Tuesday, December 27, 2005

O ye of little faith:

Dennis,

My head is still shaking over your comments. In your final three paragraphs I couldn’t help but notice your belief that the workers of America are somehow not being treated fairly or paid sufficiently enough because of the exploitation by their employers. Yes in the early days of the industrial revolution there was obvious signs of exploitation and unions helped bring it to the attention of government but that has all been taken care of thanks to hundreds of labor laws that hang in our break rooms. Unions today with nothing left to solve have been left to become the exploiters of the free market system.

One of the biggest problems that capitalism faces is the non-believer’s who walk the earth. We must understand that the price of goods do not set wages, it is wages that set the price of goods. Companies charge more for goods in New York then they do in Ohio because they can. Companies pay their employees more in New York then they do in Ohio because they have to. Further employees do not need to form a union to “balance the power” of the employer. First the employer should hold most of the power since it is their capital at risk. Secondly the employee has more power than you think through actions that don’t require a contract. Their moral, their willingness to leave and find another job, how they treat the customer, internal theft of company goods, which all effect the profitability of the company. By default it is in the employers best interest to make sure their employees are satisfied, attempting to exploit any worker is bad business and against the employer’s self interest.

This is why the large percentage of jobs even those at the smallest level are paid above the minimum wage. My wife pays no one at minimum wage, even 18 year-old cashiers, because the market won’t allow it. In fact countless economic studies and models have shown that the implementation of minimum wage laws by the government and the existence of unions actually increases unemployment do to the violation of the equilibrium model of the labor market which believes wages adjust to balance labor supply and labor demand invisibly.

When a government or union raises wages above equilibrium wages it reduces the quantity of labor demanded resulting in increased unemployment.

In the end much of this requires a sense of faith that Adam Smiths “invisible hand” that runs throughout our economy works today as much as it did in 1776.


“Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment with is most advantageous to society.”

Adam Smith, The Wealth of Nations.

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