Sunday, July 16, 2006

Would Molly Ivins Live In Zimbabwe?

Molly Ivins is angry at Congress for refusing to raise the minimum wage.
I don't get it. What's the percentage in keeping the minimum wage at $5.15 an hour? After nine years? This is such an unnecessary and nasty Republican move. Congress has voted seven times to raise its own wages since last the minimum wage budged. Of course, Congress always raises its own salary in the dark of night, hoping no one will notice. But now it does the same with the minimum wage, quietly killing it.
Her point is essentially that the goverment is heartless because they don't force higher wages for workers. Of course it sounds kind to give other people more money. But Zimbabwe seems to be learning the hard way that monetary policy isn't so simple.

Douglas Rogers writes about his home country of Zimbabwe. He explains that 1 US dollar is worth 450,000 Zimbabwe dollars. Their money is halving in value every four months.
How did Zimbabwe get to this point? It began in the late 1990s when, in order to pay for a costly military incursion into civil war-torn Congo, President Robert Mugabe ordered the printing of vast amounts of money, and inflation climbed steeply.
This is a situation I learned about in my high school economics class. When there is an increased supply of money prices always go up.

Opponents of the minimum wage argue that it causes the same effect we see in Zimbabwe, albeit on a much smaller scale. As more people have more money to spend, suppliers are able to charge more for their products. So any gains for workers in the minimum wage are quickly erased by inflation.

Advocates of the minimum wage then argue we need to regularly increase the minimum wage with inflation. But this seems akin to the problem the leaders in Zimbabwe have. They keep printing more money. It is a short term fix with devastating long term costs.

If opponents of the minumum wage are right, then raising the wage only hurts the people it was intended to help. Seen in that light it doesn't seem fair to call opponents heartless or "nasty."

Near the end of her column Ivins writes, "It seems to me that we've seen
enough evidence over the years that the capitalist system ... will be
destroyed by its own internal greed. Greed is the greatest danger as we
develop an increasingly winner-take-all system."

Ivins sees greed as the great problem of capitalism. But self-interest is the greatest strength of the system. In Zimbabwe, Rogers explains, 4000 white farmers were kicked off land they owned. Much of the land is now lying fallow and the government is falsely claiming a drought to explain the food shortages.

Unsurprisingly, nobody wants to invest is a country where the government is willing to seize private property. If people can't enjoy the fruit of their labors (or see the return on investment), why should they risk? They won't, and the disaster in Zimbabwe is the result.

Economic policy shouldn't be guided by short term interests but by long term benefits.

2 comments:

Internet Esquire said...

Quite surprisingly, libertarian economist Steve Landsburg argues quite convincingly that the minimum wage is not the big job killer that most other economists believe it to be. Nonetheless, if your objective is to help the working poor, an expansion of the Earned Income Tax Credit would be much more effective and equitable than raising the minimum wage.

Cliff said...

You missed it. "When there is an increased supply of money prices always go up."

Raising the minimum wage does not increase the money supply, but it does stimulate the economy.

Don't think to hard about this. Its really simple. Raise the minimum wage because everybody wins and anyone who tells you toherwise is a liar.