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IKEA’s “Minimum Wage”

July 4, 2014 in Economics

By Matt McCaffrey

IKEA has announced it will be raising the “minimum wage” of its US employees to $10.76 per hour, an increase of about 17% from the current minimum. The news comes in the midst of another “national discussion” (often code for anti-economic hysteria) about minimum wage “reform” (always code for an increase).

Economic criticisms of the public minimum wage are readily available, but IKEA’s decision is different. It does have some interesting economic implications, but there are a lot of other issues in this story worth discussing, not the least of which is the language used to report it. That is, I have to wonder why people use the term “minimum wage” to refer to the internal policy of a private firm. Maybe it’s just a convenience of language, but regardless of its true cause, this usage gives a rhetorical advantage to proponents of government-mandated minimum wages.

That is, using “minimum wage” to describe both entrepreneurs’ decisions and government regulation obscures the distinction between them, i.e. that one is chosen by employers and the other forced on them under penalty of law (often through the influence of larger competitors). Using the same term opens the door to falsely conflating policies, making it seem like private and political decision making are the same or similar. If private firms declare their own minimum wages, a government minimum wage loses its distinctiveness, and seems like just another benign entry on a long list of possible wage policies. It’s all too easy—as news outlets reporting this story demonstrate—to compare IKEA’s minimum wage to the federal minimum wage, as if each is just a different but harmless way to improve people’s welfare.

Confusing the language of public and private decisions in turn reinforces the common idea that wages are set at the discretion of business, with high wages due simply to the good nature of employers, and lower wages to greed and disregard for employee well-being. If this were true, it might make sense to consistently increase the minimum wage; after all, we want people to be better off, don’t we?

Language aside, however, economists might criticize IKEA’s decision as a foolish attempt by private firms to imitate public policy; essentially, the company is needlessly giving itself a choice between earning losses and experiencing the usual problems of unemployment and discrimination that result from trying to hold wages artificially high. While there is probably some truth in this kind …read more


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Mainstream Economist Freaks Out

July 4, 2014 in Economics

By Hunter Lewis

What does it suggest when Noah Smith, writing in Bloomberg, calls his critics “9/11 truthers
…enslaved by… brain worms?”

It suggests that he is very worried. He not only thinks the barbarians are at the gate. He thinks  that his cozy citadel might actually fall.

And what does it tell us when he accuses his target, Austrian economics, of having  “anti-Semitic overtones?”–and then documents this outlandish charge by linking to someone’s video on U-tube?   Smith may not be just worried. He may be terrified if he has to resort to such nonsense.

Behind all this is a fierce contest of ideas which the economics and other establishments want to go away, and go away now! Fortunately we are not a totalitarian society, and a free society has a market in ideas as well as in products. Many people have a vested interest in defending old ideas. In the case of economists, their very livelihood may depend on it. So change comes slowly, and is always hard fought.

When new people challenge the old orthodox ideas, the establishment first ridicules them. What a joke! If the new ideas gain some traction, the establishment resorts to a stony silence. Shh! Don’t say a word about it; we don’t want anyone else to hear about it! If the silent treatment doesn’t work, the establishment comes out swinging, attacking the new ideas with a blood lust. War to the death!  If finally, in a fourth stage, the new ideas win out and become the new orthodoxy, the old opponents just shrug and say “ Oh, I knew that all along.”

Looking at it this way, Noah Smith’s savage attack on Austrian economics is a good sign. Much of the establishment media is still giving Austrian economics the silent treatment. An article like this in the establishment bastion Bloomberg News suggests that we may be entering stage three, where the final battle will be fought.

We could leave it there, and dismiss Smith’s overblown rhetoric as simply a sign of panic, but it is also worth noting that Smith doesn’t really offer an argument. Apart from the name calling, his main technique is to set up straw men and then knock them down. So, for example, he says that Austrian economists are discredited because all the new money created by the Fed and other central banks hasn’t yet led to runaway consumer price inflation.

This just shows that Smith hasn’t actually read the …read more


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“O’er The Land of The Free And the Home of the Brave”

July 4, 2014 in History

Laurel Schwartz

July 04, 2014 6:00 a.m.

Anniversaries can serve as times of reflection. Lately, on the 200th anniversary of the Francis Scott Key’s “The Star Spangled Banner”, I’m thinking back on a particular moment the song touched my heart.

Growing up in St. Paul, MN, I attended a small, pre-k through 12th grade school — Mounds Park Academy (MPA). Throughout my education, students experienced various milestones; we looked forward to those ahead of us, and enjoyed seeing the younger kids grow up to encounter the same educational landmarks. Fifth graders got to perform the Odyssey, seventh graders got to go on a class trip to Washington DC, and seniors got to argue Supreme Court cases in front of the Minnesota Court of Appeals. But it was the fourth graders who got the most-prized experience: singing the national anthem at a Minnesota Twins game.

I didn’t attend MPA until 5th grade, so I missed out on the annual event. However, in the eight years I spent at the school, my peers referred to the monumental event so often that I sometimes felt like I was missing out on an inside joke. It wasn’t until my senior year of high school that I understood why my peers looked back on that experience as such a pivotal point in their educational career.

My senior year of high school I was both the yearbook editor and the babysitter for many families with children in the fourth grade class. Canon Rebel in hand, I attended the baseball game, planning on snapping a few pictures for the yearbook and leaving before the game even started. But when I got to the game, I encountered something much more exciting than some cute kids singing a song they learned in music class. This wasn’t a classroom or auditorium — it was the Twins stadium, and it happened to be the brand new Target Field. And, this wasn’t any song — it was the song of America, The Star Spangled Banner.

I surveyed some kids I knew, looking for a quote. Some said they were nervous, others noted that they were excited. Some were worried about singing the right harmonies, while others were in awe of the new stadium itself. But as I watched the kids sing, I soon realized that this wasn’t about the performance or the interdisciplinary education these students got by learning about history through music. Instead, it was about participating …read more


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The Dow’s All-Time High

July 4, 2014 in Economics

By David Howden

The Dow Jones Industrials just closed above 17,000 for the first time ever. While they are celebrating the 4th of July, Americans can rejoice in the good fortune the stock market is giving them.

But wait, what’s actually driving the stock market to reach its highest level of all time?

Since its high in 2000, the Dow is up 45%. Over the same period the CPI is up 40%. Nearly all of the gain in the stock market is just because of prices going up, not because of real economic growth. In fact, if you factored inflation out of your stock returns over the past 14 years, you earned a miserly 0.2% per year.

There’s lots to celebrate this 4th of July weekend, but stocks for the long run is not one of them.

(Originally posted at Mises Canada.)

…read more