Good politics leads to bad economics, which is why minarchy is the only language these sorts of people understand. Now, obviously, I would say that as some described as a “mad free marketeer” — but as was said about me on the same occasion I can spot those things that are “wrong not just ideologically but in terms of basic facts”. 

The subject then was Johann Hari. The subject now is the minimum wage. The base idea of the minimum wage is that the politicians — those who kiss enough babies to have power over us — know the correct value of an hour of labour. That the value of that hour might be what someone is prepared to pay for it escapes them. 

Yet the essential truth of this is obvious. As Ha Joon Chang points out, Sven gets much more for driving a bus in Stockholm than Ashraf does in Dhaka, despite the latter’s job being both more difficult and stressful. The reason is that wages in general are higher in Sweden than Bangladesh — therefore higher wages have to be offered to get the bus driven. This does not accord with political reasoning, for no one kisses babies in order to leave the world alone to get on with itself. 

So, that insistence upon knowing what labour is worth and what people must be paid for it. At which point, economists. Always poopering that party. If that minimum wage is set above the level someone is willing to pay then there will be no jobs. So, a minimum wage will mean some making £0 an hour, whatever it is that the baby botherers have to say about it. Economists also point out that everything happens at the margin. A one pound an hour minimum wage will not mean much as no one gets paid — in a rich country — one pound an hour. One pound an hour in Bangladesh is going to play merry havoc. £100 an hour in Britain would mean only the lawyers would still have — legal! — jobs and wouldn’t that be an enjoyable society?

Somewhere between £1 and £100, in Britain, then, we start to see significant ill-effects from a minimum wage. Some will see their wage increased, sure. Others will see their wage collapse to zero at the same time. It’s entirely possible to be all Benthamite about this, argue about the greatest good and come to some middling number. At which point, well, what is that? 

Given the way that wages are set across an economy — average wages are determined, and yes it is determined, by average labour productivity across the economy — that rate is going to be relative to other wages. It’ll be different for each economy, that is, but something close to the same when measured against average wages in each economy. 

We do know it starts early. All the way back in 2004 we can derive from the figures of the Low Pay Commissions — the people who set the minimum wage rate for us — that the pitiful handful of pounds back then cost us 13,000 jobs. 13,000 jobs isn’t very many, and perhaps our Benthamite would think them worth it. But some time before our economy is only propped up by KCs we will end up with a rate which is “too high” given the pain to benefit ratio. So, what is it? 

The long-standing rule of thumb among economists has been in the 40 to 50 per cent of median hourly wage range. Simply because very few get paid that little, therefore very few will be affected by it — either in gaining higher wages or in not having a job. Recall, that’s the insistence being made, that for some higher wages that must be paid will mean no wages are paid.

Fortunately for us all the British Government decided to invest in some research about this. They hired Arindrajit Dube — very much on the progressive side about minimum wages but a careful and diligent scholar for all that — to study the point. What is “too high” for a minimum wage? That report ended up saying that 55 per cent of that median wage was about it. Above that the unemployment — or disemployment — effects were greater than any possible gain in higher wages to those remaining with a job. 

Further — from direct conversation with Professor Dube — this is of the blended median wage. We all know that part timers get paid less per hour than full timers (on average, of course) so we could compare to the full time only median wage or to the blended one — it’s the second we should use here. 

We can also find out what the median wages are from ASHE at the ONS. For Nov 2023 (the last report) the blended median for all workers is £15.88 an hour. The full time only is £17.48. The current minimum wage is £11.44. 72 per cent that is, when above 55 per cent is “too high”. And even if we took the full time only, it’s 65 per cent. We might have an explanation for all those millions and millions on disability and simply out of the labour force — there’s no one willing to pay them for the amount that must be paid compared to the value they bring to the table. 

… as always happens with a price fixed too high, we’ve a surplus of supply over demand

In that excitement to be able to fix prices, they’ve been fixed nice and high. Therefore, as always happens with a price fixed too high, we’ve a surplus of supply over demand. Those little line drawings at the beginning of absolutely every basic economics text book do really work you know — supply and demand is a real thing.

But, of course, it’s worse than this. The latest instruction to that Low Pay Commission from the new government: “The Low Pay Commission should ensure that the rate does not drop below two-thirds of UK median earnings for workers aged 21 and over, a recognised measure of low hourly pay.” Some fool, somewhere, thought it would be cute to define less than two thirds of median hourly wage as “low pay”. Therefore all the politicians have to do to abolish low pay is to push the minimum wage to that 66 per cent — which is, as we can note, well over our danger line of 55 per cent.

That’s why politics leads to bad economics. Because the political imperatives are not the economic ones

Yes, politicians are going to do this for the obvious reason that politicians are doing this. Those condemned to a life of unemployment aren’t visible, aren’t salient, to the baby smoochers. They get to glory in having abolished “low pay” — at the cost, to repeat, of those with no pay. But who cares about them?  

That’s why politics leads to bad economics. Because the political imperatives are not the economic ones. Indeed, as here, they often directly violate the precepts of good economics. Our own government even went to the trouble and expense of employing a global expert (Dube that is) to tell them the limits to their power. They then did not just ignore but trampled over it. For the sake of a few cheap boasts at the despatch box we throw people into lifelong unemployment.

Now, me, I think that’s vile — sacrificing lives to be lived for the sake of political grandstanding. But then I’m a mad free marketeer. This is, though, wrong not just ideologically but in terms of basic facts. It is indeed possible for a minimum wage to be “too high”, in Britain already is, and the fools are insisting upon increasing it again. For they’re now saying this should apply to those upon whom it bites most badly — the young and untrained under 21.

Good politics is bad economics and therefore minarchy is the only solution. If politics has no power over the workings of the economy and limits itself to the useful job of insuring the people — a welfare state that’s a hand up not a hand out — then we’ll gain a better economy and we’ll all, thus, be richer. 

No. Stop it. You can’t. Leave it alone. No one wants you to do that. Minarchy is not the language these politicians understand, which is why we’ve got to make sure that’s all they can do.