As many Austro-libertarians by now have seen, Peter Schiff was recently the subject of ridicule on The Daily Show. As you can see in the linked video, Samantha Bee’s bit portrays Schiff as a heartless, ignorant buffoon, whose opposition to the minimum wage is baseless.
In this post I want to make a few points about this episode, especially because some of the commentary from free-market fans seems a little off to me:
(1) Schiff isn’t an idiot. He knew full well The Daily Show was not going to portray him as a compassionate sage. But so what? The Daily Show is, in my opinion, still a great show. Yes Jon Stewart and the rest of the contributors are misguided on many economic issues, but I still find the show very entertaining. If they wanted to interview me about private defense agencies and (of course) paint me as a warlord-loving nutjob, that would make my year. (This is Reason #348 that I’m cooler than this guy.)
(2) Having said that, The Daily Show really did screw up. As the accompanying chart shows, the literally mixed up Supply and Demand, in a bit where Samantha Bee was sarcastically talking about how onerous it was to deal with economics. Right guys, if you’re going to mock textbook economic theory, and instead focus on the “real people” you want to help with your policy…you probably should get the Intro graph labeled properly.
(3) You really shouldn’t get too nitpicky about Schiff’s statements, because he was apparently on camera for hours with them, and they pulled out just a precious minute or two of footage. Trust me, if someone filmed you for three hours, you would say some stupid stuff. That’s also why I don’t get bent out of shape when a politician says something “idiotic” during a campaign; it’s surprising they don’t flub more lines than they actually do.
(4) Several progressives have criticized Schiff for talking about the minimum wage making it hard for the “mentally retarded” and people with other handicaps get jobs. These critics point out that there are already “subminimum wages” for qualifying workers, to make sure they are not priced out of the labor market.
But hold on a second. Doesn’t that make Schiff’s point? Can’t we turn it around and say, “What do you critics have against kids and people with disabilities earning a decent income? Why do you just want to help the able-bodied workers? That’s sick!”
(5) On the other hand, I have seen some free-market people criticize Schiff for suggesting that raising the minimum wage would lead to general price inflation. But I don’t think that’s what Schiff was saying. I think he was merely arguing that unless consumers are willing to pay more for products sold by firms that employ minimum wage workers, then jacking up the minimum wage will cause the firm to cut back on its employees. (This point matches what Schiff was doing in this adventure.) In other words, like Mises, Schiff is making the point that ultimately it is the consumers who are “merciless” and cause various factors of production to receive the particular incomes they do in the market.
In any event, it is certainly correct that a large increase in the minimum wage would, in the new equilibrium, lead to higher retail prices in the industries employing minimum wage workers. It’s not that the high wage rates “cause” higher prices, but rather that the higher wages lead to a reduction in supply, which in turn means that the marginal utility of the last item sold to consumers is higher. If anyone doubts this, imagine a war in the Middle East causes crude oil to shoot to $200 per barrel. This will obviously lead to higher gasoline prices for motorists, even though we don’t subscribe to a cost theory of value. (It won’t lead to general price inflation, though, unless the demand for money changes and/or the quantity of output in other industries is severely curtailed.)