In an interview published this week New York Times, Sen. J.D. Vance (R-Ohio) has called for a stronger federal government to intervene in the economy more aggressively than it does now to create what Vance called “incentives” for American workers. In the process, Vance inadvertently revealed one of the major flaws in this analysis.
Vance’s views on these matters are significant, in large part because he made the short list of Donald Trump’s running mates. Focusing on this possibility, era” Ross Douthat asked Vance to explain his “populist economic agenda.” Here’s part of the senator’s response (emphasis mine):
The populist vision, at least in my mind, is this: [the postwar American order of globalization]: exerting equal upward pressure on wages And put as much downward pressure as possible on the services people use. We have had too little innovation and too much labor substitution in the past 40 years. This is why I think the economics profession is fundamentally wrong about both immigration and tariffs. Yes, tariffs can put upward pricing pressure on all sorts of things – although I think that’s grossly exaggerated – but when you’re forced to do more on domestic labor, you have all these positive dynamic effects.
This is a classic formula: You raise the minimum wage to $20 an hour, and sometimes you hear liberals say that’s a bad thing. “Well, isn’t McDonald’s going to replace some of its employees with kiosks?” That’s a good thing because then the workers who remain will get higher wages; the kiosks will perform a useful function; that’s what really drives up A rising tide for all ships. The bad thing is, you’re replacing a $17-an-hour McDonald’s worker from Middletown, Ohio, with a $15-an-hour immigrant. I think that’s what elitist liberalism is about, whether people admit it or not.
The basic fallacy here is one that President Joe Biden, former President Donald Trump, and many other politicians often make: They speak as if America is made up of one group of “workers” and another group of “consumers.”
If so, you can focus on policies that increase wages for one group (workers) at the expense of another. But since most people are sometimes workers and sometimes consumers, policies that artificially impose “upward wage pressure” will also put upward pressure on the prices consumers pay (because those wages have to come from somewhere). If you want to see what the reality is, look no further than California’s experience with a $20 minimum wage. Prices are skyrocketing and jobs are being lost.
Pitting the two fictional camps of workers and consumers against each other may be a clever electoral strategy, but it is not the basis for sound economic policy.
There is another, deeper problem with Vance’s argument. In the second part I highlighted above, he argued that it would be okay if jobs were replaced by automation after the government mandated a higher minimum wage, because workers who kept their jobs would make more money. But if your job is being lost because of market forces — because someone else is willing to do the same job for less — he suggests government has a role to play in solving the problem.
Taken together, these two premises effectively avoid the blame for government intervention in the economy that inevitably has negative side effects. Consider the two scenarios presented by Vance. In both incidents, a worker lost his job. Vance said if centrally planned wage mandates are the cause, that’s actually a good thing because it means remaining workers will earn more and be more productive.
To his credit, he recognizes that automation is not something to be feared or forbidden—not every populist understands this. Even so, the fact that automation can help some McDonald’s workers make $20 an hour may not be much comfort to workers who would otherwise make $17 an hour but are now out of work due to government mandates. For that matter, while automation is a natural market response to artificially higher wages, it’s not clear whether this trade-off has economic benefits. If so, why doesn’t Vance want a $100 an hour minimum wage?
Meanwhile, Vance yes The fear is that the same person will be replaced by a different worker willing to do the same job for $15 an hour. (You’ll note that this scenario smacks of xenophobia. Why can’t wage competition come from another native American worker willing to do the job for $15 an hour?)
This seems very incoherent, but I think Vance is trying to play a smart game here. He argued that job losses (or other negative economic consequences) due to well-intentioned government interventions should be ignored and the focus should be on how workers benefit from these interventions.
If you, like Vance, support greater government intervention in the economy, this is exactly the framework you want to work within. Of course, a higher minimum wage means some workers lose their jobs and consumers pay more, but other workers make more money. Of course, cutting off immigration might increase inflation, but it would protect some workers from wage competition. Of course, dumping tons of tax money on politically favored businesses and industries means everyone suffers higher taxes or borrowing costs, but look at the shiny new semiconductor factories and the jobs created.
There is nothing new in this line of thinking. Vance simply added a more conservative twist to the same tired arguments that progressives and other big government advocates have used for years. In either case, the argument is that government officials know exactly what levers to pull and what “incentives” to offer. Is $20 an hour enough or should it be higher? How many factories does this town or state need? What jobs are important enough to protect? Conservatives once had the humility to recognize that government officials could not answer all of these questions.
Vance and other right-wing populists have replaced that humility with a different idea: When government inevitably makes mistakes in picking winners and losers, we should ignore the costs and focus only on the benefits.
