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Can You Love Free Markets and the Poor?

Libertarians are sometimes derided as “Republicans who want to smoke pot.” Some of us object strenuously as we part ways with Republicans on many issues, we don’t smoke pot, or both. Libertarians expressing concern about issues usually associated with the left are met with skepticism far too often, almost as if zeal for free markets and compassion for the poor are mutually exclusive.

Last week’s column elicited a thoughtful comment from University of San Diego philosopher Matt Zwolinski at the Bleeding Heart Libertarians blog that inspired me. Professor Zwolinski agreed with what I had to say but pointed out that the way a lot of economic arguments are presented might lead readers to be suspicious of our professed concern for the poor.

As I mentioned in a brief reply, op-eds aren’t especially conducive to subtlety and nuance. I’ll add that they should be read with the “other things equal” assumption in mind. This isn’t a space in which I can offer every possible qualification, address every possible objection, and evaluate every possible market failure, but I think disagreements between liberals, conservatives, libertarians, and socialists are disagreements over fundamental issues rather than subtleties or special cases.

Consider free trade. As Paul Krugman wrote in one of my all-time favorite pieces of popular economics, the problem in debates about free trade isn’t that the critics of free trade think that the world is best described by exceptions to the law of comparative advantage. It’s that the critics usually don’t understand comparative advantage to begin with.

Since it keeps coming up, the relevant question in a discussion of something like the minimum wage isn’t usually about the magnitude of the employment effect or whether government intervention can correct positive or negative externalities. It’s about whether the competitive model of wage determination offers an accurate explanation of what is actually going on in markets for low-skill labor.

I largely agree that social welfare losses from policies like the minimum wage are probably pretty small compared to the damage done by corporate welfare, licensing regulations, and other policies that privilege the rich at the expense of the poor. I also agree that there is a huge asymmetry in how conservatives and libertarians treat these issues. Matt Yglesias of the Center for American Progress called us on it in a March 17 tweet: “Looking forward to conservative tweets about how Libya no-fly zone is a boondoggle and funds would be better spent on improved bus service.” We need to do better.

I am also willing to concede, for the sake of argument, that there are theoretical cases in which this or that government intervention might help the poor, but I think fixing market failures should take a backseat to fixing government failures. Furthermore, the government’s track record leaves me with little evidence to suggest that they are capable of fixing market failures even when they try. Identifying the effect of a policy is a prerequisite for a moral or theological argument about that policy. At issue in debates over policies like price floors, price ceilings, subsidies, and free trade is the relevance and importance of basic economic principles.

Economics and its practitioners are certainly imperfect, but economics still has a lot of important things to teach us. One comment on the Bleeding Heart Libertarians blog echoed a common defense of minimum wages by arguing that they are good for unskilled workers “as a group” because the minimum wage limits employers’ ability to bargain wages downward. Since unskilled workers are easily replaced, they don’t have much bargaining strength.

What this ignores is that the employers of unskilled labor are also easily replaced. In other words, the demand side of the market for unskilled labor is competitive, not just the supply side. Competition, not legislation, is what drives up wages. The evidence suggests that minimum wage legislation limits employment opportunities for the very poor.

As the economist Steve Landsburg has written, economics cannot make value judgments for us, but it can clarify our thinking and force us to be very honest about our goals. To continue with the example of the minimum wage, the theory and evidence are pretty clear. One can argue that the minimum wage is a good idea for any of a number of reasons, but the argument has to acknowledge what the theory and evidence have to say.

One of the common themes in applied economics is also one of the common themes in this column. Intentions are not outcomes. Showing others that we care about alleviating poverty and actually alleviating poverty aren’t the same thing. I admire Bono’s passion, and I’m a big U2 fan–I’ve seen them in concert three times–but as the economist Christopher J. Coyne has said, there is a big difference between singing about helping poor people and actually helping them.

Art Carden is a Research Fellow at the Independent Institute in Oakland, California and an Associate Professor of Economics at Samford University’s Brock School of Business.

  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org