Noah Smith posted a cartoon about how the minimum wage works. The cartoon came from Mark J. Perry at the American Enterprise Institute.
Noah said that it is Econ 101ism and I totally agree. Now the cartoon is obviously a wrong way to look at minimum wage. (I use the word “obviously” to play upon the word “actually” that irked Noah in his post. ¯\_(ツ)_/¯ )
The cartoon by Mark Perry is stupid economics. Let me show you a much better cartoon of how the minimum wage works.
Now, the cartoon above does not take into account externalities and the social costs surrounding the minimum wage. For example, when the minimum wage is low, we find more people using government programs. That is because social costs of labor must be covered, either by wages or by public or private services.
Also, every economist seems to forget the prime directive of economics… I rarely ever read about economists using the term “Net Social Benefits”. It would have been a perfect moment for Noah to use this concept. The prime directive of economics is to maximize “Net Social Benefits” and not “Net Private Benefits”.
The global economy is floundering because economists and politicians have focused on “Net Private Benefits” of the rich guided by a trickle-down 101ism thing. Mark Perry is only concerned about maximizing private benefits.
So here is the obviously better cartoon… An artist, I am not.
The coastline is an ecosystem just as society is an ecosystem. People depend upon the marine life for food. Then the marine life depends upon a healthy coral reef. Then the coral reef depends upon the sea level.
The level of water in the sea describes how well the ecosystem of the coastline functions.
- If the level of the water drops below the coral reef, it will die and the marine life with it. The people suffer.
- If the level of the water rises above the land, the coral reef goes too far below the surface and does not function well until it can grow higher over a couple of generations.
But when the level of water is just right, there is abundant marine life and people are much happier.
The level of sea water corresponds to the level of the minimum wage. When the minimum wage is too low, the ecosystem does not function well and the social costs accumulate. When the minimum wage is just right, life is better for society overall.
The cartoon by Mark Perry is a childish way to view the ecosystem of a coastline. All he cares about are the houses on the beach. His cartoon cares nothing for the ecosystem of the sea upon which people ultimately depend. His type of thinking disregards the ecosystems of nature and society’s relationship to nature. It is his type of thinking that is causing so many problems for the earth and society.