Prices and power

From Kevin D. Williamson:
Prices in markets are not arbitrary — they are reflections of how real people actually value certain goods and services in the real world. Arbitrarily changing the dollar numbers attached to those preferences does not change the underlying reality any more than trimming Cleveland off a map of the United States actually makes Cleveland disappear… Free markets are a reflection of what people actually value at a particular time relative to the other things that they might also value. Real people simply want things that are different from what the planners want them to want, a predicament that can be solved only through violence and the threat of violence…
Markets adapt to political changes, and the hierarchy of values that distinguishes between an hour’s worth of warehouse management, an hour’s worth of composing poetry, an hour’s worth of brain surgery, and an hour’s worth of singing pop songs is not going to change because a politician says so, or because a group of politicians says so, or because 50 percent + 1 of the voters say so, or for any other reason. To think otherwise is the equivalent of flat-earth cosmology. In the long term, people’s needs and desires are what they are; in the short term, you can cause a great deal of chaos in the economy and you can give employers additional reasons to automate rote work. But you cannot make a fry-guy’s labour as valuable as a patent lawyer’s by simply passing a law.
It's that tricky word "valuable."  Does it mean what people actually value, or what their betters believe they should value?  Free markets mean letting people decide for themselves.  Planned markets mean trying to decide for them.  I could never have predicted that the messy business of letting a lot of largely ignorant and irrational members of the public decide for themselves would actually promote more prosperity, but oddly enough that's exactly what happens.  I'd love to understand why, but the fact remains indisputably itself, whether I can explain it adequately or not.


Cass said...

I have never quite understood how some people argue - fiercely! - that illegal immigrant labor depresses American wages and cost American jobs, yet somehow... mysteriously... free global trade with countries who pay near-slave wages does not have precisely the same effect :p

Both represent increased competition in the labor market by workers who are willing to accept lower wages. American workers, who aren't willing to accept lower wages and get additional compensation (whether they want it or not) in the form of costly, federally mandated benefits, end up at a significant competitive disadvantage.

That line of "reasoning" is right up there on the cognitive dissidence scale with liberal orgs like ACORN, who demand higher minimum wages and heap scorn on the notion that raising the cost of labor causes employers to hire fewer workers (duh...) and then demand to be exempt from the new, higher wage floors on the grounds that they won't be able to operate without cutting jobs (and young/female/unskilled workers will be hardest hit)!

That said, the overall standard of living in the US has gone UP, not down over time because wages - in and of themselves - are valued not for themselves (can't eat, wear, or live in a paycheck), but rather for what they can be traded for (consumer goods and services). In a global market, lower/stagnant American wages are offset by increasingly abundant, cheaper goods (so workers get paid less on average, but the average paycheck buys far more than it once did).

I've always liked the metaphor of prices as signals. They communicate important information to buyers and sellers about the demand for and supply of various goods, the costs of production in a situation where manufacturing inputs have alternative uses, etc.

Subsidizing or controlling prices distorts those signals and promotes malinvestment (people make bad decisions based on inaccurate information).

Texan99 said...

Of all the problems with uncontrolled borders, the argument that we will be confronted with cheap competitive labor is the least persuasive to me. There's no effective, benign, longterm way to protect oneself from competition, but there are many ways to control who moves into our own "home," or for whom we'll fund a safety net.

Cass said...

Of all the problems with uncontrolled borders, the argument that we will be confronted with cheap competitive labor is the least persuasive to me.

Me too, frankly. Although if you're an unskilled/low wage laborer (I was, for many years, in a saturated job market), the practical effect may well be that you can't get a job at all!

I charged only a dollar or two an hour for much of the work I did when my boys were small. We lived in an area where people didn't have much money to spend and both my costs and needs were low. So even working for peanuts was an improvement. That's one reason I - like you - am fairly unsympathetic to the depressed wages argument. Workers will always be competing in the labor market.

If we eliminated competition from illegal immigrants tomorrow (and vastly reduced global competition from workers in 3rd world countries who are happy if they make a dollar a day), wages for low skilled workers in the US would probably go up. The question in my mind, though, is, "Would we be better off in terms of buying power?"

I"m not sure we would. Most goods are cheaper now in real terms. Our house are larger (with fewer people living in them), clothes are far more affordable than they were for previous generations. How does it help to make 15% more if your purchasing power actually goes down?

IOW, I mostly agree with you :) But I also do see some harm to people just beginning to work, especially if they're unskilled or (like me) have small children whose needs limit their ability to work in certain fields.

Having been one of those people for many, many years (and making money mowing lawns, painting houses, doing home daycare, etc. as a result) I do think it's somewhat of an issue.

In Georgia where my oldest son and his family work, jobs are scarce and wages are low. Of course, so is the cost of living relative to DC. They're actually better off down there making less money b/c the cost of living is so much lower.

But getting a job is tough - even fairly crappy jobs have overqualified workers queued up halfway around the block competing for them. My DIL has her masters and has taught 2nd grade, but is currently working as a special ed aide for pay that's pretty pathetic (another reason I was self-employed for many years when I worked).

Texan99 said...

Yep, competition hurts, no doubt about it. Unfortunately, eliminating competition doesn't help.

douglas said...

Like most, nay, all good things in life- having children, achieving professionally, building a home, getting a diploma, making it through Ranger School, Winning the Stanley Cup- it all hurts, requires sacrifice- and that is exactly what makes it valuable. It cost something, and also delivered something. This is at the base of it all.