Everyone loves stories of plucky individuals, beaten down by circumstances but working hard to get ahead. Dickens made a career out of them. It’s a noble sentiment, but it’s a terrible basis for public policy, which is unfortunate for the US, which has persistently put that heart-warming story at the centre of its social welfare policies. I was reminded of this recently when reading an article in the German newsweekly Der Spiegel about the push in some American cities — Seattle, in particular — to raise the minimum wage substantially. (The article doesn’t seem to be available online, but a related interview with activist-entrepreneur Nick Hanauer is here.) I am all in favour of these proposals — there’s no better way to help poor people stop being poor than to give them more money — but it’s clearly not going to solve all of society’s problems. In particular, the Spiegel reporter talks to a single mother of two children, working 32 hours a week for Domino’s Pizza, whose apartment is too small for both children, only manages to get enough to eat by taking home leftover pizza, and has to admit shamefacedly that she never can afford to buy her children any sort of gift. It’s wonderful that she will be earning 60 percent more in a few years (unless she loses her job), but the reporter adds in the sort of detail that German reporters inevitably include in reports on US urban misery:
She lives in a suburb of Seattle. Not a good neighbourhood, she says, lots of drugs and crime. Once someone was shot to death in front of her house.
So, maybe the increase in the minimum wage is going to help her and her sons move to a better neighbourhood. But it’s not going to make the neighbourhood better! The only way to reduce the number of people who have someone shot in front of their house is to reduce the number of people who are shot. If all the people earning minimum wage decide to use their raises to move to a better neighbourhood, the rent in the better neighbourhoods will just go up. Their negotiating position for housing will be improved relative to retirees, nonworking poor, students, etc. But the number of sad stories of people who can’t afford to move out of their run-down crime-infested neighbourhood will not change, though possibly the people suffering will be less sympathetic, which might seem like an improvement.
The only way to have more people living in good neighbourhoods is to improve the neighbourhoods. Giving more money to the working poor may help them to improve their neighbourhoods, but the effect will be fairly indirect. Food, clothing, consumer goods will all be more available to them; production will expand to meet demand. But “good housing” is not something the market can supply more of, since the main thing that wealthier residents pay for is higher-quality neighbours.
People find the behaviour of closed systems unintuitive, where a gain in one component is a loss somewhere else. So you have cities and towns trying to solve the problem of homelessness by harassing the unemployed, not letting them sit on the sidewalk or use toilets, to make them go somewhere else. That works because a town is an open system, but it doesn’t help the country as a whole to have the homeless forced to move around.
It’s similar to the proposals people sometimes put forward to help the unemployed by training them in writing résumés and performing at interviews. It will help those particular people find work, but only at the expense of someone else who wasn’t on the course. Companies may or may not cut their workforce because the minimum wage goes up, but I’m willing to bet that they almost never decide not to fill a post because the otherwise qualified applicants didn’t format their CV the way they would have liked.
Common Infirmities 