In May I wrote a post Food Banks and Economic Myths . A few days ago David Kenny kindly wrote a substantial and spirited response, available if you scroll down to the comments here . I am posting a reply because I think David’s views are typical of a great many people today, especially those in positions of power.
David begins
First of all, this is sheer economic drivel
and much of what follows is in similar vein. Rather than join in a mud-throwing contest I’ll focus on the points where David indicates his own position.
On taxes:
Who pays them? The rich? The corporations? Or is it generally the lowest paid who are hit hardest by high taxes?
Yes, it is the lowest paid who are hit hardest by high taxes, but this is only because the Government chooses to tax in this way. In the 1950s, 1960s and 1970s this was not the case. The Government could, if it wanted, revert to a more egalitarian tax system. It chooses not to.
The rich can simply move themselves or their money abroad.
Again, this is true, but only because successive governments have let it happen and encouraged the technology to make it as easy as possible. Billions whizz round the world all the time. There is nothing inevitable about it. A government that wanted to tackle poverty could impose restrictions. The Robin Hood tax would be a good place to start.
Corporations simply pass on the costs onto their customers, i.e. us, making the cost of living higher still. If they don’t, it eats into their profits.
Again, he is right about the way things work at present: fine a train company for a lousy service and they make passengers pay it in increased fares. But, again, it doesn’t have to be like this. What are the costs of Amazon and Starbucks? Low pay for most employees, telephone number salaries for chief executives. When we ask how it came about that Starbucks made no profits in the UK, it turns out to be a matter of creating bookkeeping, making it look as if the profits happened somewhere else. If governments wanted they could put a stop to it. If companies like these went out of business or left the UK, there are plenty of others who can sell books and make coffee, and most of them would be content with mere 5-figure salaries.
On the minimum wage:
In reality a wage is the agreed value for work and services provided between two or more individuals, that is beneficial and agreeable to both parties. It is not a zero sum game, both parties benefit. The employee has a days wages, the employer has a days work done.
From this I deduce that David has never played Monopoly. The more desperate you are, the more pressure there is to accept lousy deals. The other person knows, and squeezes you all the tighter. In the same way, lots of people today have no option but to accept miserable jobs so poorly paid that they still depend on food banks. It is ‘beneficial’ to the employee only in the sense that the alternative is to starve. It is hardly ‘agreeable’.
The value of someone’s wage depends on a number of things. The availabilty of their labour, the profitability of their labour, the scarcity and specialisation of certain skills, years of experience. For instance a 45 year old Michelin starred chef of a restaurant will obviously make more than the 18 year old kitchen porter.
Here again we can recognise a standard narrative of the economics text books. However there is nothing inevitable about any of these variables. Social processes determine how the wealth is divided up between chefs, porters and others. The social processes are supervised by governments, who could redirect them any time.
The minimum wage actually prices a lot of people out of work. Many people due to a lack of experience, skills and education have a wage value below that of the government set minimum wage. What happens? No one will employ them. So who does this affect the most? The poorest, the least educated and the young. They have yet another barrier to employment thrown in front of them. This is just one example of well intended laws doing the opposite of what they are meant to do.
I do not believe for one minute that the minimum wage has had the effect David claims. However, if it did, what sort of society is content to leave the unskilled with an income below what is needed for a decent quality of life? It is as though David conceives of the process of offering jobs as purely a matter of financial calculation, without any real humans being affected.
On reducing pay: what Hayek and Friedman say
is that companies should be free to reduce employees’ conditions as much as they are free to raise them. If they reduce employees’ conditions then what happens? Employees will leave and find employment with somebody offering better conditions.
Not if all the other companies are also depressing pay scales, as has been happening for a good long while now, with Government encouragement.
On religion and economics:
You believe that our resources should be pooled and respond directly because some divine being has made it that way. Cool, believe whatever you want, that is your right according to libertarianism, we live in a free market of ideas. I’m sorry but I believe this is political ideology dressed up as religious piety.
On this point I almost agree with David. Every society has ways of judging how people ought to live. All the world’s major religions have ethical codes telling us to care for those in need, with some version of ‘Do as you would be done by’.
David’s account, which I take to be typical of the way many people think today, is a different, contrasting, way of judging how people ought to live. It positively encourages unrestricted individual pursuit of as much wealth as possible. For all his claims that state intervention, like the minimum wage, is counter-productive, what comes across is an ideological commitment to a particular economic model. His view, like mine, is based on more than economic calculations: on a philosophy of life, a conception of what life ought to be all about.
Mine is different. It is different in two significant ways.
Firstly, David must speak for himself about his account but from what I read in his post, there is a strong sense in which life is about making money. Economic processes seem to play a central role. For me economic processes are needed to make sure everybody’s physical needs are met, but once they are met there is so much more to life and the sooner we can get on with it the better. One way of putting it is to say that life is about relationships. The best relationships are characterised by love. Giving people things just because they need them is one way to express good loving relationships. No amount of economic theory can justify refusing to help people in need.
Secondly, my philosophy of life is, as David says, based on my belief that ‘some divine being made it that way’. This is why I believe my understanding of economics is right. David has a different philosophy of life but implies that there is no divine being. If there is no divine being, no philosophy of life is the right one. There are no right answers. All we can say is that different societies have different values and objectives; we can never say that one set of values and objectives is really better than another. And even if David’s preferred economic system could produce the results he expects from it, I would hate to live in such a cold, uncaring, unloving society.