Economist Thomas Sowell famously quipped, “Unfortunately, the real minimum wage is always zero.” This is likely the turn of phrase that most clearly juxtaposes the good intentions of minimum wage laws and their effects on people.
New research from the University of California San Diego hammers home this point.
VIVEK RAMASWAMY CLAIMED HE FIRST VOTED IN 2020 — NOW, HE ADMITS THAT WAS WRONG
In a study titled “Minimum Wages and Homelessness,” professor Seth Hill examined minimum wage hikes in cities and states between 2006 and 2019 and found they were associated with significant increases in homelessness — those increases being worse in the places where the minimum wage rose more severely. This underscores that minimum wage hikes will always primarily harm the most vulnerable.
How does one square these findings with the fact that soaring housing costs caused by lack of supply also contribute to homelessness?
Washington Post columnist Megan McArdle proposes that these phenomena interact in a way that creates a type of perfect (or, more accurately, terrible) storm. She writes: “In cities that make it hard to build, housing prices will soar, and politicians will be under pressure to raise wages to match. Unfortunately, this doesn’t fix the problem because a housing market with too little supply is just a high-stakes game of musical chairs. All that those well-meaning politicians can do is alter who gets left out when the music stops.” As such, homelessness rises.
This seems to be an apt description of the problem. Economist Ludwig Von Mises observed, “As a remedy for the undesirable effects of interventionism, [advocates always] ask for still more interventionism.”
In the same piece, McArdle tries to separate this new finding from the same old arguments over the minimum wage we are all familiar with (namely, each side taking a different stance on how we balance the interests of those who lose their jobs due to the policy and those who get a pay boost).
However, I think that what both the new finding and the traditional talking points have in common is they highlight the inevitability of unintended consequences when it comes to interventionist economic policy. Whether it takes the form of job loss, declining hours, or rising homelessness, the common thread is the policy hurts precisely those it is intended to help.
And what makes this a good lens to consider the study through is that it need not only be applied to minimum wage laws. Rent control has the intention of making housing more affordable but ends up not only creating housing shortages but actually making housing more expensive. The Great Society aimed to eliminate poverty completely but instead disincentivized family formation and work for decades to come. And government subsidies for semiconductor firms supported by some “New Right” Republicans ended up being used as leverage “to impose progressive priorities via corporations.”
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The list goes on and on, and there is a reason for it: It is folly to believe “man is able to shape the world around him according to his wishes,” F.A. Hayek observed and termed the “fatal conceit.” We may think we have the ability to know all of the consequences of our actions before taking them, but human nature is such that it is simply not possible. There are limits to what we are capable of. There is a reason humility is among the crucial conservative virtues.
This is all particularly true with respect to economic affairs, in which the disastrous consequences of policy can be demonstrated most clearly. It is time our elected leaders realize this before they take more action their constituents will pay the price for.
Jack Elbaum is a summer 2023 Washington Examiner fellow.