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Free labour markets and a leftwing academic’s propaganda
Gerard Jackson
Now that John Legge, a teaching fellow at Ballarat and Swinburne universities, has once again entered the public arena to attack labour market reform, I think it necessary to republish this article which was first published in The New Australian, No. 104, 25- 31 January 1999, under the title A left-wing academic gets burnt on labour markets. It will serve the purpose of demonstrating that lefty haters of the market never seem to learn.
The mere mention of free markets is enough to drive left-wing academics like John Legge into a frenzy. In a truly educated climate Legge’s economic views would, at best, be the subject of some amusement. Unfortunately, a good many journalists and politicians share his deplorable ignorance.
In response to Des Moore’s call to abolish job-destroying wage-fixing arrangements that have given us about 8.5 per cent unemployment, Legge made several claims:
a) a free labour market create an American-like situation where “the rich are richer” and “the poor poorer than in Australia”;
b) people on currently on the dole would be denied all assistance and forced to turn to “charity, begging or crime”;
c) virtually “all of middle Australia” would suffer a 14 per cent cut in wages. This is complete and utter nonsense.
Take point (a) first. Legge attacked the “US pattern of income distribution”. This alone revealed his economic illiteracy. The vast majority of incomes are earned, not distributed. In the market place one earns an income by providing services for which one is paid. Furthermore, economics, as Legge should know, explains in considerable detail why individuals will tend to receive the full market value of their services.
Now it should be made clear that when socialists like Legge attack a current pattern of earnings (misleadingly called income ‘distribution’) they are trying to pass off a value judgment as an objective fact while insinuating that the specified pattern is unjust, i.e., involves exploitation. They rarely express their view this way because they know it cannot withstand logical scrutiny. There is one guaranteed way in which one can derail this argument:
1) Ask its proponent to explain why the current ‘distribution’ is unjust.
2) Ask him how by what objective means he arrived at his conclusion.
3) Semand to know why his pattern of distribution is economically and morally superior to the one he condemns.
I have asked a number of socialist’s these three questions. They never responded.
Legge’s claim that America’s rich are richer than Australia’s is both true and irrelevant. It would be very peculiar if it were otherwise given the sheer size of the American economy. His other statement that Australia’s poor are richer than America’s poor is ideological claptrap and seems intended to suggest that America’s rich owe their wealth, at least in part, to exploiting the poor.
A few facts will illuminate the argument. An important point that socialists neglect is that though the “poor are always with us” they are never the same poor, especially in America. In other words, there is a great deal of income mobility. For instance, the 1979 US income tax returns showed that more than 80 per cent of those in the bottom 20 per cent who had filed returns had moved into higher income brackets by 1988. A university study also found that less than 50 per cent of families surveyed from 1971 to 1978 remained in the same quintile of income distribution.
Much is made by some of the top 5 per cent of income earners without mentioning that it takes an income of little more than $US100,000 to join this group. Moreover, Legge ignored, as do all leftist commentators, the fact that age plays a significant role in the wealth statistics. In addition, the stock market bubble has inflated the paper wealth of a great many individuals, thus widening the so-called wealth gap.
Let us now compare, for example, the consumption level of the so-called average “poor” American with that of the average West European — and not West Europeans classified as poor. The former lives in a larger house or flat; that he eats far more meat, has cheaper food, is more likely to possess basic amenities, own a dishwasher. Nearly 40 per cent of Legge’s ‘poor’ Americans own their homes; about 60 per cent have air conditioning; and 91 per cent have colour televisions (29 per cent two or more) and 64 per cent own a car and 14 per cent own two or more.
These ‘poor’ Americans are 40 per cent more likely to own a car than the average so-called wealthy Japanese. In addition, the median income in the US for the group aged 24-34 is about $A42,000. These are facts, however, that Legge’s Australian media clones refuse to publish
Now point (b) is an outrageous libel. Des Moor has never called for the abolition of the dole for the unemployed and it is malicious to insinuate otherwise. Unfortunately it is par for the course for Leftists, particularly in the media, to malign their free-market critics. However, the days when that could be done with virtual impunity are over, thanks to the Net. There is no more to be said on this point.
Point (d) is pure drivel. There is absolutely no way anyone can predict the magnitude of wage adjustments in a free labour market. Moreover, the very idea of treating wage adjustments in an en bloc way is ludicrous. What needs adjusting are not wage rates in general but specific rates; those that exceed market clearing levels and thus cause unemployment. Restoring these rates to their market levels will release withheld capacity and hence raise the demand for labour and restore income flows.
There is absolutely no need for a general wage rate cut. Legge, though he probably does not know it, is arguing that nearly all of those workers he categorises as being part of “middle Australia” are being significantly paid in excess of market clearing levels. Even if this were true, he evidently has not grasped that their increased income has come from those who would have been employed if above market wage rates had not destroyed their jobs. Readers should also note that Legge did not actually deny the connection between labour costs and unemployment.
Legge finished by claiming that free-market labour policies have made more than 50 per cent of Americans worse off. Excuse me. Every honestly used statistic demonstrates otherwise. However, if it were not for the kind of destructive interventionist policies that the likes of Legge support Americans would be vastly better off than they are today. That also goes for us.
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Gerard Jackson is Brookes’ economics editor
BrookesNews.Com
Monday 3 October 2005