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Title : If Economical Ignorance Were A Natural Resource, Our Globe Would Endure Paradise
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If Economical Ignorance Were A Natural Resource, Our Globe Would Endure Paradise

A Don Boudreaux alphabetic lineament to a novel correspondent who writes that he is “impressed” past times a recent alphabetic lineament inwards the Wall Street Journal by a Mr. Scot Phelps of New York.  (In contrast, Boudreaux was non impressed past times Mr. Phelps’s letter.)

Mr. Chris Indovino

Mr. Indovino:

I did indeed read in the past.  (See also this EconLog post service past times my colleague Bryan Caplan.)  The fundamental economical indicate is this: the welfare programs to which Mr. Phelps alludes (with the possible exception of transportation subsidies) trim back the render of project and, thus, force wages up.  Far from employers beingness subsidized past times such welfare programs, employers of workers who have these regime benefits are obliged, equally a result, to pay payoff that are made artificially high.

But to demonstrate simply how deeply confused this Mr. Phelps is, let’s pretend that he’s right to insist that welfare programs artificially trim back wages.  Mr. Phelps together with then asserts that “Failure to pay a living wage gives consumers artificially depression prices together with increases corporate profits.”  Because almost all employers of low-skilled workers operate inwards intensely competitive industries such equally retail together with nutrient service, workers’ artificially depression payoff would indeed outcome inwards artificially depression prices for consumer goods, but non inwards increased corporate profits.  The mightiness to hire workers at artificially depression payoff would attract novel entrants into these markets, equally good equally crusade existing firms to expand their outputs, until the charge per unit of measurement of profits earned past times employers of these workers is no higher than it would endure if payoff were higher.  That Mr. Phelps is oblivious to this reality is sufficient argue to plow over the sack his economical analysis.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha together with Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

The higher upwardly originally appeared at Cafe Hayek. 

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