The Red Pill and Economic Illiteracy

Godzilla-Facepalm-godzilla-30354011-640-387

There are times when you see something that just stops you dead in your tracks. Today, I was browsing through a few manosphere sites and came across this post on Chateau Heartiste. While I normally enjoy their work and find many of the points mentioned in the post unobjectionable, everything under heading “Oligarchization” could’ve been written by a fan of Rage Against the Machine, or, the band for people who took one community college economics course.

Allow me to start by letting you judge this drivel for yourself. First, from JohnnyWalker123, a commenter on a piece by Steve Sailer at The Unz Review:

2. Oligarchization. Our media and govt are controlled by a few very wealthy oligarchs. The masses of America need to use a variety of tactics (raising taxes on the wealthy, financial regulation, forming labor unions, stopping immigration, protective trade barriers, tariffs, effective usage of anti-trust laws, forming pro-worker third parties, creating alternative media) to break the power of the oligarchs. This is our country, not theirs.

And now, the concurring statement from the Chateau:

Strip wealthy oligarchs of their power over policy and the composition of the nation’s citizens. Tariffs, big tax increases on the 0.1%, improved government oversight of their backroom dealings, very high minimum wages, and laws designed to limit the ability of the super wealthy to lobby for cheap labor.

Both of these writers seem to take issue with what is commonly known as “crony capitalism.” I agree that the granting of favors to large and wealthy corporations is not something to be tolerated and is corroding the fabric of our republic. However, the solutions they pose are asinine, to say the least. One of the principles of economics is that people react to incentives and this plan provides all of the wrong ones.

Let’s start with taxes. The US currently has the highest corporate tax rate in the industrialized world (35%). It is for this reason that corporations have recently been moving their headquarters to more tax-friendly nations. The highest rate for personal taxes is 39.6% which comes into effect for every dollar made in excess of $413,200. What Messrs. Walker and Heartiste do not seem to realize is that their higher taxes, in addition to de-incentivizing any additional wealth creation by the wealthy and/or incentivizing the increased use of tax havens (which would reduce the tax base and necessitate higher taxes on everyone else to pay for the essential purposes of government) raising the highest personal tax rate would also hurt small businesses, which are also taxed at the individual rate. This additional expense, which our dear friends are so eager to impose, would impose additional costs on businesses, causing extensive job losses and decreases in the wealth of many of the “normal” citizens they propose to help.

Now, let’s move to the favored the left’s favorite economic masturbatory issue: the minimum wage. The minimum wage is what economists call a price floor. It is, as it sounds, a minimum price, set by the government for one particular market.

Effect_of_a_Price_Floor

A price floor, or another example of why the government needs to stay out of the market.

When a price floor is effective, as shown in the picture above, the market price for this particular good is now illegal and so trading takes place at the government dictated price. The problem is that there is now excess supply, since it buyers don’t want to buy nearly as much as sellers are willing to supply at the new higher price. In the labor market, we call this excess supply unemployment. If you increase the cost of hiring workers, employers (whose main purpose is the keep the business going and thereby accrue profit) will have no choice but to hire fewer workers or increase prices. For those of you who follow the news, this is why many businesses in Seattle have been cutting hours, laying off workers, and closing their doors recently and prices have gone up significantly.

Finally, let’s discuss labor unions. Union membership (outside of public sector unions, another beast entirely)  has been decreasing for decades now, yet the unions have still have outsized influence in Washington that the muses of this particular rant are supposedly fighting against. Unions, in the last political cycle, constituted 4 of the top 10, 6 of the top 15, and 9 of the top 20 political contributors. This was just in their own name, as they most definitely contributed to PACs who are also on the list. Unions contribute more negatives than just outsized influence in Washington and the state capitals; they also hinder economic growth. You see, unions are all about gathering market power, by gathering as many members as possible. This gives them more leverage when negotiating with the companies to whom they supply labor. The thing is, in economics, market power is a bad thing. The market works most efficiently when there are many buyers and sellers in the market and no one person, or group, can affect the market price. The way to achieve this state with businesses is to promote pro-growth policies and get out of the way and let competition do your work for you. The way to accomplish this with labor is to promote right-to-work. Right-to-work policies allow workers to choose what they do with their own labor, including, whether or not to be in a union. This allows the market to work more efficiently for everyone. In fact, states with right-to-work policies have seen median household income grow faster than states with forced unionization.

In closing, our friends should seek further education in economics, particularly of the Austrian school. Then they might see the peril in what they are advocating so ardently.

Advertisements

If you've got something to say, say it.

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s