Welcome to the Mises Forum! You raise some good questions. I’ll see what I can do to shed some light for you…
Well…how would it benefit from them not looking for jobs and sitting around getting paid to do nothing? You asked: “wouldn’t it be better then to keep these people on welfare rather than have them suffer from unemployment?”
But they already are unemployed. Collecting a welfare check is not a job. You’re not producing anything. You’re just consuming the fruits of other people’s labor. You’re a leech. Parasites aren’t good for anyone…certainly not the host, and eventually the host dies, and then often times, the parasite with it.
You have to remember what it is that makes us prosperous. Wealth is basically the ability to have your desires fulfilled. (There are of course more precise ways of looking at it, but this is the main point.) Economic growth occurs when wealth is increased…that is, either more desires are fulfilled overall, or desires are fulfilled at a lower cost (or both). And what is it that people desire? In the simplest of terms, people want goods and services. People need goods to survive. And it is the production of those goods that contributes to wealth.
The more goods and services that are available, the wealthier everyone is…not only because there is more to choose from, but also because everything much more abundant…meaning it has a lower cost…meaning more people can get more of it. People are wealthier.
Now come back to your question. How would the economy benefit if people were trying to get a job producing something versus if they weren’t trying to produce anything? The answer should be obvious…the more production we have taking place, the more that gets produced…the more that gets produced, the wealthier everyone is.
But I see where your question is coming from…you’re wondering why it would do any good for people to be searching for jobs if there aren’t any jobs for them to get. But the truth is, there are always jobs to be had. As long as there is any human desire that is unfulfilled, there is work to be done.
Your confusion comes from looking at the money (which is a common mistake, and a very easy trap to fall into). The thought is that the fact these people who aren’t producing anything have money to spend is a good thing, and that without them doing that spending, things would be worse. But you touched on the actual reality in your question…
“wouldn’t it be better then to keep these people on welfare rather than have them suffer from unemployment? At least this way, they can keep putting money back into the economy (even though it would still be there if the government did not redistribute it).”
If it would still be there anyway, why does it need to be redistributed? What good does that redistribution do? That may actually be the heart of your question. And you’re not alone. Plenty of people have asked your same question…including a gentleman attending a lecture by economist Milton Friedman, over 30 years ago…Have a listen to how Friedman responds…
What he’s getting at speaks to your next question…
That’s kind of like asking “couldn’t I build a wall of dirt from by back yard, without leaving a hole in the ground?” There is a finite amount of resources available for the people who make up the economy to work with. If you take resources from one person and give them to another, you haven’t created anything new. You’ve just moved resources around. Suppose an entrepreneur has $100k, and he plans to buy a bunch of equipment and hire a bunch of people to start building a small taco shop and start selling quick mexican dishes. And then the government comes in, takes his money and hires a bunch of people to go dig a ditch and fill it back up again. Sure they “made work” for people…but the entrepreneur now has no resources with which to provide all the restaurant jobs.
Now, you’re saying “well, what if only a little bit of the entrepreneur’s money was taken…what if we only took a little from him and a little from everyone else…then no one would be seriously effected, and when we combine all the tax revenue it’ll be enough to create more jobs.” But that doesn’t change the outcome…it just changes the configuration. Sure a smaller tax may not put that man out of business…but it could mean he can only afford to hire 2 people instead of 4. Or it could mean he can only afford to stay open from 1pm to 5pm, instead of 9am-7pm. It may not be easy to see all these little drawbacks, but they inevitably occur. They have to…because the physical resources just aren’t there. And yes, there are producers in the market who will not be able to sustain even a slight increase in tax. For whatever reason, they are barely getting by. Any increase in cost, and they are in the red…meaning there are people who will be put out of business with even a slight increase in their costs. These are called “marginal” producers…because they are the ones “on the margin”.
The point is, everything has a cost. As Friedman said, “there is no free lunch.” You can’t shovel dirt from here, put it over there, and expect there not to be a hole in the first spot.
Bingo. Why hurt them at all?
I’m not sure what your trouble is here. That researcher doesn’t seem to refute the economic fact that minimum wage causes unemployment…all she said was that in her central planning scheme, the costs associated with raising the minimum wage wouldn’t be very high. There are a few problems with this…
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I have no idea what methodology was used to determine how all this stuff was quantified, and I’m skeptical it can even be done with any sort of legitimacy.
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She claims that businesses could absorb these extra costs because they wouldn’t be that much: “Oh, if you were a restaurant, you would just have to raise your price on a $20 meal to $20.60.” This is just an incredibly naive way of looking at anything. “Oh there’s a change, but to me, it’s a small change, so it shouldn’t affect anyone.” It is just assumed that businesses could easily raise their prices and maintain the same volume of sales…as if customers were not price sensitive.
Notice how she doesn’t seem to offer an explanation as to why — if these businesses could so easily be charging 3% more and not see any drop in sales — haven’t they already raised their prices? Aren’t businessmen greedy? Aren’t they only interested in profit? Aren’t we told (by leftists like that researcher) they’re going after every last nickel they can? If they could have been charging more for all of their products this whole time, why the hell weren’t they? Are we just to assume every single business in the entire $14 Trillion dollar, 310 million person economy is too stupid to find out what price maximizes their revenue? They need a federally mandated minimum wage to increase their costs before they would try to raise their prices and charge more? Of course not. Economist Murray Rothbard pointed this out when speaking on a consumption tax…the idea was put forth that any tax on businesses could be (and/or is) just passed along to the consumer in the form of higher prices. Here’s his response:
“Prices, at all times, tend to be set at the maximum net revenue point for each seller. If the sellers can simply pass the 20 percent increase in costs onto the consumers, why did they have to wait until a sales tax to raise prices? Prices are already at highest net income levels for each firm. Any increase in cost, therefore, will have to be absorbed by the firm; it cannot be passed forward to the consumers.”
- Most of all, this woman’s entire analysis ignores the fact that a minimum wage forces lower skilled workers out of the job market..thus, as I said, causing unemployment. Milton Friedman explains:
Once again, welcome. I look forward to answering any more questions you might have.