Elizabeth Warren's Acquired Economic Stupidity

The problem with a reductio ad absurdum argument is that sometimes your opponent accepts the absurdity and just runs with it.

When smokers were suing cigarette companies and the FDA was proposing to regulate tobacco, we thought it was a devastating retort to say, "What next, are they going to sue fast food restaurants and ban sugary drinks?" Hello, Michael Bloomberg.

For years, we've argued against the minimum wage by taking its premise to the logical conclusion: if you can make people better off by mandating a higher wage, why stop at $7.25 an hour--why not make it $25 an hour? Hello, Elizabeth Warren.

The new senator from Massachusetts, the great hope of the Progressive left, just proposed exactly that.

"Sen. Elizabeth Warren, Massachusetts Democrat, suggested raising the minimum wage to $22 per hour is only logical if you look at the numbers.

"'If we started in 1960, and we said [that] as productivity goes up...then the minimum wage was going to go up the same...if that were the case, the minimum wage today would be about $22 an hour,' the senator said."

Did I talk about embracing absurdity and running with it? Here was the response to Senator Warren.

"One of the panelists, Arindrajit Dube, an assistant professor at the Department of Economics at the University of Massachusetts-Amherst, said by that logic-by going back even further in time-the minimum wage could rightly be $33 per hour."

Now there has to be some twisted internal logic to this idea, and it seems to be the notion that all productivity gains made by businesses should go to increase the wages of workers.

"The current minimum wage is $7.25 per hour. Ms. Warren wondered, in a YouTube video of the hearing posted by her staff: 'What happened to the other $14.75?' She answered her own question: 'It sure didn't go to the worker.'"

Leave it to an academic to be totally ignorant of the workings of the economy. So let's clue in Senator Warren about where those productivity gains came from and where the profits went to.

If we're talking about productivity gains across the entire economy, some of those gains came from higher-level skills acquired by workers. But that's not the case for minimum-wage workers, because they are by definition unskilled. (The possession of a skill is precisely what makes it possible for a worker to command a higher wage.) For minimum-wage workers, productivity gains are the result of investment in new technology that allows businesses to get more value out of the same amount of unskilled labor. Think of a supermarket scanner versus the old system--which people over 40 can still remember--in which all prices had to be pasted manually onto grocery packaging and entered manually into a cash register by the cashier. In that old system, it took a lot more labor for the same unskilled or low-skilled worker to check out a customer.

The profits from these productivity gains went mostly to the people who created them: the businesses who adopted new technologies and the inventors and entrepreneurs who developed them. Put simply, if Senator Warren wants to know "what happened to the other $14.75," she might start by taking a stroll around Silicon Valley. The money went (among other places) to reward the inventors of productivity-enhancing computers and software. By the same token, if we were to mandate that all productivity gains must go to unskilled workers, we would eliminate all of those profits and kill any incentive to invest in higher productivity.

We can take this point further. Practically everyone who does not actually perform unskilled manual labor is engaged in a job whose goal is to increase the productivity of that labor. If you don't twist a wrench on the assembly line, chances are that you are engaged in an activity whose purpose is to magnify the value of that wrench-twist: financing it, marketing the end product, building better machines, or streamlining production. The minimum-wage worker is just about the only person in the economic system whose job is not to magnify the productivity of his labor. Yet in Warren's world, he is the only one who is entitled to gain from that increase in productivity--and every other worker is to be deprived of the gains they created.

But there is hardly much point in further refutation of this idea. What is astonishing is the very fact that we have to refute it, that supposedly highbrow Harvard scholars like Warren are so seemingly helpless when it comes to observing reality and correcting their own errors.

I've spent all of my adult life hanging around with really smart people, and I can tell you that there's nobody as dumb as a smart person. That's because, when they decide to adopt a dumb idea, they don't just bumble their way into it. They build whole systems of other dumb ideas to support that one central dumb idea, and because they're smart, they build complex and sophisticated systems of dumbness. They write dumb plays and dumb novels and dumb poems. They create dumb theories about psychology and economics. They originate entire dumb new philosophies.

So yes, Elizabeth Warren is a good example of taking a dumb idea to extremes. But she ain't got nothin' on guys like Karl Marx and Immanuel Kant.

The issue here isn't native intelligence; it's irrationality. The Warrens and Marxes and Kants follow stupid ideas to their absurd extremes because they are committed to maintaining a belief in a fixed idea regardless of evidence. Kant wanted "to deny reason in order to make room for faith." Marx wanted to smear Europe's rising new capitalists as parasites and exploiters. In Elizabeth Warren's case, she is just following up on her resentful rant about how entrepreneurs "didn't build that." She already gave us fair warning that she wants to ignore the productivity-enhancing investments of the capitalists and entrepreneurs and attribute the entire product of their effort to the hapless "little guy" (and his government champions). Her absurd pronouncement about a $22 minimum wage is the logical result.

There's another old saying, attributed to Voltaire, that if we believe absurdities, we will commit atrocities. We need to shoot down Elizabeth Warren's economic absurdity before it becomes an economic atrocity.