Awaken Dogmatic Slumbers
One novel way is to give a few facts to undergrads, suggests Michael Munger. Mr. Munger, a professor of Political Science, Economics, and Public Policy at Duke University and a senior fellow of the American Institute for Economic Research, talks about his “go-to discussion strategy,” where he shocks students out of their dogmatic slumbers.
Creating More Inequality and Poverty
When teaching, Mr. Munger likes to ask three questions. The first two shake up the lecture:
- What percentage of workers in the US work at the minimum wage?
- If you have a job in the US, at the minimum wage, where does that put you in the world income distribution?
According to Mr. Munger in the WSJ’s “Notable and Quotable,” his answers create “enormous cognitive dissonance.” The answer to the first question ranges between 20% and 40%. The correct answer, as he notes, is fewer than 2%.
The answers to the second question are usually around 20 percent (the correct answer is above 85 percent). . . .
Economic Cacophony among Undergrads
It quickly gets real, real quiet in the auditorium, writes Mr. Munger.
All through high school the kids have earnestly been told that poverty should be defined in relative terms, and that the US system is cruel to the poor. The fact (is) that a minimum wage job puts you in the top fifth of the world income distribution . . . and that 98 percent of Americans make more than the minimum wage.
Mr. Munger likes to take this kind of approach when some of his Duke colleagues whine about capitalism.
When I say that the market system provides well for US citizens in absolute terms, I am condescendingly told that poverty should be defined in relative terms. Okay, let’s play: if a minimum wage job in the US means “poor” to you, then you are claiming that it’s better to be poor in the US than to be middle class in most of the world. That’s a plausible argument since so many people want to move to the US.
But then the person who wants to argue for “relative wealth” measures faces a problem of logic: if you really want to compare rich and poor, you have to compare the US to the other systems in the world. And by any plausible measure, everyone in the US is rich. Everyone who has a job, even at minimum wage, is in the top 15 percent of the world income distribution.
Question #3 Works Every Time
Which brings us to Mr. Munger’s third question, the one he says really surprises students… Have students ever thought about the consequences of putting a high floor on wages?
It’s really just an application of Thomas Sowell’s “And then what?” question, but it works every time, affirms Mr. Munger.
- What is gentrification?
We “all know” — the students certainly know — that gentrification is bad, rich people taking housing from poor people, continues Mr. Munger.
Except that the cause of gentrification is usually the high prices forced on housing markets by “NIMBY” (not in my backyard) pressures. Housing policy is a chance for rich people to be racist, feeling good about keeping poor folks out of their wealthy housing enclaves by calling restrictions on zoning “neighborhood defense.”
Those same rich liberals get to redeem themselves by decrying gentrification — which, remember, was caused by them in the first place! — and keeping wealthy people out of poor neighborhoods. If you combine these two policies (NIMBY keeps the poor out of wealthy neighborhoods, and “anti-gentrification” indignation keeps the wealthy out of poor neighborhoods), you get segregation and inequality on a grand scale, with consequent housing shortages that shoot costs of rental apartments right through the roof.
And Then What?
Well, minimum wage creates a similar distortion.
If you force much higher wages — and a “living wage” of $15/hour for an entry-level job in fast food is much higher — then you will “gentrify” jobs. Where $7.25/hour can work for someone with no experience, if we double wages up to $15/hour then a different class of worker will “move in.” People with no experience and at most a high school diploma will be facing experienced college graduates who now want that $15/hour job. Just as wealthy people gentrify a neighborhood, more experienced people gentrify the jobs that poor people once depended on.
How to Create More Poverty
Once you understand the answers to Mr. Munger’s three questions, it’s hard to favor minimum wages.
Most people make more than the minimum wage, wages in the US are already in the top fifth of the world income distribution, and if you raise the minimum wage high enough to make a big difference, gentrification will create more inequality and more poverty than we have now.
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