Social Welfare Measures

2. Minimum wage laws

Minimum wage laws create effects that are the opposite of what was intended.

Proponents of minimum wage laws deplore extremely low rates.

They regard them as a sign of poverty.

They think that outlawing extremely low wages will reduce poverty.

But minimum wage laws clearly increase poverty.

The state can legislate a minimum wage.

But it cannot require employers to hire workers at that new and higher minimum wage.

Minimum wages therefore make unemployment higher than it otherwise would be.

The people who are rendered unemployed by the minimum wage laws are precisely those who can least afford to be unemployed.

This is very much like public housing.

In both:

• the people who are helped those whose wages increase and those who occupy the public housing.
  • These are visible.
• the people who are hurt are anonymous.
  • Their problem is not clearly connected to its cause: the people who join the ranks of the unemployed or, more likely, are never employed in particular activities because of the existence of the minimum wage and are driven to even less remunerative activities or to the relief rolls.

The people who are pressed ever closer together in the spreading slums that seem to be rather a sign of the need for more public housing than a consequence of the existing public housing.

Most support for minimum wage laws comes from interested parties.

For example, northern trade unions and northern firms threatened by southern competition favor minimum wage laws to reduce the competition from the South.

3. Farm price supports.

This is from the belief that farmers have low incomes.

Farm price supports do not help the farmers who need help.

This is because benefits are inverse to need since they are in proportion to the amount sold on the market.

The impecunious farmer:

• sells less than the wealthier farmer
• gets a larger fraction of his income from products grown for his own use
  • These do not qualify for the benefits.

The benefits to farmers from the price-support program are much smaller than the total amount spent.

This is clearly true of the amount spent for storage and similar costs which does not go to the farmer at all indeed the suppliers of storage capacity and facilities may well be the major beneficiaries.

It is equally true of the amount spent to purchase agricultural products. The farmer is thereby induced to spend additional sums on fertilizer, seed, machinery, etc.

At most, only the excess adds to his income. And finally, even this residual of a residual overstates the gain since the effect of the program has been to keep more people on the farm than would otherwise have stayed there.

Only the excess, if any, of what they can earn on the farm with the price-support program over what they can earn off the farm, is a net benefit to them. The main effect of the purchase program has simply been to make farm output larger, not to raise the income per farmer.

Some of the costs of the farm purchase program are so obvious and wellknown as to need little more than mention: the consumer has paid twice, once in taxes for farm benefit payments, again by paying a higher price for food; the farmer has been saddled with onerous restrictions and detailed centralized control; the nation has been saddled with a spreading bureaucracy. There is, however, one set of costs which is less well known. The farm program has been a major hindrance in the pursuit of foreign policy. In order to maintain a higher domestic than world price, it has been necessary to impose quotas on imports for many items. Erratic changes in our policy have had serious adverse effects on other countries. A high price for cotton encouraged other countries to enlarge their cotton production. When our high price led to an unwieldy stock of cotton, we proceeded to sell overseas at low prices and imposed heavy losses on the producers whom we had by our earlier actions encouraged to expand output. The list of similar cases could be multiplied.