Why in Competitive Markets Workers’ Interests are Never Included in the Public Interest
In his famous law of motion Isaac Newton observed that every action produces an equal and opposing reaction. We can see that this is as true in economics and politics as it is in physics. Let’s take attaining the public interest as an example. If we define higher wages as a worthy policy goal, it will only be in the public interest for those whose wages are expected to rise, but not for those who either pay higher prices, lose their jobs, or have their profits eaten into.
Even if you don’t feel sorry for those whose profits will be eaten into, it could still adversely affect the public interest if businesses not making a sufficient profit don’t invest, and the result then is fewer jobs. Of course, we are left to ponder the meaning of the public interest. And yet, each side in a political debate over a proposed policy measure is prepared to justify its position on the grounds that it is in the public interest.
Let’s consider the case of New York State looking to lower the threshold on overtime from 60 hours to 40 hours for farm workers. In other words, poorly paid farm workers would begin getting overtime past 40 hours instead of waiting until they pass 60 hours a week. One might think that paying farm workers enough to support themselves and their families in dignity would be in the public interest. Well, not according to farmers and some Republican members of Congress who represent them.
On the contrary, to pay farm workers more when, because of rising inflation, food prices are already too high is contrary to the public interest. Moreover, farm workers who want to earn more off of the backs of consumers, who would now have to pay higher prices, are simply being selfish. Are we then saying that farm workers have a moral obligation to be impoverished for the sake of the public interest as defined by lower food prices? If so, that would be a rather peculiar understanding of what constitutes the public interest. And yet, that seems to be the implication.
After all, if farm workers earn more, so too do prices increase which consumers have to pay. For the action of raising their wages, there has been an equal and opposing reaction. And yet, this brings us back to the whole conundrum of wages and whether it is in the public interest to mandate minimum wages. But it isn’t only wages, but the sacrifices that workers generally are expected to make for the sake of the public interest.
The minimum wage debate has long been couched as youth paying the price of losing their jobs simply for an anti-poverty measure that really doesn’t help the poor. The standard model of competitive markets holds that increases in the minimum wage will lead to lower employment, and specifically lower employment of teenagers. Since most minimum wage earners aren’t poor, but are primarily teenagers, there is no benefit to having teenagers lose their jobs. In fact, to invoke the disemployment effect among teenagers is to make another claim that not raising the minimum wage is in the public interest.
As I have noted many times already in this space, this narrow construction of the minimum wage fails to take into account that the statutory minimum wage is merely a reference point for the larger low-wage labor market which encompasses a much larger segment of the labor market, most of whom would be considered the working poor. And to the extent that there are wage contour effects, which have also been discussed in this space, raising the minimum wage could well be in the public interest if it effectively leads to wage increases across the board.
Arguably, the critic will retort that if that is true, a rise in wages may also lead to an increase in prices, as workers with more money to spend increase their demand for goods and services in the aggregate. Hence, an equal opposing reaction. Perhaps instead of letting so-called experts, i.e, neoclassical economists, decide what constitutes the public interest, it should be a matter for public discussion among the entire demos.
At the same time, those who oppose minimum wage increases because it will result in lower employment, according to them which is contrary to the public interest, will have no problem with raising interest rates to control inflation. These same voices have been yelling that inflation with rising prices is contrary to the public interest. Not only does it make some items, like food and other necessities unaffordable, it devalues the wages workers receive and thus wipes out the gains they have made when wages also increased.
The remedy for rising inflation is usually for the Fed to contract the money supply by increasing interest rates and increasing the reserve requirements for member banks. This effectively makes it more costly to borrow money. It also effectively applies the brakes to the economy because with the rising cost of obtaining money firms will not expand, and therefore will not hire more workers. Rather, they will most likely lay workers off. The remedy for inflation invariably leads to an increase in unemployment. Here is where we can clearly see Newton’s law of motion at work.
Still, we have a problem here. What was not in the public interest — lower employment — when the result was workers earning higher wages is now in the public interest — again lower employment — when fighting inflation. Perhaps getting to the bottom of this hypocrisy may not be as difficult as it may seem, especially when we come to recognize that whatever is in the interests of workers is never in the public interest.
Or so that would appear to be the common thread that runs through the different cases I have been discussing here. To raise wages, or to even simply pay poor workers enough so that they can live in dignity, will be viewed as contrary to the public interest by those who will bear the costs. Because capitalist markets are largely zero-sum, there will always be costs to some for the benefit of others. And yet, isn’t it odd that the public interest is always defined by those who have economic power?
Ironically, the current welfare state which insists on maintaining the mythical distinction between public and private spheres as though they are two separate entities and never the twain shall meet, really requires a more inclusive type of economic democracy. It is ironic because the contemporary welfare state has sought to avoid being labeled an economic democracy. Why? Because that would require the demos having more control of the economy and serious public debate about what falls in the public interest. Were that to be the case, the public interest would have to include the interests of workers.