Progressives, led by President Obama, continue to push for an increase in the government-mandated minimum wage. They want employers to be forced to pay a “living wage.” Dr. Roy Cordato, John Locke Foundation vice president for research and resident scholar, finds flaws in their thinking. I talked with Roy about the flawed economics behind progressives’ thinking in a recent Carolina Journal Radio. In the interview, I also asked Roy about critics’ claims that workers need to be paid “fairly.”
Martinez: Roy, what seems to underpin a lot of the progressive argument for this kind of thing — the transfer — is the word “fairness.”
Martinez: Market economies are criticized routinely because they are not “fair.”
Martinez: Talk about the issue of market economics and fairness. Do the two go together, or are they just simply not — is it not possible to have fairness in a market economy?
Cordato: Of course, it depends on what you mean by “fairness.” And I would argue, coming from someone who believes that what is fair is that people have a right to keep what they earn, that they should be able to enjoy the fruits of their labor. … That is actually in the North Carolina Constitution, that phrase — Article 1, Section 1 of the North Carolina Constitution. So if what you believe is that it’s fair for people to keep as much of their income as possible, then we shift the entire conversation about fairness.
That [progressive] notion of fairness is really, I would argue, a Marxian notion of fairness, an egalitarian notion of fairness. What is fair is that no one should have more than somebody else. Of course in a market economy, what people have is constantly being changed because it’s an economy based on exchange, on trade. And it’s also based on people getting for themselves to the extent that they satisfy the needs of others.
It’s a very outward-looking system because no one can get rich unless they’ve made someone else better off. And all the great people, all the really rich people, the Bill Gates of the world, how have they gotten all of their wealth? Well, they’ve gotten it by making other people better off. To me, that is a very sound notion of fairness, and I would put that notion of fairness up against the notion that the economy has to be — or that everyone in the economy has to have equal incomes, which is really the notion that drives that.
Martinez: If we want to make sure that everyone has as much opportunity as possible, to pursue whatever they want to pursue, to do whatever they want to do, in terms of economics, what types of policies do we need to implement? What principles do we need to govern by?
Cordato: We need to make sure that property rights are secure, that people can indeed keep as much of their income as possible. … What a minimum wage does, for example, is it forces an exchange ratio, a price, in the marketplace that wouldn’t occur otherwise.
What you would have to do is allow people to freely make contracts based on their skills. That will, I think, bring about fairness to the extent possible. What we have seen is a situation where many policies that have been put forth actually exacerbate [un]fairness, actually no matter how you look at it.
Bottom line: free markets will lead more people out of poverty than a government mandate ever will.