Posted by: graemebird | December 14, 2008

Cascading Labour Model And The Mis-Emphasis (Faux)-Libertarians Have On Minimum Wage.

Brought to the front to celebrate getting unbanned from the best website in the world:

Someone who has borne witness to these bigshots in large Australian companies, who get together and vote themselves huge salary increases, stock options, and massive bonuses, might feel that our greatest living economist lacks credibility in this piece. So I thought it was my duty to flesh this out some.

Over at Larvatus Prodeo, one of the two blogs I first got onto on ozblogistan, there was a bunch of leftist economists who would always say that “the jury was out” on the minimum wage. The jury isn’t out on price-fixing of any sort. But the dumb-Keynesians had recruited the invalid Keynesian multiplier to say that forcing these employers to pay higher wages, lead to increased spending on consumer goods, which therefore would lead to greater employment. Total bullshit. But oddly convincing to those who have the multiplier lodged firmly in their minds. 

We will talk more about the multiplier a bit later. But though the idea that minimum wage increases can INCREASE employment is pure voodoo, still there is a very wrong emphasis on the minimum wage by a lot of people calling themselves libertarians. I have often raised the idea of this cascading labour model in this regard and its just gotten a big fat yawn. You see I think we ought to resist credentialism at the individual level and leave it to the company when it comes to quality control. 

So for example, each worker in McDonalds doesn’t need to be a trained chef. We rely on their business model more generally to ensure a good and hygienic product. And if there was to be a qualification for the instructors in a swimming school it would only be to do with St Johns ambulance rather than Vicswim, Ausswim, Level 1 coaching et al. These things may be helpful, they may be consumer-driven. But we ought not be promoting these government sponsored courses or be trying to make them compulsary.

Also when it comes to the dispensing of drugs in a pharmacy. As a compromise it may be that they had to have one trained pharmacist working there for at least some of the time. But it truly is unnecessary to be forcing people to go to subsidised schooling for such jive. It is up to the company itself to maintain quality control. 

Its the same withe the Doctors surgery. Not everyone needs to be a trained doctor. Although for the time being there may need to be some way of holding the company responsible for any mistakes, yet it is this closed shop arrangement which is forcing medical costs up sky high to where no-one can even imagine health care NOT being paid for via insurance. Yet a competitive medical industry, working under free enterprise, ought give noticeably better value for money each year, just as any free enterprise industry does.

Already alleged libertarians are falling asleep here. But its important we get used to the idea of the cascading labour model. For this cascading labour model shows us that currently the low paid ARE too low paid and it shows why they are too low paid and how to cure this problem. Libertarians like to be in denial about this sort of thing. They say, well its capitalism, its supply and demand, hence they cannot be too low paid. But the thinking doesn’t go further than that.  And this has become a stock imbedded logical fallacy with faux-libertarians and libertarians of the more ignorant persuasion. Since we are not in a capitalist society we cannot make such a claim. Virtues of capitalism cannot be attributed to the status quo. That duck won’t alight from the lake if you simply bring it down to syllogistic terms. Yet the wrong attribution of capitalist virtues to the status quo is mistaken thinking that I’ve even seen very good Austrian economists fall for from time to time. 

 Once the talk comes to the cascading labour model, well the eyes are going to glaze over by that point, and they are not going to see why the emphasis on minimum wage is misplaced and why it comes over as pretty self-serving. I mean the average libertarian himself might be benefitting from something close to a closed shop arrangement and he might feel anemic and energy-deprived if the topic turns to undermining his own status by allowing free competition in the higher levels of the labour market.

I think its just better to refer you to a Mises video where this concept is explained by the greatest living economist.  Reisman focuses on the case of labour cascading down from union action. I would say that in 2008 this is more of a secondary concern. And that most of the problem is from credentialism and interventionism more generally in myriad forms and in terms of all sorts of regulations.

We have Jeffrey Tucker interviewing and showing all due respect to the great economist in the youtube below where this idea of cascading is explained.  Makes me feel like a complete jerk ever losing my temper at that wonderful man Mr Tucker. This is a most neglected, but highly important concept, that needs to be understood by more people, if we want to build a freer fairer society.



  1. so you’re in favour of capping executive salaries, are you?

  2. No but its hard to argue with the laity about it and at the same time move to wipe out unions. You must see the problem with that?

    Solutions have to be organic and not compulsary. You know me better than that Jason?!!!!! You ought not mislead third parties in this way.

    I’ve talked about some organic problems with pty ltd. Which we need desperately, but which perhaps is not being applied strictly in the spirit of honoring freedom-of-association.

    Now thanks to your point-scoring I’ll have to bring to the front my speculations about the right place of the (absolutely-essential but currently-problematic) pty ltd.

    “WE THE PEOPLE” means just that and no-one said anything about “We the CORPORATIONS”. So we need to take a nuanced approach. And the delineation of what constitutes valid property titles is the leading priority for a free society, because we don’t know what constitutes an initiation of force until we know what constitutes property.

    I will say this. Decades of rigging the system in favour of the already well-off…… as well as straight capital theory….. means that currently, a subcontractor, having to pay 15% on RETAINED earnings is more offensive than a salary-earner having to pay 30% on earnings above a threshold of 100 000 AUD for him and each of his registered dependants.

    There really is a time, history, and narrative element to these things. Its not just about the RATE.

    But of course since taxing profits is always a crime thats got to go first, then for the forseeable future we have to lift the tax free threshold straight up from the ground.

    Cuts to top marginal rates and GST come later.

    What I’m saying here is not written in stone or pulled from the economics-burning-bush….. But rather it comes from an appreciation of our history and current starting point.

    Always we must start with ending the inflation tax, and ending the Fed. Even if we need to smooth it over with the immediate losers from this initial action.

  3. The productivity commission has done great work recently in this regard. Almost as if they were taking my advice in the second comment above.

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