Many years ago President Lyndon B. Johnson announced a War on Poverty.  His program consisted of an elaborate mix of social programs intended to transfer wealth to impoverished Americans.  Initially the program enjoyed some modest success, dropping the poverty rate from 19% when it was announced in 1964 to a low of 11% by 1973.  Of course the entire decline can’t be solely attributed to Johnson’s program, but it was a major factor.  Since that time the poverty rate has stagnated; bouncing between 11 and 15% since then.

I think that poverty can be dramatically reduced - or at least recycled - in our country through two controversial and politically suicidal moves: the elimination of the federal minimum wage and the decriminalization and regulation of illegal drugs.

Income and wealth disparity continue to exist today.  It comes with the territory in a capitalist economic system where every individual has the freedom to make both sound and poor decisions that affect every facet of their lives.  We can’t - and shouldn’t - attempt to “solve” the issue of wealth disparity.  Poor people, on average, end up in their situation due to one or many bad decisions that have affected their earning and saving power.  Wealth disparity cannot be solved without the imposition of a socialist or communist system.  And then we’re all equally poor!

However, persistent wealth disparity is a problem.  It is indicative of endemic impediments to opportunity and advancement.  It is analogous to a stagnant pond that slowly chokes off the life within.  One might argue that the son of a poor man is statistically more likely to be poor himself due to the bad habits he might learn growing up.  To an extent I would agree, but it cannot fully explain multigenerational poverty.  I hypothesize that opportunities lost as a result of a legislated wage floor coupled with the lure to enrich one’s self by selling illegal drugs is the core cause of pervasive poverty.

First it should be made clear that a person’s “fair” wage is dictated by the market and cannot be prescribed by the government.  Labor is treated as a commodity by an employer, not unlike a machine or a building.  Like any other commodity, every person has a fair market value based on what talents they possess.  If an employer can find a lower cost method of performing your work then he will dispassionately replace you - whether it is another person, machine, or a different process altogether.  Humans have the unique ability to actually improve our talents over time, which increases our market value.  Machines are not capable of this without additional investment of capital.  Human capital, as it is referred to, is not unlike art.  The price paid for a painting is not determined by the painter or the art critic.  The price is determined by the individual willing and able to purchase the painting.

When an arbitrary wage floor, or minimum wage, is imposed by the government businesses face a dilemma and their options are somewhat limited.  They can pass the costs on to consumers, but their ability to do so is outside their control.  A second option would be to let the increased labor costs erode profits.  Contrary to popular belief, businesses do not have infinite profits.  Profits represent return on investment and all businesses, which are ventures of various degrees of risk, must have a certain level of profitability or the owners will simply pull their money out and invest it elsewhere.  The third, and most attractive, option is to keep the labor costs constant by eliminating some jobs.  The fired employees are effectively “priced out of work” by the supposed benevolence of the government.

Historically, low wage jobs have served as the first step up the ladder of achievement.  They allow people with nascent job skills to prove that they are both capable and reliable.  Companies might be willing to hire a worker with no proven job skills at a low, introductory wage to evaluate the employee.  If the employee proves to be qualified then his wage will automatically increase (if his current employer won’t step up to the plate he can take his new found talents elsewhere).

The minimum wage has taken significant opportunity out of poor communities - harming the people it ostensibly benefits.  Privileged children have an easier time financing post high school education, which effectively allows them to bypass low wage entry level jobs.  Poor people have only their ambition, will, inherent talents, and whatever they are able to acquire from the notoriously ineffective government run schools that serve their communities.  In other words, they REQUIRE opportunity to both start and advance.

Where the minimum wage has created an opportunity vacuum the illegal drug market offers a very lucrative opportunity to poor youth.  Much like the situation created by prohibition, it has become clear that government can attempt to crimp supply, but they cannot stem demand.  The result is high prices, which attracts the impoverished, who see no other viable way to succeed.

As young men enter the drug trade in order to take advantage of the “easy” money, many of them find their way into our penal system.  Unfortunately, many of these men (and women) have children.  Other than abusive parents, I don’t think anyone would argue that children are better off without one or both of their parents.  As the parents in these communities are incarcerated, the children suffer and are almost forced down the same path.

Decriminalizing and regulating illegal drugs can turn the jobs of transporting and selling those drugs into safe, legitimate occupations - not unlike the men who drive around beer distribution trucks (at one time they were bootleggers).  Opening the supply valve will drive down prices (prices will fall for other reasons as well), making these jobs less attractive to poor, talented youths, which in turn will encourage them to pursue more socially acceptable and beneficial occupations.

The harmful impact of illegal drug abuse is not restricted to poor citizens, but they certainly feel the effects.  Most critics would be quick to say that decriminalizing drugs would only exacerbate that problem.  That is where the regulation comes into play.  The government could set caps on the active and addiction causing chemicals, not unlike brewed beer has a maximum alcohol content rating.  That would help mitigate addiction rates and the number of people getting “stoned out of their minds.”  More potent drugs would no longer be viable to produce and distribute illegally.  Right now a substantial portion of the price paid for illegal drugs on the street represents the costs to evade law enforcement and (sometimes violently) suppress rival dealers.  If people could buy legally buy inexpensive, low grade drugs at the corner market then the restricted, potent drugs, which will still carry the evasion price penalty, will no longer be cost competitive.

There are numerous additional reasons to abolish the minimum wage and to decriminalize drugs independently, but I’ll leave those up to the imagination (or you can pry them out of me through comments).  Together though, those two acts would do wonders not to eliminate poverty (that is not possible), but to create churn - to give people born into poverty a greater chance to escape its grasp.  That dynamism is good not only for the direct beneficiaries, but also for society as a whole.  The beauty of a free market system is that when hungry people are willing to work hard and take risks they can trade places with those who become fat and complacent.  Government intrusion into this process through laws such as a minimum wage merely entrenches people into the caste they are born into.  And if they try to seek out the most attractive opportunity still in their field of view they are incarcerated.  We can do better in this country.

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This entry was posted by Brian on Wednesday, January 10th, 2007 at 11:38 pm and is filed under Drugs, Social Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Please note the copyright policy.