Illuminating the Unseen; R. Roberts

If we want to dent the consciousness of the average American, we have to talk about how the minimum wage doesn't just tax small business. We have to show how it bankrupts some firms that hire low-skill workers. That means fewer opportunities for low-skill work ers. But even the firms that survive will try to reduce the hours of low-skill workers and Russell Roberts (roberts@mail.olin.wustl.edu) is director of the Management Center at the John M Olin School ofBusiness at Washington University in St. Louis. He is the author of The Choice: A Fable of Free Trade and Protectionism (Prentice Hall). 63 their numbers. In short, while the minimum wage helps some low-skill workers by giving them a modest pay increase, it has a devastat ing effect on others, pushing them out of the work force and into the street. The minimum wage thwarts human possibility among those it tries to help. And as Bastiat understood, it is easy to see those who are helped by the mini mum wage. Those who are harmed are much harder to identify.

We've done a decent job explaining the hid den costs of the minimum wage. We've done such a goodjob, in fact, that proponents of the minimum wage have actually tried to argue that increases in the minimum wage have no effect on low-skill employment. To paraphrase Orwell, you'd have to be an academic econo mist to find that argument compelling. But in other areas, we have a long way to go if we wish to cast light on the unseen costs of gov ernment intervention. Free Trade and Protectionism Here's how trade often gets discussed in the media: should we destroy jobs in America in order to have cheap imports? That's like being asked how long you've been beating your wife. Why does it get discussed this way? Opponents of free trade want the American people to think that trade is about destroying jobs in order to get cheap foreign goods. It makes free trade look mean-spirited and mer cenary. But another reason is that these are the most obvious effects of free trade. If Ameri cans buy from foreign suppliers, people 64 THE FREEMAN/IDEAS ON LIBERTY • MARCH 1999 understand that fewer Americans will be hired in the competing domestic companies.

Unseen are the jobs created to make the prod ucts we exchange with foreigners. Unseen is the impact of specialization and comparative advantage. Unseen is the power of foreign competition to induce our domestic industries to innovate. Unless we can illuminate the unseen, mak ing the case for free trade will be an uphill battle. Unfortunately, one of the best things about free trade is extremely difficult to see: free trade allows resources to flow to their highest use. But to make the argument com pelling, we have to describe it in a way that allows it to be seen without a semester's worth of economics. Freeing Up Opportunity Somewhere in South Carolina, there's a high school girl whose mom works in a textile factory. This girl doesn't know what she wants to do with her life, but like most high school kids in America, she probably doesn't want to work in the same job or career as her parents.

The security of the textile factory is appeal ing, but she might want to go to college and try something different. It all depends ~n her options. That factory is threatened by Chinese com petition. Should we let the factory go under or should we protect it from the cheaper Chinese imports? We could spend hours on the pros and cons and the economic impact of that decision. But let's look at the impact on that girl in high school. If we keep the factory around, we make the choice of working in the factory more appealing. If we let the factory die, we change the available options. We push her out into the world. Exploring the world is a good thing, but that's not reason enough for letting the facto ry go under. What is harder to see is that the world to be explored is a more vibrant and alive place when the factory goes under. Allowing the factory to die frees up capital and management skill that can be used else where. If we maintain all of the factories and all of the companies that cannot survive com petition, then the American economy is a much more static place.

If we try to make everything for ourselves and be self-sufficient, we lose the opportunity to specialize in doing what we do best. Our capital gets tied up in industries that do not take the greatest advantage of our unique skills. Free trade allows a high school kid in South Carolina to inherit a world of maximum human potential, with the maximum chance for her to use her gifts, whatever they may be. A skeptic would ask how the girl in South Carolina is going to achieve her potential if her mom is out of work. And that in turn might lead to a discussion of how past gener ations have managed to survive and thrive in a dynamic economy. In 1900, one-third of the American work force was in agriculture. Today the number is around 3 percent. Do you think the kids on the farms of 1900 are glad that we let agriculture become more capital intensive with fewer jobs? It wasn't a trivial transition, but in 1900, we couldn't see the industries that would arise to use the skills of the next generation. And we can't know the opportunities that will arise to help that girl in South Carolina if we let the textile factory fail. But they will arise. What they will be depends on the gifts and aspirations of the next generation.

If we want to inspire people to support free trade, we must touch their imagination. Basti at understood that 150 years ago. Our best chance is to make the unseen, seen. Econom ics can bring the unseen to light, but only if we leave the jargon behind and show how free trade and other economic freedoms help transform our lives. D April 1999 Ideas On Liberty Vol. 49, No.4 8 13 118 22 24 30 135 37 45 48 52 Recycling Labor by Charles W Baird Scientists Beware by Bruce L. Benson Wasting Energy on Energy Efficiency by Ben Lieberman Paper Tiger by Christopher Mayer China's Spontaneous Order by James A. Dorn The Commons: Tragedy or Triumph? by Bruce Yandle Second-Guessing the Market by John A. Sparks Money in the 1920s and 1930s by Richard Timberlake James F. Lincoln: Industrial Peacemaker by Daniel Hager Withholding the Taxpayer Hostage by Donald J. Boudreaux and Andrew P. Morriss I Lost My Job-Can I Keep My Principles? by Mark Reboul 4 16 28 43 150 53 63 THOUGHTS on FREEDOM-Who's Progressive? by Donald J. Boudreaux IDEAS and CONSEQUENCES-Flunking Economics by Lawrence W Reed POTOMAC PRINCIPLES-Think Tank Wars and the Minimum Wage by Doug Bandow PERIPATETICS-Inscrutable Follies by Sheldon Richman ECONOMIC NOTIONS-Opportunity Cost and Hidden Inventions by Dwight R. Lee ECONOMICS on TRIAL-The Battle for Diamond Head: A Case of Market Failure?