By leszekglasner @Adobe Stock
Turn Off the Lights and Other Bad Ideas
Charles Lipson in The Spectator calls Senator Bernie Sanders a “bottomless cup of bad ideas.” Sanders is pushing for a law where everybody gets to work 32 hours for 40 hours of pay.
What would that mean a magical 25% increase if Bernie’s wishes were realized? The immediate effects, argues Mr. Lipson, would be another 25% price increase for labor-intensive products, a huge burden on low-income consumers, and an additional incentive to replace more expensive workers with machines and computers.
The substitution of capital for labor is an on-going process, but Bernie would supercharge the effort and create incentives for innovators to come up with products, machines and computer programs that performed those tasks at lower costs. The more expensive the tasks, the greater incentive to figure out ways to save money on them.
It would create new incentives for employers to hire workers as individual subcontractors, rather than wage workers. And, of course, it would lead to tens of thousands of court cases where employees were sued for violating the new wage rules. Since the wages would be above market rates (otherwise there would be no need for a mandate), the yearly increases would lag inflation so that real wages would gradually return to market rates.
How the Labor Market Works
Currently, there are well over 165 million people in the US civilian workforce. They are employed by more than 6 million firms, 99.7 percent with fewer than 500 employees. (98.1 percent will fewer than 100 employees.) The market economy is a voluntary matching arrangement between workers and these firms.
In a free and open market the potential employees and employers do their own matching.
They act within general laws, such as those prohibiting racial discrimination (except for DEI regulations that require it) and others that mandate health and safety measures and withholding for taxes and Social Security.
The more general point is that the labor market is a very complex, decentralized matching operation. It requires both employees and employers to search to the right combination of qualification, total employees, salaries and hours, and working conditions. They are constrained by the effects of the wage bill on end-prices and the subsequent demand for their products and services.
Overall, salaries have risen over time as productivity has risen, emphasizes Mr. Lipson.
Some workers prefer to take that bonus in the form of fewer hours; others in the form of longer hours for more total compensation. They would rather buy a better car than have more leisure hours, or vice versa. Bernie Sanders’s diktat is one-size-fits-all. But not everyone is the same size.
Diktats, like Bernie Sanders’s proposal, act directly and often clumsily on markets without knowing all these indirect effects. Indirect effects, however, often unknowable in advance, do much of the heavy lifting.
Turn Off the Lights
Electric lights are a great example of these indirect effects and technological changes.
Ever since Edison invented the electric light, bulbs ran electricity through a filament, which gave off a glow as it was heated. Most of the electricity was wasted as heat, not light, but customers paid for all of it. Not with today’s bulbs. LEDs don’t waste any electricity as heat. That’s why a 9-watt LED gives off the same light (lumens) as a 60-watt incandescent. The seven-to-one ratio tells you that six-sevenths of the wattage was wasted by the old incandescent bulbs.
When LED bulbs were first introduced, a lot of consumers avoided them because the lighting was so harsh and “blue.” That was a soluble problem, and the first to solve it could charge a bonus (temporary monopoly price) for their better bulbs. That incentive led to lots of innovative research, which is why you can buy “soft white” LEDs today.
Save the Trees
Steve Jobs and Bill Gates are the ones really responsible for saving the trees, lauds Mr. Lipson.
You don’t have to recycle the paper you are reading this article on. You are reading it on screen.
Bernie and his ilk might learn these lessons, but the rest of us should not forget them. The indirect effects of market interventions are often more powerful than the direct effects.
… competitive markets, such as America’s labor markets, are very complex institutions with countless indirect effects are unknowable in advance. When you stick your hand into that complex machinery, it’s impossible to predict the consequences, even the most important ones.
