Fishbowl Economics

by: JustusAllen
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My neighbor recently built a custom 500 gallon saltwater fish tank into his living room wall and as we were talking about what kind of fish would best complement his tank, it dawned on me that building a tranquil aquamarine community has a lot in common with how most people approach the minimum wage issue.

When fish enthusiasts put together a fish tank most of the attention is directed toward making the tank pleasing to their eye and little concern is given to the hardships the individual fish will have to endure inside the tank due to being forced to cohabitate with fish they would otherwise not associate with if they were in their natural marine environment.  In other words, it is quite possible that the intricate saltwater ballet that soothes your nerves in reality is the futile efforts of a peace loving, less aggressive fish trying to keep from becoming lunch for your most prized Clown Trigger.

One thing I like about economics is that the principles that govern the discipline are completely independent from the individuals who teach, study and practice the subject.  Therefore any two people who understand the law of supply and demand are equally versed in that reality regardless of how much more time one person has spent in that discipline than another.  For example, once a child learns that 2 + 2 = 4, he is at that time as well versed in that reality as Stephen Hawking. 

I bring this up because on October 12, 2006, the Associated Press published and article in which 650 economists, including 5 Nobel Prize winners called for an increase in the minimum wage. 

"We believe that a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed," the economists wrote. 

Of course they are correct if you only consider the individuals who keep their jobs after the wage hike but it is hard to believe that those recently fired as a result of the minimum wage increase would sing the praises of the Nobel Prize winners.

You might ask how I can be certain that people would lose their jobs in light of the fact that 650 people who make a living in this discipline say that “a modest increase in the minimum wage would improve the well-being of low-wage workers”.  Well that’s easy.  The law of demand states that if all other factors remain equal, the higher the price of a good or service, the less people will demand of that good or service.  Now last I checked employers count as people and labor qualifies as a service so to see how the law of demand translates into the real world all we have to do is a little substitution and we come up with the following law: If all other factors remain equal, the higher the price of labor, the less employers will demand labor (the grammar may not be correct but you get the picture).

Unfortunately it has become fashionable to ignore the supply and demand principle by insisting on a higher and higher minimum wage.  This is understandable for politicians because their concern is how they appear and as long as they appear as if they care about those individuals employed at the minimum wage level, they have accomplished what they set out to do, regardless of the reduction in real employment opportunities.

It is also understandable why the general population would encourage such policies.  The average person has two attributes.  First he sincerely wants to help his fellow man and, second, he has very little understanding of basic economics.  Those two traits coupled together with the fact that the average person earns far more than the minimum wage allows them to exercise their compassion, to the detriment of those seeking entry level work, while remaining safely outside of the fishbowl. 

But what I find disturbing is that a segment of the academic establishment specializing in economics has now decided that reducing employment opportunities for young, unskilled workers hungry to develop the discipline, knowledge, and experience necessary to improve their future earning potential would improve the well-being of the low wage worker.

There are only two possibilities.  Either the basic principle upon which all economics rests is false thus relegating the science of economics to the scrapheap of discarded disciplines such as Phrenology and Alchemy while at the same time removing any shred of validity derived from the Nobel Prizes won by these 5 economists or these economists are willing to abandon everything they know to be true about their discipline because they would like something to be so that cannot possibly be so thus using humanity in a sadistic experiment destined to result in the loss of thousands of entry level jobs.

But of course, tenured economists safe in their jobs and making well above the minimum wage are free to create havoc inside the fishbowl without having to subject themselves to the consequences of their sophistry.

About the Author

Jamal Thompson is a financial planner in Valencia, CA..  

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