But Boudreaux also wrote a letter to Reich countering the economically ignorant (though increasingly popular!) claim that “we subsidize low wage employers” like Wal-Mart, McDonald’s, and almost every mom-and-pop business in America through government welfare programs such as food stamps, Medicaid, and housing assistance. As Boudreaux says to Reich:
Basic economic reasoning reveals your argument to be backwards. Welfare payments of the sort that you mention make work a relatively less attractive option for welfare recipients and, thus, reduce the labor supply. One consequence is that wages paid by employers to their low-skilled workers are raised (and not, contrary to your mistaken suggestion, lowered). Thus, far from being subsidized by most government welfare programs, Wal-Mart, McDonald’s, and other employers of many low-wage workers are harmed by them.
Don’t believe me? Here’s Arindrajit Dube, one of the most prominent economists today who favors raising the minimum wage: “[M]eans tested public assistance programs are not tied to work, and we should not expect them to lower wages. Let’s take food stamps, which are available to eligible families whether or not a family member works or not. Indeed, when people are not working, they are more likely to be eligible for food stamps since their family incomes will be lower. Therefore, SNAP is likely to raise, and not lower a worker’s reservation wages – the fallback position if she loses her job. This will tend to contract labor supply (or improve a worker’s bargaining position), putting an upward pressure on the wage.”
Your failure to grasp even the most fundamental of economic principles makes your arguments for a higher minimum wage especially dubious.