Paul Krugman’s column today is on the minimum wage, Better Pay Now. Basically, he says that given how popular raising the minimum wage is even among Republicans, it just might be possible to do. It is true that 57% of Republicans claim to be in favor of raising it. But give Fox News just one week of coverage and see that number plunge down to the low 20s. So I don’t know about just how politically feasible it is.
But I was struck by the very first comment to the article by one bck453 from Wall, NJ. He made a counter argument that I hear from conservatives all time. On the surface, it sounds reasonable. But it actually shows the typical complete misunderstanding of how business and economies work.
For the umpteeth time, repeat after me:
Every conservative would-be economist thinks that a company just passes on higher expenses to their customers. If they are selling a hamburger for one dollar and their costs go up by 15¢, then the price of the hamburger will go up to $1.15. If that’s the case, why was the restaurant not selling the hamburger for $1.15 all along? After all, they could have made an extra 15¢ profit on every burger they sold!
Markets don’t work this way. Most conservatives think that businesses sell their products at the lowest prices possible. This is exactly the opposite of the truth. They sell their products at the highest prices possible. The only reason that markets work is that there are multiple businesses who compete with each other. Our hypothetical restaurant owner above is selling his burger for one dollar because that’s the price that allows him to make the most money. If he had charged $1.15, much of his business would have gone elsewhere.
So if the minimum wage goes up, will prices increase? Yes, they probably will go up a bit, but nothing comparable to the increase in wages. Will companies demand more output from their employees? Yes, just like always! And will companies fire their higher wage employees? Not at all. Commenter bck453 is just an idiot.
In the end, bck453 claims to be for an incremental approach to slowly raise the minimum wage to $15 over the next ten years so as to not shock the economy. There is some sense to this. But raising wages either will cause low wage workers to lose their jobs or it won’t. It turns out, it won’t. But bck453 is as confused about how the economy works as he is about whether or not he is for raising the minimum wage. Unfortunately, his thinking on the subject is the most common that I run across.