Friday, July 14, 2006

Great idea!

Don Lusikin writes about a great point made by a George Mason professor. Let's set a minimum price for used cars of $15,000 in order to help the poor. They will make much more on their trade-ins and increase their wealth.
Here's a fantastic idea that will make everybody richer. Let's pass a law setting a minimum price on used cars. How about, say, $15 thousand?

If you've got an old beater you want to sell, and you were worried that you'd only get a couple thousand bucks for it, then this law is for you! Now you'll get $15 thousand for it!

This law would help the least fortunate Americans most of all. Those with the lowest incomes tend to own the oldest cars in the worst condition. With this law, they'll be assured of getting a terrific price.

There's just one problem. There are lots of used cars that no one wants to buy for $15 thousand. If you want to sell one of those, under this new law chances are that you wouldn't be able to sell it at all. The $15 thousand minimum prices you right out of the market.

And the poor people whom this law was supposed to help? They'd actually get hurt two ways by it. Not only would they not be able to sell their used cars. At the same time, they wouldn't be able to buy a used car either -- since now they'd have to pay $15 thousand for it, which they can't afford (and which it probably isn't worth, anyway).

So who would support a law this stupid? Well… actually, you might -- without even realizing it.

If you support minimum wage laws, then you're supporting the very same logic underlying this crazy idea of a minimum price for used cars. (Thanks to Don Boudreaux, an economist at George Mason University, for the colorful metaphor.)

If a law forces employers to pay no less than, say, $10 an hour -- then employers will simply not hire anyone for jobs that are really worth less than that. And they'll fire anyone who was doing those jobs at a lower wage, before the law was passed.

Which leaves the low-wage earner with a rather stark choice. Would he rather be employed at $9 an hour, or unemployed at $10 an hour?


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