Skin In The Game

California just imposed a $20 minimum wage on fast food chains with more than 60 locations. People are shocked, shocked!, that some places are cutting back on staff and others are closing as a result of this market distortion. As some of us are fond of saying, the true minimum wage is always zero.

The first minimum wages were enacted in the late 1800s to protect the jobs of white workers from blacks who were willing to do the same for less money. The dirty reality of minimum wage laws - that they hurt the most disadvantaged workers the most - remains to this day. An employer forced to pay above-market for a particular job will seek the most qualified for that job, and the higher wage will entice the higher-qualified to take jobs that would have gone to those with the least experience. Moreso, an above-market wage removes the "punishment" that racist hirers suffer. The employer who won't hire blacks reduces his available pool of employees, meaning that it's likelier he will have to pay more than his competitors for labor, and thus suffer a disadvantage. Minimum wage laws obviate that market pressure. Rather than helping those at the bottom, minimum wage mandates remove the lowest rungs of the economic ladder.

Today's bit isn't about the minimum wage itself, however. It's about why some continue to believe they can "socialize" businesses' earnings via that and other mechanisms.

It's popular, nowadays, to criticize the greed of big companies, to cite (usually misleading) statistics about how much money companies or their CEOs make, and to argue that employees are exploited by their bosses.

Yes, it is true that some businesses make major bank, that Jeff Bezos, Elon Musk, Bill Gates, and their peers have achieved a level of wealth impossible for most to truly grasp.

The envy classes look at that wealth and gripe about how it could be better utilized (as in "I or those I champion, rather than they, should benefit from their success).

What the envy classes never seem to consider are the failures.

The Democratic Socialists of America want to impose an "employee ownership" model on the American economy, presumably out of the simplistic belief that success should be shared among all those who contributed to it. If you happen to encounter someone of that mind set, ask if employees should share in failure. If a business starts to lose money, should some of the money the employees receive be clawed back? Should an employee be forbidden from quitting? Should losses be shared among all workers, rather than being covered by the boss? Should a tight-cashflow period or a lull in revenue be borne by everyone, even to the point of working for free or putting money in from their own pockets?

If the answer to any of these is "no," then employees are not truly owners in such a model. They reap the benefit of success but shoulder none of the risk of failure.

Which, if we are to be cynically honest, is what most socialists expect. And what most "tax the rich" expect.

How many in the envy classes envy the entrepreneurs that didn't succeed? That worked for years on a business idea with little to show for their effort? That burned through tens or hundreds of thousands in savings without good outcome?

There's a reason that societies that socialize risk as well as reward have always been poor. It boils down to Other People's Money and the reduced level of care regarding it.

Watch this short clip of Milton Friedman explaining the differences between spending your own money and spending someone else's money, and spending on yourself and spending on others.

There's a reason that capitalism works better than anything else. That reason is self-interest. People attend to themselves with much greater care.

There's a reason that many deride capitalism. That reason is risk aversion. It's a lot "safer," at least in a superficial sense, to empower government to take from others to benefit yourself or those you champion than to trust that which is not under your control, i.e. market forces. No matter that market forces have demonstrably worked far better than any central planning or big government ever has.

There's a reason that socialism is so alluring. That reason is a blend of laziness and envy. If your life can be made easier by empowering government to take from the successful to give to you, you're apt to ignore both the injustice and the untenability.

People are very good at turning a blind eye to truths that don't satisfy their lizard brains, especially in affluent societies where the risk of that blind eye is rarely personally catastrophic. This is why stupid ideas like minimum wages persist and why the lessons of history are so widely ignored.

The only way people can be prompted to act with care is if they have skin in the game. We should demand that of all those who would take from others. Bet that'll shut many of them up, right quick.