Tag: free market

Categories
Economics Society

[1282] Of questioning the morality of minimum wage

I had supper with two friends not too long ago. The gamut of our conversation topics ran wide but I have no doubt that the crux was on morality of free market and minimum wage policy in particular. A friend expressed how such philosophy fails to provide warmth to the struggling people whom work day and night to provide for themselves and perhaps, others. He pointed to the opposition to minimum wage and how free market supporters are insensitive to the hardship the needy face as proof. He presented his point so passionately that it pained me to disagree with him. Yet, I must disagree and went on to illustrate how such insensitivity within a larger picture is really a morally superior and caring position to take.

Scarcity is a real issue and minimum wage supporters unfortunately do not grasp the idea well. If scarcity is a tale belonging to the lands of the fairies, then we would be living in the land of the fairies. Sadly, this is the real world with harsh reality of constraints. Within the issue of minimum wage, the policy imposes more constraints than necessary on the economy, turning a harsh world even harsher from a big picture.

Perhaps I am stating the obvious but minimum wage policy increases wages of the already employed. Of course, the employed have to have wages below the floor if they are to benefit from the policy. Here, the key word is employed. The policy benefits limited fraction within the society and like many other things, it is fueled by self-interest when it is fought by those that tend to benefit from it. Or to put it more bluntly, plain old greed. Those that support such policy because they think it is a compassionate thing to do however simply fail to understand the economics behind the policy, or seems to limit their consideration to limited section of the society.

The story of minimum wage does not end where supporters of such policy would like it to be. When one is playing a game of domino, one really has to be careful on which pieces one would like to touch.

Once the employed, at least the ones that riped the fruits, received their pay hike, of course they would be happy. The same cannot be said for business owners and unemployed others. And trust me, most of business owners are not multimillionaires; a majority of them are simply trying to make a living too. Higher salaries increase cost for the affected employers. Money does not grow on trees and so, with greater wages to be paid, employers cannot afford to hire more people.

Please do not get me wrong. It is not always wrong to pay individuals with high wages. If a person is capable, the person deserves every one bit of it. It is productivity that determines wages. A policy that pays somebody extra for something trivial, something that too many people could do better or cheaper than him is a bad policy and this most of the times includes minimum wage policy.

And where does this lead?

One of the direct results is the less employment opportunities. The impoverished that require jobs are denied of opportunities because of a policy that benefits a certain section of the society at the expense of another group.[1]

For those those that believe opposition to minimum wage is governed by cold rationale, do kindly explain to me this: what about the unemployed? Are the unemployed expendable?

How does opposition to minimum is colder than a policy that robs many from employment opportunities while the beneficiaries of the policy enjoy higher wages that do not reflect productivity?

Where is the morality of minimum wages when it keeps the improvised from gaining employment? Where is the morality of such policy when it denies decent people from employment opportunities?

For those that fight for minimum wages and stand to benefit from it, this is where selfishness, instead of sharing the bench with supporters of free market, is the minimum wages proponents’ best friend.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] Note — minimum wage policy may increase employment under specific conditions but we usually face the typical model where minimum wage imposed above equilibrium leads to increased unemployment. Under a monopsony model, I would to a certain extent support minimum wage to correct imperfection in the market.

Categories
Activism Economics

[1261] Of distributive justice in free market

Institute for Policy Research, better known locally among restricted circles as IKD (Institut Kajian Dasar) organized a small forum on the New Economic Policy a couple of hours ago. As it turned out, the forum focused on the weaknesses of the New Economic Policy but throughout the forum, the most interesting point was raised by Dzulkefly Ahmad and later followed up by Khalid Jaafar.

Dzulkefly Ahmad, the director of PAS Research Centre, mentioned the phrase distributive justice. I quickly recognized this as another word for equitability. In my head, I was quick to point out that mainstream economics does not deal with equitability but rather, stresses on efficiency. Nevertheless, there is a mechanism to achieve a perceived efficient equitable point; the Second Fundamental Theorem of Welfare Economics provides for this. In layperson’s term, the theorem proves that any efficient outcome could be achieved through a lump-sum wealth redistribution. Through the new allocation of endowment, the new efficient outcome is attainable through market forces.

While I was thinking in technical term, Khalid Jaafar came up with a more meaningful question: who would be responsible for the redistribution of wealth?

My bias wants me to say the market. After deeper casual mental masturbation however, I am struggling to answer the question of how would or could the market reallocate individuals’ endowment?

The tougher questions are these: what is an economic efficient equitable outcome? Could the market recognize that efficient equitable outcome?

At 02:40, my eyes are heavy and my brain is shutting off.

Unlike me, all speakers — Rajah Rasiah of Universiti Malaya, Dzulkelfly Ahmad of PAS and Tony Pua of DAP — prefer the easier path which requires government intervention. That endowment reallocation is of course done through taxation.

Categories
Economics Humor

[1250] Of price control rendered useless

Hahaha…

PETALING JAYA: Following the painful raids against traders who overprice their food and drinks, most restaurants are sticking to their regular prices.

The difference, however, is that some restaurants may be dishing out smaller-sized roti canai as well as diluted Nescafe or Milo drinks.

Contrary to earlier complaints by restaurant operators that they would lose out following the government move to increase the price of flour, a random survey by The Star found that they would actually make a hefty profit if the price of roti canai goes up by 10sen a piece. [Roti canai getting smaller. Goh, Michelle. Nur Akmal. The Star. June 3 2007]

Instead of liberalizing the market, I suspect the state would engage in more stifling policy by regulating the size of roti canai.

We as responsible citizens on the other hand desperately need to upgrade the mentality of our politicians. I am in the opinion that all ministers need at least at a basic lesson in economics.

Categories
Economics Liberty

[1120] Of analogizing free market as democracy

It is Saturday morning and I just woke up from sleep. Being the internet addict that I am, within 15 minutes of consciousness, I was already log onto the internet, reading my bookmark, scouring for news or any interesting reading. Somehow, through random clicking, I reached Wan Saiful’s blog and found myself downloading “Apa itu Liberal dan apa itu Liberalisme?“.

I am not sure what I downloaded it in the first place. It might be caused by the launch of a book entitled, “Apa itu Pencerahan?“, a Malay translation of Kant’s “Was ist Aufklarung?“. Liberals that do not read German might be more familiar with its English title: “What is Enlightenment?” So, perhaps, I took the recurrence of the term “Apa itu… ?” as a sign; I need to read it.

So, I read it with relative ease. With ease because there is almost nothing new in the document; I, proudly, am familiar with almost all the ideas and the cited authors. So, it is dull except at the manner the author argues for free market, which I feel is ingenious.

On the fourth page, in Malay:

…Sebagai contoh, sebab apa percaya bahawa instituisi [sig] ekonomi yang bebas itu lebih adil, pertama sebab pasaran yang merupakan satu pilihanraya setiap jam dan minit. Contohnya A dan B jual nasi lemak, siapa yang menentuka [sig] A dan B boleh jual atau tidak? Yang menentukannya adalah pasar, peti undinya adalah pasar. Jika nasi lemak A tidak sedap dia akan kehilangan undi. Keadilannya terletak di sini.

Roughly in English:

…As an example, why free market institution is fairer than the other? First, the market is an election held every minute. For instance, who would decide A and B could sell nasi lemak? It is the market; the market is a huge ballot box. If A sold low quality nasi lemak, he would lose vote. The fairness of the system is here.

Though the idea is not foreign, I had never seen it stated in such an explicit way that links democracy with free market. I think this is the first time somebody explicitly uses democracy to justify free market.

Perhaps, such presentation of free market it is nothing more than an analogy. Nevertheless, this analogy could be used to entice fervent supporters of democracy that are neutral of the liberal-socialist divide towards free market and to a certain extent, liberal democracy.