupid question. The reason is, the faster it is, the harder it is for the batter to adjust. Whereas when the baseball pitcher throws the ball in batting practice to give the batters confidence, he throws it at 40 miles an hour and then they swat it all over the place, right? Because the slower the ball is, the bigger it looks. I mean when it goes by at 90 miles an hour, it goes by real quick. It's the same with tennis, you know, they'll serve it at 130 miles an hour. Whereas if they're just playing, you know, they'll serve it like this at 30 miles an hour and then it's easy to, you know, get around and, you know, hit the ball. You know hit the ball whereas if it's coming at 130 miles you just sort of go like that and you miss the ball Unless you're really good at it So the more time there is the more you can adjust

41:50One of the biggest boosts in the minimum wage law was And when it went from forty dollars forty cents an hour to seventy cents an hour it was almost a doubling And during that time, if you went on an elevator, there would be this guy in the elevator. He wasn't a pervert. He wasn't, you know, trying to grab you or anything. He was the elevator operator. How many have ever been in an elevator with an elevator operator? John and, what's your name? You don't look that old. I don't know how you did it. But in the United States you have to be an old coot like me and John to have been a kid in an elevator and the guy would go like this until the elevator was exactly on level with the floor.

42:42When that minimum wage law went up from 40 to 70 cents, how many elevator operators lost their jobs the very next day? None, not a one, because if they would have fired elevator operators, the tenants would have been in an uproar, you know, you know, we're paying rent to get up and down and now you're firing elevator operators? So the demand curve for elevator operators in the very short run looks like that, quantity of labor, wages, namely the very next day, So here is 40 cents an hour, and here is 70 cents an hour, and you move from point A to point B.

43:32Right, my handwriting is okay, you can all see this. Not a single solitary person lost their job, and everyone is going whoop-de-doo, minimum wage, uberallis. You know, this is hot diggity dog stuff. Right? I mean, the minimum wage law is great. It practically doubled our salary thanks to the benefits of the government. And those evil employers are only paying us 40 cents an hour because our marginal productivity was 40 cents an hour. And now this shows that Block is all wrong because we're still getting 70 cents an hour even though our marginal revenue product is 40 cents an hour. Well, what happened the next day? or the day after, well, it takes a week or two or three or something and either people, instead of building buildings like this, they build them long and narrow so you don't have elevators or what happened was you got automatic elevators.

44:29See, automatic elevators were competing with the hand-driven elevators but at 40 cents an hour, the hand-driven were beating the automatic but at 70 cents an hour, the automatic were beating the hand-driven. So what happened over the next two, three, four, five years is that all the elevators became automatic, but then nobody connected the two. They said, oh, it was the interest rate, or it was, you know, this, or it was technology. Now, I don't deny that sometimes automation stems from technology, but sometimes it also is engendered by comparative wages. And at 40 cents an hour, the hand-driven elevators were competitive, at 70 cents they weren't. So after the next two, three, four years, there were no more automaker elevators.

45:17So what the demand curve looks like, it's sort of like a spiral. So if this is the immediate run, this is the short run, and then the medium run, and then... And finally, eventually, the marginal revenue product curve is flat. And if the demand curve for labor is based on marginal revenue product, the marginal revenue product is flat in equilibrium, which we never get to, but we always tend toward that in that direction. So it's, you know, back to jumping over the barrier. And all those guys were unemployed at 70 cents, if their productivity was only 40 cents. John? My dad was an electrician who made quite a bit of money going into learning how to wire in Creative Destruction Yep. Okay, let me get to another objection. This is a more, I don't know, more serious objection.

46:24I don't know how to characterize that and I sort of apologize to people who are not really majoring in economics economics and had two or three micro courses because you're not going to really get this and I'm not even going to give the answer to it I'll just give the objection now and it's from monopsony. The objection that some people will give to what I just said about the minimum wage law is monopsony And how does monopsony work? Well, the first run at monopsony is this curve right here. What you have is, monopoly, well, I don't know if I should go into it because I want to go into it on Friday when I do the monopoly, monopsony stuff, but let me just give a few minutes on this now.

47:27Monopoly, according to the neoclassicists, is a single seller of goods. According to the Austrians, monopoly is government privilege where competitors are not allowed in, so it's very different. Monopsony for the Austrians would be a marketing scheme where only the government can buy wheat and anyone else is forbidden from buying wheat or corn or whatever it is. but a monopsony for the neoclassicists, I'm now giving a neoclassical objection to my analysis of the minimum wage. The way the neoclassicists view monopsony is that it's a single buyer and what happens with a single buyer is here is the supply curve which is based on average factor costs and here is the demand curve for labor, and where the demand and the supply meet, you get C or the competitive price and quantity.

48:34Okay, so if it was a competitive industry for the neoclassicists, you would be at point C. However, what you do for the monopsinist is first you pick a quantity, And the quantity is where the marginal revenue and the marginal cost hit, and they hit at quantity one. How many people know what I'm talking about and have seen this before? About half of you. Okay, so I'm not losing everyone on this. Okay. And people out there in radio and TV land might benefit from this as well. Okay, so point C is where the competitive industry would be, and then everything I just said would be true.

49:24But now we introduce monopsony, and monopsony means that as you buy more and more, the price rises even faster. It rises according to the marginal cost curve, and as I say, I'll do more on this on Friday. So I'm just sort of giving a quick run over on this. So now you have to pick a quantity and you pick quantity one with a marginal revenue and the marginal cost hit which is right here and then that's the quantity and then what's the price? These are the prices where that quantity intersects the supply curve, which is at M, so the monopsinist will pay less and buy less than would the competitive industry because M is below and to the left of C, yes?

50:19Now we introduce the minimum wage law. And when we introduce the minimum wage law, we get the following situation. We get a situation where the minimum wage law is above M. And as you know, let me make this a little bit bigger, when the marginal is above the average, the average rises. When the marginal is equal to the average, whether it's cost, the revenue or anything else, the average stays the same. And when the marginal is less than the average, it pulls it down.

51:06This is the common sense, you know, that if you've got a string of quizzes where you got 90, 90, 90, 90, and you get another 90, namely the marginal is the same as the average, it doesn't pull your average up or down. Whereas if you get a 70 on your last quiz, it'll pull your average a little down. If you get a 95, it'll pull it up a little bit. So it's just that sort of common sense notion. Okay, so now what happens here is that the minimum wage law or the minimum wage level, which is over here, is now the marginal curve up until it hits the average cost curve where upon it rises up to the marginal cost curve.

51:55So, you get this dotted thing. The new marginal cost thing goes from here to here and then up here. And the new average cost curve goes along, because remember when the marginal is flat, so must the average be flat. So the new average cost curve goes along here and then up to the average cost curve. So again, we ask, where's the quantity? And the quantity is where marginal revenue and marginal cost hit each other. Well, here's marginal cost and here is marginal revenue and they hit right there. So that's the new quantity one. And now you go to the supply curve and the supply curve is this sort of a thing. So you get to that dot where I've got a square around it.

52:45That's one illustration of it. Another illustration of the same thing, only I put the minimum wage law in a different place, is right here, where again you get this Q1 and the point is that whether you're on this curve or this curve, what both of these have in common, and I'll reduce it so you can see both together.

53:15What both have in common is that the minimum wage law raises the quantity and the price that labor is paid. And this is the opposite of what we've seen before. In the other case, you see when it's a competitive industry and here you have say that $5 an hour and here's the $7 an hour. The Minimum Wage Law

54:12In the monopsony case, more workers will be hired. So this is a contradiction of what I said when I said that it'll create unemployment. Okay, if I got some great jokes for you guys, I'm continuing on my payback for blonde jokes kick. Pretty soon I'll get into blonde jokes, but here are some pro-blonde jokes, I suppose. What did God say after creating man? I must be able to do better than that. What did God say after creating Eve? Practice makes perfect. What is the one thing that all men at singles bars have in common?

54:58They're all married. Man says to God, God, why did you make woman so beautiful? God says, so you would love her. To God the man says, why did you make her so dumb? God says, so she would love you. Okay, now we get a regular blonde joke. A plane is on its way to Montreal when a blonde in economy class gets up and moves to first class section and sits down. The flight attendant watches her do this and asks to see her ticket. She then tells the blonde that she paid for economy and that she will have to sit in the back. The blonde replies, I'm blonde, I'm beautiful, I'm going to Montreal and I'm staying right here. The flight attendant goes to the cockpit and tells the pilot and copilot that there is some dumb blonde bimbo sitting in first class who belongs in economy and won't move back to her seat.

55:52The copilot goes back to the blonde and tries to explain that because she only paid for economy, she will have to leave and return to her seat. The blonde replies, I'm blonde, I'm beautiful, I'm going to Montreal and I'm staying right here. Once you've got something, you stick with it, I guess, if it's working. The co-pilot tells the pilot that he probably should have the police waiting when they land to arrest this blonde who won't listen to reason. The blonde says, you say she's blonde, I'll handle this. I'm married to a blonde and I speak blonde. He goes back to the blonde, whispers in her ear, after which she says, oh, I'm sorry, and gets up and moves to her back to her seat in the economy section. The flight attendant and the co-pilot are amazed and ask them what he said to make her move Okay, let's get back to minimum wage. If the minimum wage law is so bad, and this business of monopsony I don't think is a counter example, and I'll get to it on Friday when I do the monopoly monopsony business, if it's so bad, why do we have it?

56:51and I'll get to it on Friday when I do the Monopoly and Monopsony business. If it's so bad, why do we have it? Well, you know those detective shows on TV or the Sherlock Holmes books? Whenever you see a dead body, one of the things you do is you ask, well, who benefits? Right? I mean, if there's an old lady there, you look to her airs, you know, which air bumped her off maybe? And then you look at their, you know, where they were on the night of the murder or something like that. If it's a spouse, you look at the other spouse, maybe that spouse wanted to get rid of this one and marry someone else. You look for motive. So we ask, well, who benefits from the minimum wage law?

57:38And given that the main effect of the minimum wage law is unemployment for teenagers, Who benefits from unemployment for teenagers? Well, I've got a little list here. Prison guards. They benefit because unemployed teenagers get into trouble. They're bored and they can't get any money from honest work. So they engage in robbery and then prison guards get more jobs. So that's one possibility. I don't think it's true, but I'm just going down a list of who benefits. Another one is teachers, you know, if they're unemployed, maybe they'll go back to school. Another one is psychiatrists, because kids who are bored are likely to get into more psychological troubles.

58:27I don't think any of them has any effect. The way Murray used to say is that these are just hypotheses. Now we have to go out and test them or check them or see if it's really true, Because this is not praxeology, this is an empirical question. Another group who benefits is unions. And before I get into that, or this is the way I'd like to illustrate that, is with an isoquant. This is an isoquant, which means iso is equal and quantity is quantity. And here you have say a hundred bushels of wheat and over here we have land and over here we have labor.

59:19Okay, now there are some countries that engage in intensive farming and then there are other countries that engage in extensive farming. Extensive would be a lot of land and very little labor, a lot of land, very little labor. And then there are other countries that have a lot of labor, they're very labor-intensive and very little land. For example, where is the U.S., A or B?

59:50Well, given the choice of A or B, or let me ask you the other one, where is Japan, A or B? Japan is clearly B, the U.S. is A. The U.S. is much more land intensive, the Japanese is much more labor intensive, they've got many more people per acre, whereas in the U.S. you get one guy in a big tractor trailer combine who goes a square mile or two or three, whereas in Japan or Italy up those hills is very intensive farming in many European countries. Okay, well suppose that the price of land rises, which way do we go?

1:00:35Well, you move in this direction because the natural tendency is to substitute away from any factor production that is suddenly more expensive. Okay, everyone sees this, this isn't rocket science. But let's now change things and realize that you can do the same thing with say a hundred shoes and here you can have skilled labor and here you can have unskilled labor, right? And some companies can make their product with a lot of skilled labor and very little unskilled labor, others can do it the other way There are various combinations of factors of production that you can use to make 100 shoes.

1:01:32There's not one way to make shoes. We don't have fixed proportions or anything like that. Now, suppose I tell you that skilled labor has suddenly become more expensive. And you're an employer, what would your natural tendency be? Well, again, if skilled labor gets more expensive, you would tend to substitute, fire a few of the skilled workers and hire a few unskilled workers, and keep making a hundred chews in a slightly different proportion. Everyone with me? That makes sense? Okay, so here's the scenario. The union, which is mainly the skilled workers, comes to the boss and says, says, boss, you're unfair, you're only paying us $20 an hour, we want $25.

1:02:21And the boss says, I'm going this way, I'm going to fire a few of you guys, maybe ten of you, and I'll hire 25 unskilled workers or whatever the proportion is so that I can keep doing 100 shoes. And now, the union doesn't like this, and there are various ways that the union can can deal with this. One, they can pass Wagner Act, or one of those labor legislation acts that ties up the handcuffs of the employer. But that's tough, although they'll try that, but it's tough. You know, you have to bribe all sorts of people and there's opposition, you know, the manufacturers don't like it.

1:03:07Another way is you beat up the scabs. They're not in the Union now with them. You beat them up. The problem is, you know, when you get in a mud fight, even if you win, you get mud on you. Beating up scabs is so lowbrow, so blue collar. I mean, you know, it's fun and all, but still, there's a much better way. There's an ingenious way. What you do is you pose as the savior of the workers, of the downtrodden, you say, look, we've got to, I was going to say price these buggers out of the market, but that's the subterranean view. What we've got to do is help these scabs, we've got to raise their wages.

1:03:54And if we raise the wages of these unskilled workers, then no longer does the employer want to go this way. Now he might even want to go that way. If you raise them enough, you know, the heck with seven, let's raise it to ten. That'll really put the kibosh on those guys. This is a pretty vicious kind of an activity. And it's much better because now you can pose as a good guy. See, with the Wagner Act and the labor legislation, and certainly with beating up scabs, you're seen as a bad guy. But here you're seen as the friend of the downtrodden. So this is a hypothesis and then what you have to do is go out and test it.

1:04:44I hate to sound non-Austrian but this is not praxeology. So we can test things like this. We can certainly illustrate it. We can see how do unions testify when the minimum wage law is being proposed. And by golly and by gum, we find out there are staunch advocates of the minimum wage law. They never say this. They say, you know, they give you this crap about, you know, the floor and we have to help the downtrodden and they don't let them in the Union. But that's one analytic framework with which to look at this. How many unions do you think actually earn the minimum wage? Very, very few. See, you have various hypotheses. Why are they favoring the minimum wage?

1:05:35One is because they're filled with the milk of human kindness and they want to raise wages for the downtrodden with whom they're in competition. The other is this analysis, that they want to price them out of the market. They don't want the employer to have an economic incentive to fire them and hire unskilled workers. They want it the other way around. So they artificially boost their wages and that's it. Walter Williams tells a very similar story about the white racist unions in South Africa pre-Mandela, where there was job reservation laws, the good jobs were reserved for whites and the bad ones for blacks. This wasn't working out to the union satisfaction because a lot of the employers couldn't promote the blacks, but they were paying them based on their marginal productivity because of bidding wars.

1:06:28And a much better way of getting rid of the black competition was to artificially boost the black wages or have a minimum wage for everyone. And since blacks had lower productivity than whites for various reasons that I won't get into, this was a way of eliminating their competition. And it's particularly vicious and underhanded because you're posing as a good guy and isn't it fun to tweak their noses? Remember I said one of the important benefits of libertarianism, you get to tweak noses, pompous union noses. It's just great to pull this sort of stuff on them.

1:07:05Okay, are unions needed to raise wages in general? Well, they are, if you think that wages emanate from employer generosity. And since employers aren't generous, the best way to go is to have a union and force them. If you believe that wages stem from marginal revenue productivity, then you don't need unions to raise wages. Indeed, you have to ask the question, what will a union do to productivity? And productivity determines wages, and the obvious answer is that unions will lower productivity. They'll have all sorts of warfare and disputes. You know, sometimes they'll have a strike, not against the employer, but the carpenters and the plumbers will be fighting over who gets to do a certain job.

1:07:54And, you know, how that helps productivity is beyond me. Let me give you several points for your consideration on this. First of all, wages were rising before the advent of unions. Unions only came into effect in the 20th century, in the 19th century, like you have the Wobblies in 1890, but they were hardly instrumental. The AFL and the CIO didn't get going until 1915 or 20, somewhere in the early 20th century. But wages have been rising ever since the Industrial Revolution. So you could hardly credit unions for the rise in real wages.

1:08:42Secondly, wages rise in countries where there are no unions or unions are weak. For example, Singapore, Hong Kong, Japan. Here the main function of the union, and I'm exaggerating slightly, is to lead the workers in the company song and do calisthenics before you, you know, so we go rah-rah, Microsoft or something, that would be the Microsoft union in Japan. It's not really unions as we have come to know and love them in this country. Wages have also risen in industries where there are no unions. For example, computers, banking, insurance, even babysitters and house cleaners. Their wages have risen with increasing productivity due to more capital equipment and what have you.

1:09:28And there are no unions there. And then the apex of unions were in the 1950s when some 30, 35, 40 percent of the labor force was unionized. And ever since then, union rates have been declining, while wages have been increasing, Ben? What is the difference in membership rates between the private and the public unions? Well, the private sector of unions is now in the single digits, 8 or 9 percent. The public is something like 20 percent, but the overall is in the low teens, And this has come down from something like 40% or 45%, something like that. You know, speaking of public unions, the whole idea behind unions is that the capitalist pig is an exploiter and you need countervailing power.

1:10:22But the government is supposed to be wonderful for the liberals. You know, the government wouldn't exploit, certainly not. The government is on the side of the working man. So why do you need a union in the public sector, sort of beyond me? Interesting question is, when you have a public sector strike, who do you root for? Because, you know, they're striking the government. And as libertarians, or even as Austrians, if you can overlook the normative positive for the moment, it's sort of, you know, it's sort of like two bad guys fighting. I guess the way I look at it is the more I root for the less powerful of the two bad guys. Just sort of like when there's a World Series, I root for the underdogs so that they go to full game seven.

1:11:11So you always root for the weaker team so that it'll be 3-3 and then you can see the last game. Well, I guess that's who I root for, you know, whoever seems to be the underdog so they keep fighting. You know, the enemy is my friend, I don't know, something like that. Okay, where do we go from here? Ah, now we get to some very interesting stuff. First, let me give you some empirical evidence on this. Or some empirical illustrations would be better to put it because I think the fact that the minimum wage law creates unemployment is a matter of praxeology, therefore you can't test it. And I'll be talking about the Card, Kruger and Becker business in a minute.

1:11:59You see, when we talk about motives, that's not a matter of praxeology, so we can test that. When it comes to praxeology, there's no testing of it any more than there is testing of the fact that when you trade a pen for a watch, you gain in a mutual sense, you can only illustrate that, you can't test that. But one of the arguments against Austrians is that, you know, we don't use any empirical data and, you know, the only numbers on the publications are the page numbers. It's not true, and I'm going to give you some illustrations of that now and also I think on Wednesday or Thursday I'm going to do an empirical analysis of economic freedom and so it's a calumny against Austrians to say that they don't do any empirical work.

1:12:45work. Rather, the case is that the empirical work has a different interpretation. It's not testing a praxeological theory, rather it's illustrating it. Because some people naturally get convinced by just the rigorous logic of it. Other people get convinced by empirical data. So why not do both? And it's not just to convince people, but you know, You can't have too much of the truth and this is part of the truth. Okay, so what's going on here? What I did in Canada is I took the ten provinces of Canada and I asked several questions of them.

1:13:32I said, first of all, what is their minimum wage level? And that's number three. And then I said, what is the unemployment rate for the entire population, which is almost irrelevant. The key here is, what is the unemployment rate for 20 to 24 year old males as a percentage of the rate of unemployment of 25 years old and older. Why did I do this? The reason I did this is that there are certain things that cause unemployment that would cause unemployment for teenagers or adults. And I wanted to wash them out of the consideration, so that's why I took the proportion of unemployment for young people versus old people, or older people, 25 and above.

1:14:18I really wanted 16 to 20 year olds, but I couldn't get it, so I used 20 to 24 year olds as a proxy variable. And you'll see that, by and large, the higher the minimum wage at the top, the higher the percentage of unemployment. In other words, column four is in order of unemployment of young people compared to old people. And in all cases, the numbers are higher than 100, showing that the unemployment rate of young people is higher than the unemployment rate of older people. And you don't get perfection here. There are some anomalies. If you would have chart this, you wouldn't get just a straight line going one way. But by and large, you can sort of see that the New Brunswick and Alberta have the lowest, and British Columbia has the lowest minimum wage at 365, 380, and 380 respectively.

1:15:14And also they're sort of at the bottom. Prince Edward Island, I couldn't get data for. I did this in October 1985 in a magazine, actually it was in the Financial Post, which is sort of like the Canadian version of the Wall Street Journal. And I did it again in May of 85. I guess when you got something, you keep pushing at it. And here again, you get the same sort of a thing that the unemployment rate for young people People compared to old people is ranked in this column and then the minimum wage here and you can see that the places with $3 an hour minimum wages are at the bottom.

1:16:01New Brunswick is a bit of an exception, so you don't, empirical work is sort of, there's a lot of noise. There are other things that are determining the unemployment rate of young people versus old people compared to the minimum wage that I didn't control for because I didn't do an econometric regression, multiple regression, I mean, you can't do that in a newspaper and when I was at the Fraser Institute I was into, you know, sort of public policy for the average person. So this is another illustration of it and I did it again in January of 86 and I got again a very similar sort of a thing. And each time I do it, the provinces are not exactly lined up in terms of minimum wage.

1:16:49But here what I did is I ranked them in terms of minimum wage here. And here the numbers are different, but you can see 179 is low and you can see that the 262 is high. So you get empirical analysis after empirical analysis that shows that the unemployment rate, if you just control for the minimum wage, the unemployment rate of young people compared to old people is very highly correlated with the height of the minimum wage. Again, the barrier, the higher it is, the harder it is to jump over. Provinces that have a high one, a lot of kids can't jump over it. Provinces that have a relatively low minimum wage, more teenagers can jump over it.

1:17:35So this is just more and more buttress support for this contention. And this is a very important topic because in most plebiscites on this, when people are asked do you want to raise the minimum wage, like in New Orleans where I now am located, recently they had a minimum wage on the ballot and one by two to one majority. The economic ignorance is rampant everywhere. You people that are going to become getting PhDs and be economics professors, you're going to have plenty of work cut out for you on this subject and many others. Okay, let me talk about Card Kruger and Gary Becker and the boys.

1:18:20Card and Kruger are both very famous economists at Princeton or Yale or some horrible place like that. Princeton and they go back and forth between the Department of Labor and Princeton. Okay, well, buddies. And what they did is they did this study, and it was in Pennsylvania and New Jersey, and what they did is, I forget which one, you should look it up, it's a very famous study, one of them had a minimum wage raise and the other didn't, and somehow they found out, based on a telephone survey that the place where they had a minimum wage law you didn't get more unemployment but the wages rose. And this was published in the American Economic Review which is the catallact of reviews in terms of the mainstream. The catallact of economic reviews in my view is the quarterly journal of Austrian economics and review of Austrian economics but that's a whole But in terms of prestige and the overall economics profession, the American Economic Review is the key.

1:19:29It's really seen as number one. And then you had a whole bunch of Chicago types like Farnes Welch and Gary Becker and I think Buchanan and a few others that just were livid with this. with this. They were really breathing fire. It was sort of, you know, the gloves were off. They didn't call them the sons of whatever, but, you know, did they? Well, they wouldn't put that in print, surely. Camp following whores. I love it. Now, what they did is they criticized this from soup to nuts. They criticized every aspect of it.

1:20:22What they did is they repeated the survey and they couldn't, you know, replicatability is a key element. There was this guy, Michael Belial, who did this wonderful study on gun ownership in Revolutionary War times. and the key there was could you replicate it and the critics see what he was trying to say is that guns were never part of our culture so he went around here and there and he got all sorts of data showing that no one ever knew anything from guns in the Revolutionary War period and then other people critics won the Bancroft Prize and won this prize and that prize in New York Times which is sort of the public equivalent of the American Economic Review went berserk all this is the greatest books and sliced bread and all And then what happened, and this is sort of the power of blogging, a bunch of bloggers wrote to him and said, well, you know, I went to this place where you put in your footnote that there was,

1:21:17and there was no such place, or I went to such a place and there was a place but they didn't have that. And continually writing him and said, well, you know, could you verify your data? And he would say, well, you know, screw you, I'm not answering or whatever. And the upshot was that finally they not only took away his Bancroft Prize, but they fired him from a tenured position at Emory University, which is one of the better universities. I wonder when they're going to take away the PhD of that plagiarist. What's his name? The black guy? Martin Luther King. You're supposed to, I mean, plagiarism is supposed to be a bad thing and yet he's been proven to be a plagiarist and they haven't taken away his PhD yet. But I'm sure they'll get to it pretty soon.

1:22:04In any case, the key for the minimum wage is replicatability, or one of the keys. And what they did is they went to the same sources and, you know, the way Carden Kruger did it was pretty rough. I mean, they would just call some guy and say, hey, you know, and whoever was there, you know, it could have been the janitor, and then put it down, and when the critics try to replicate it, they couldn't, which is a very low-level criticism. A more sophisticated criticism is, well, what was your time dimension? Two days later, of course, no one's losing a job and wages are going to look higher, but what's going to happen six months or a year from now? My take on this was to try to show that that Gary Becker and the boys were really Austrians Because if they really stuck to their crappy neoclassical theories their attitude toward Carden Kruger would have been, oh That's interesting because it's just an empirical issue. It's not praxeological. There is no such thing as praxeology. Praxeology is just cultish crap

1:23:08So what they should have said is oh, well, you know, maybe economic law works differently in New Jersey and Pennsylvania Or, well, you know, out of every 100 cases, you know, 95 will show that the minimum wage law creates unemployment, but 5 will show that it creates, you know, more employment, or maybe there was monopsony, or something like that. They should have said that, if they were going to be consistent with their neoclassical methodology. But to their credit, they weren't. They came out with blood in their eyes. They said, we're going to show that this is crap, and we're going to kick these guys in the butt. which can only emanate from an Austrian feeling. So what I'm trying to do is to convince these guys that they're really closet Austrians. I haven't succeeded yet but I'm trying. Okay, here's another objection to the minimum wage law and let Let me get this going.

1:24:14What we assume here is that there is either a minimum wage or no minimum wage and that there's a 40-hour work week and the marginal revenue product is $2 an hour. See it at the bottom? And the minimum wage is $5. Can you all see that? Yes? Okay. Okay, maybe I'll make it a little smaller so it'll, I don't know which way is better but, and also that welfare is 90, so how does this work? Okay, well suppose there is no minimum wage, how much do you get from welfare? If there's welfare, well you get 90, how much do you get from work? Well, 40 hours times two is 80, so you get a grand total of 170. Now suppose there's no welfare, how much do you get from welfare? Zero. How much do you get Now, let's suppose there is a minimum wage and there is welfare. How much do you get from welfare? 90. How much do you get from work? 0, because at a minimum wage of 5 and your productivity is only 2, you get zip.

1:25:24And now, suppose that there is a minimum wage but there's no welfare. Well, if there is a minimum wage, you get 0 from work. And if there's no welfare, you get zero from welfare, so you get zero. Okay, so what's the objection to my thesis? The objection to my thesis is making this comparison saying, look, 90 is better than 80. True, yeah, I guess 90 is better than 80. So therefore, minimum wage law is better than no minimum wage law. You get that? Since 90 is better than 80, the minimum wage law is better than no minimum wage law for the people concerned. This is a fallacy, and the fallacy stems from failing to uphold Ceteris Paribus.

1:26:14Namely, if you want to compare the minimum wage with the no minimum wage law, you have to hold welfare constant. Either way, doesn't matter. Namely, you can only make these two comparisons, this one and this one, and in either case here, no minimum wage law is better than minimum wage. Namely, 170 is better than 90, and 80 is better than zero. But the objection is, but the government won't allow that, because if you're making a certain amount of money, then they won't give you welfare. And my answer, and this is very hard for me to convince my students of, is I don't care what the government law is. Ceteris Paribus Uberalis.

1:26:59If you want to make sense of whether the minimum wage law is a good thing or not, you have to hold everything else constant so you can just see the effects of the minimum wage law. I've only got a few minutes. Are there any questions or discussion? Well, I guess my problem is that I'm saying stuff that everyone believes in. This afternoon we'll get into some more controversial stuff, so thank you for your attention.