In a sound political system, it should be obvious that the principal task of politicians is to maximize the living standards and life quality of the people they govern. Given that truism, the politician’s principal economic aim should be to ensure that their constituents’ labor is as expensive as possible. This will ensure that new technologies are introduced rapidly, further improving constituents’ living standards. Cheap labor is a feudalist and rent-seeking shibboleth, the aim for which undermines society and sharply reduces human happiness.
In mediaeval times, large landowners ran most political systems (whether or not nominally headed by a monarch) and sought to maximize their wealth by keeping labor in as subservient a condition as possible. Mediaeval legislation thus took two forms. One was artificial restriction of free markets to ensure that merchants and other urban folk did not profit excessively at the expense of landlords (the periodic pogroms of typically urban and trade-oriented Jews were part of this effort). The other was restrictions on wages, which were especially necessary when labor’s value had suddenly increased for some reason.
When the Black Death wiped out a third of the population in 1348-49, the 1351 Statute of Labourers attempted to force suddenly scarce and valuable workers to work for their pre-1348 wages. For the landlords, the Black Death had been doubly an economic disaster; land had suddenly become much less valuable because there were fewer mouths to feed and workers had become suddenly more valuable because there were fewer of them. For any self-respecting Feudal baron, this appalling example of market forces must be resisted at all costs.
The suppression of the lower orders began to break up in Britain with the Restoration, although the retrograde Whigs of 1714-60 passed legislation that attempted to perpetuate it. Daniel Defoe’s 1722 “Moll Flanders” is the daughter of a convict who uses her charms and various legal and illegal maneuvers to raise her status; she ends up a wealthy plantation owner in 1683 Maryland. The idea that someone of low birth could through brains and sheer hustle become wealthy was a new one in post-Restoration Britain; it became the norm under William Pitt and Lord Liverpool, who led governments that favored entrepreneurship, technology and rising living standards.
Interestingly, the same change happened in Japan at around the same time. The Genroku period (1688-1704) had seen rising prosperity, but the wealth had all ended up with feudal lords and urban merchants, who employed it in conspicuous consumption. The reforming Shogun Tokugawa Yoshimune (ruled 1716-45) reoriented the Japanese economy towards rural areas, setting up central markets for rice that allowed growers to sell their product directly, permitting the introduction of Western books and allowing tax exemptions for rural entrepreneurs. As a result, Japanese living standards improved substantially, so that the country was roughly twice as rich per capita as either China or Russia when opening to the West came in 1853. Even rural farmers of modest background, such as Ichiroemon Shibusawa were able to amass substantial wealth through trading indigo balls; his son Eiichi Shibusawa (1840-1931) was the father of modern Japanese capitalism.
It is clear from these examples that an economy of higher wages was critical to the emergence of capitalism and the Industrial Revolution. It liberated the mass of people from serfdom and destitution, allowing them to pursue their own destinies in a relatively free system. Whether in a small way – Ichiroemon Shibusawa’s indigo balls – or on a large scale – his son’s part in the foundation of most major Japanese companies – a high-wage system gives incentives to new technologies and removes the blocks from small-scale individual enterprise, which cannot be attempted from a subsistence-level wage base. As Thomas Malthus (1766-1834) propounded while advising the Liverpool government in 1814-15, it is essential through legislation and technology to move the mass of people well above the Malthusian poverty level, so that technology can outrun population growth and progress can accelerate.
In the modern world, the need for government policies to promote high wages continues. First and most important, immigration must be severely restricted, to a level no higher than the 1980s average, in Britain, the EU or the United States. In particular, there must be no forms of “indentured servitude” immigration such as the H1B and H2A U.S. visas, which undercut the domestic workforce by providing an alternative source of indentured lower-paid docile labor who can be sent home if they rebel. Anomalies like “birthright citizenship” must also be stamped out, so that proper immigration controls are not subverted by unscrupulous foreign scamsters seeking to live on U.S. welfare. Milton Friedman said that unrestricted immigration was incompatible with a welfare state; the United States has had both in place for 60 years now and has more than proved his contention.
The second necessity for a high-wage economy is a society with a low level of embezzlement and fraud. Government programs that lead to fraud must thus be shut down; any good they may do is hugely outweighed by the moral damage they cause. Similarly, the financial sector must be prevented from causing scams and bubbles; to this end it is essential to run a tight monetary policy with high real interest rates, ideally a Gold Standard. Such a policy will also eliminate the biggest swindle of all: the government’s use of inflation to erode the earnings and especially the savings of ordinary people. Only when ordinary citizens are assured that their savings are secure against erosion, fraud and theft will they be able to plan the seed ventures that are the true source of economic growth. Eliminating fraud in the public sector will also do much to eliminate it in business; a high level of business ethics is essential to protect small and new enterprises, which have fewer defenses against malefactors.
A third essential, neglected by Britain in the 19th Century, is a protective tariff to prevent the country’s most productive industries from being undercut by low wage ghettos. That is not to say that all industries should be protected; most agriculture is better left unprotected because high wages can be supplemented by extensive mechanization. The Corn Laws, which protected corn agriculture and the existing social structure, were invented by Liverpool; agriculture subsidies, which subsidize outdated farming methods and impose a huge burden on the non-farming majority, were invented by the cuckoo socialist Henry Wallace (1888-1965). From that comparison alone, we can see that while protection of some agriculture may be appropriate and will yield revenue, subsidizing it is expensive Marxist nonsense.
Conversely, it is important not to subsidize dying industries whose economics are clearly moving towards lower-wage countries. One has huge sympathy for the unfortunate handloom weavers and framework knitters of early 19th century Britain, but they were becoming obsolete. Allowing unscrupulous employers to drive their wages down below subsistence levels was far more damaging for the economy and the weavers/knitters themselves than would have been a faster replacement of their jobs by mechanization. Prolonging the life of decrepit relics like the British volume car industry may satisfy the unions and their “Red Robbo” convenors but is a grotesque waste of public money and prevents resources from being redeployed into more productive uses.
The most important assistance to a high-wage economy is to encourage the new industries and companies from which new opportunities for high wages will come. This is a tricky policy balancing act; merely handing out subsidies, like the Biden “Chips” Act will produce infinite scams and very few new jobs. Indeed, the cost to the economy’s non-favored sectors of the additional taxes and borrowing needed to fund the subsidies may well result in a net loss of jobs.
Government cannot “pick winners” from the tech or biotech sectors and should not attempt to do so. It must simply provide a fiscal, monetary and regulatory environment in which new industries and companies will thrive. Part of this involves avoiding the obvious mistakes; the state of California’s proposed wealth tax will not only divert wealth to other states but destroy it altogether, because it will discourage business formation and capital accumulation, making wealth creation less attractive than holding a well-paid easy job which dozy policymakers are unlikely to attack directly. However, the excess regulation, whether inspired by “climate change” fanaticism, healthcare control-freakery or otherwise, of the Biden and Obama administrations and their state and local government allies fell especially heavy on the small business sector, the main source of growth and good new jobs.
Artificial Intelligence can help greatly in producing a high-wage economy. By replacing repetitive and uncreative operations, it will eliminate many jobs that were in any case going the way of the British auto worker. Equally, it will create a myriad of new jobs and wants that demand specialist skills of their users and are hence highly paid. For those in manual labor, it will improve their productivity, hence reducing the threat of competition from low-wage economies and permitting worker remuneration to grow. Its overall boost to productivity is quintessentially the most important requirement for the United States to remain the world’s highest wage economy and American workers to benefit accordingly.
Reject the bleating of the low-wage lobby, seeking to import cheap labor and reduce living standards; only by equally rejecting its ancestors’ machinations like the 1351 Statute of Labourers did we escape the dreary wasteland of feudalism.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)