The Lesson

Our oldest son David is eager to read Henry Hazlitt’s book, Economics in One Lesson. The “one lesson” expounded therein is summarized by Art Carden:

If we are going to evaluate policies — whether they be policies enacted by governments, corporations, institutions, or individuals — we have to look at how those policies affect everyone, not just favored constituencies or select groups (emphasis added).

David is an industrious 14 year-old who already has a part-time job in a fabric warehouse. Expensive, imported fabrics are brought to the facility where our young man rolls them onto bolts and prepares them for shipping to retailers. When asked about his job, David jokes that he is “employed in the textile industry.” He doesn’t like the job particularly – it requires demanding, physical labor. But he loves receiving his wages and making deposits into his credit union account. He is dreaming of his first car, and the freedom to drive himself to bigger and better jobs down the road.

But he did something recently that a 14 year-old is prone to do – he lost one of his paychecks. That placed him in the awkward position of approaching his employer, explaining what had happened and asking if the lost check could be canceled and a new one issued. David knew the risk: the possibility that his employer’s opinion of his trustworthiness would be diminished by his carelessness.

At the dinner table we discussed the vulnerable position young workers like David are in. In the current economic “downturn” (actually, a necessary market correction), the first employees to be terminated in small businesses are typically the younger, minimum wage earners. Carl Menger’s principle of diminishing utility comes into play: an employer will part with his least valuable assets in the first stages of reducing hard costs. He will do so unless the market price (wage) for those assets is allowed to fall to a new level.

And here’s the rub: if young workers like David had the right to negotiate lower wages, they might make a cost-effective case to remain employed. By offering to work for fewer dollars per hour, they could 1) impress their employers of their dedication to the job, and 2) help reduce company costs. But the minimum wage law prohibits the employer from entertaining that option. In effect, minimum wages eliminate the abilities of younger or lesser-skilled employees to bargain with their employers.

Remember our buddy Frédéric Bastiat? He wrote of “what is seen and what is not seen.” What is seen is some career politician, boasting to his/her constituency of the “social good” attained by guaranteeing a “living wage” for lower-income workers. What is not seen is the damage done to younger, less-skilled workers who are usually the first to go when a company has hard decisions to make. While the State supplants religion as the savior of mankind, hourly wage-earners are driven out of employment by unsustainable costs – which, in turn, create more clients of the State.

This was Hazlitt’s one lesson. The actions of economic players do not have equal reactions. Often, the effects of do-gooder policies result in devastating consequences, spread across the well-being of numerous individuals.

As it turned out, David’s kind-hearted boss was understanding of his young worker’s mistake, and wrote him a new check. But for David the lesson is being learned.