Home / Keynesianism / Walter Williams Skewers Paul Krugman: Minimum Wage Laws
Print Friendly and PDF

Walter Williams Skewers Paul Krugman: Minimum Wage Laws

Posted on October 21, 2014

So as to give some perspective, I’m going to ask readers for their guesses about human behavior before explaining my embarrassment by some of my fellow economists.

Suppose the prices of ladies jewelry rose by 100 percent. What would you predict would happen to sales? What about a 25 or 50 percent price increase? I’m going to guess that the average person would predict that sales would fall.

Would you make the same prediction about auto sales if cars’ prices rose by 100 percent or 25 or 50 percent? Suppose that you’re the CEO of General Motors and your sales manager tells you the company could increase auto sales by advertising a 100 percent or 50 percent price increase. I’m guessing that you’d fire the sales manager for both lunacy and incompetency.

Let’s try one more. What would you predict would happen to housing sales if prices rose by 50 percent? I’m guessing you’d predict a decline in sales. You say, “OK, Williams, you’re really trying our patience with these obvious questions. What’s your point?”

It turns out that there’s a law in economics known as the first fundamental law of demand, to which there are no known real-world exceptions. The law states that the higher the price of something the less people will take of it and vice versa. Another way of stating this very simple law is: There exists a price whereby people can be induced to take more of something, and there exists a price whereby people will take less of something.

Some people suggest that if the price of something is raised, buyers will take more or the same amount. That’s silly because there’d be no limit to the price that sellers would charge. For example, if a grocer knew he would sell more — or the same amount of — milk at $8 a gallon than at $4 a gallon, why in the world would he sell it at $4? Then the question becomes: Why would he sell it at $8 if people would buy the same amount at a higher price?

There are economists, most notably Nobel Prize-winning economist Paul Krugman, who suggest that the law of demand applies to everything except labor prices (wages) of low-skilled workers.
Krugman says that paying fast-food workers $15 an hour wouldn’t cause big companies such as McDonald’s to cut jobs. In other words, Krugman argues that raising the minimum wage doesn’t change employer behavior.

(For the rest of the article, click the link.)

Continue Reading on www.creators.com

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

8 thoughts on “Walter Williams Skewers Paul Krugman: Minimum Wage Laws

  1. As regards the effects of minimum wage mandates: Neither politicians nor their pet economic advisors are that ignorant . . . but they are that evil.

  2. bdcorvette says:

    When a product costs more to produce, the producer raises the cost to the public. If the minimum wage goes to $15.00, the hamburger is not going to taste any better, BUT it is going to get a lot more expensive. The jobs about which we are talking are ENTRY LEVEL jobs, not careers. Those who make them a career due to an utter lack of ambition deserve what they get, and it admittedly ain't much.

  3. Oh how "Whitey" is so dumb when it comes to the Welfare System. One must study the Earned Income scam. This opens the door to all. First, one has to work a "little" to qualify. This year the requirement was about $14,000 earned income that was reported a Federal Taxable Income. This can be easily done over the Christmas shopping season. The rest of the year, one works in the cash society, all non-reportable. Now one has to only "buy" up to three Social Security dependents under 18. Have one of the large tax preparers fill out your return as "Head-of-household." Pick up your check of about $6000, tax. SS and Medicare fees free. AND you have a 1040 showing how poverty-ridden you are. The rest of the year you are eligible to "work-the-system." Welfare, Food Stamps, food banks, Medicaid, emergency entrance, and on and on.

    Now raise the minimum to whatever and one only has to work less and the employer will have to hire more employees.

  4. OK so he's a prize winner but that does not imply he knows what he is doing or should be allowed out unsupervised now does it?

  5. Why not? People happily pay more for a named brand even though the generic brand are the same products. Then again how come plenty of people aren't starting at the bottom? In other words, if everyone starts out unskilled then a minimum wage should create a huge backlog of unemployable people who will never employed because they can't get any viable work experience?

    Mr Williams and Mr Sowell say something about the minimum wage being devilish cruel to the young black man. So why aren't non-blacks unaffected by the minimum wage? Are black men the demographic employers least want to hire at all costs until the pay can be made dirt cheap?

  6. If you raise the minumwage, what do you do to the wages of employees that make more than minimum wages? Should they, suddenly, make less than minumwage workers or do you raise everyone's wages? If you raise everyone's wages, now, you're looking at a much larger labor cost. The product would cost more or the owner would have to cut jobs to maintain profits. How long would anyone have a job if the company became unprofitable?

  7. "Krugman says that paying fast-food workers $15 an hour wouldn’t cause big companies such as McDonald’s to cut jobs. In other words, Krugman argues that raising the minimum wage doesn’t change employer behavior."

    If Krugman is correct, why not raise the minimum wage to $50 per hour. With all those workers earning 6-figure salaries, the economy will become robust. Furthermore, the Treasury will increase its revenue because of the taxes paid on the higher wages. Perhaps we could try this as a pilot program in DC.

  8. The young black man did much better before the false messiah came to Washington. Trying to force people to hire someone will never work. People hiring minimum wage workers evaluate candidates based on skills, appearance, and perceived work ethic. If young blacks don't even try to make a good impression, they will fare badly. The young black is also the most likely high school drop out and illiterate. This is all because of cultural forces, pressuring them to remain ignorant, not because they lack ability. Liberals want to compel businesses to function according to their theories, but business people know that they operate under market forces, which don't discriminate in forcing bankruptcy.