J.D. Vance's Incoherent Argument for Higher Minimum Wages

Vance thinks that jobs lost because of incompetent central planning don't matter—but that jobs lost to immigrants do.

In an interview published this week by The New York Times, Sen. J.D. Vance (R–Ohio) calls for a more muscular federal government to intervene even more aggressively in the economy than it already does, to create what Vance calls "incentives" for American workers. In doing so, Vance inadvertently reveals one of the major flaws in this line of analysis.

Vance's opinions about these things carry significant weight, in no small part because he's on the shortlist to be Donald Trump's running mate. With an eye towards that possibility, the Times' Ross Douthat asked Vance to explain his "populist economic agenda." Here is part of the senator's response (emphasis mine):

The populist vision, at least as it exists in my head, is an inversion of [the postwar American order of globalization]: applying as much upward pressure on wages and as much downward pressure on the services that the people use as possible. We've had far too little innovation over the last 40 years, and far too much labor substitution. This is why I think the economics profession is fundamentally wrong about both immigration and about tariffs. Yes, tariffs can apply upward pricing pressure on various things—though I think it's massively overstated—but when you are forced to do more with your domestic labor force, you have all of these positive dynamic effects.

It's a classic formulation: You raise the minimum wage to $20 an hour, and you will sometimes hear libertarians say this is a bad thing. "Well, isn't McDonald's just going to replace some of the workers with kiosks?" That's a good thing, because then the workers who are still there are going to make higher wages; the kiosks will perform a useful function; and that's the kind of rising tide that actually lifts all boats. What is not good is you replace the McDonald's worker from Middletown, Ohio, who makes $17 an hour with an immigrant who makes $15 an hour. And that is, I think, the main thrust of elite liberalism, whether people acknowledge it or not.

The basic fallacy here is one that President Joe Biden, former President Donald Trump, and plenty of other politicians make regularly: They talk as though America is made up of one group of people who are "workers" and another group who are "consumers."

If this was so, you could focus on policies that raise wages for one group—the workers—at the expense of the other. But since most people are sometimes a worker and other times a consumer, policies that artificially apply "upward pressure on wages" also apply upward pressure on the prices consumers pay (because those wages have to come from somewhere). If you want to see how this plays out in reality, just look at California's experience with a $20 minimum wage. Prices have skyrocketed and jobs are being lost.

Pitting the two fictional camps of workers and consumers against one another might be a clever electoral strategy, but it's not the basis for sound economic policy.

There is another, deeper problem with Vance's argument here. In the second section I highlighted above, he argues that there's nothing wrong if a job is automated away after the government mandates a higher minimum wage, because the workers who get to keep their jobs will earn more. But if your job is lost due to market forces—because someone else is willing to do the same work for less—that's a problem he implies the government has a role in solving.

Taken together, those two premises effectively absolve the state from being blamed for the inevitable negative side effects of its interventions in the economy. Think about the two scenarios Vance lays out. In both, a worker has lost a job. If a centrally planned wage mandate is the cause, Vance says that's actually good because it means the remaining workers will earn more and be more productive.

Kudos to him for recognizing that automation isn't something to be feared or banned—not every populist gets that. Even so, the fact that automation can help make some McDonald's workers worth $20 per hour is likely to be little comfort to the worker who would have been willing to earn $17 per hour but is now out of a job because of a government mandate. For that matter, even though automation is a natural market response to artificially higher wages, it's not clear that the trade-off is an economically beneficial one. If it were, why shouldn't Vance want a $100 per hour minimum wage?

Meanwhile, Vance is worried about that same guy being replaced by a different worker who is willing to do the same job for $15 per hour. (That scenario, you'll note, is tinged with xenophobia. Why can't the wage competition come from another native-born American worker willing to do the job for $15 an hour?)

That seems pretty incoherent, but I think Vance is trying to play a clever game here. He's arguing that job losses (or other negative economic consequences) due to well-intentioned governmental interventions should be ignored, and the focus should be on how workers benefit from those interventions.

If you're someone who favors greater governmental intervention in the economy, as Vance does, this is exactly the framework you'd like to work within. Sure, a higher minimum wage means some workers lose their jobs and consumers pay more, but other workers earn fatter checks. Sure, cutting off immigration would probably make inflation worse, but it would protect some workers from wage competition. Sure, dumping tons of tax money on politically favored businesses and industries means higher taxes or borrowing costs foisted on everyone, but look at the shiny new semiconductor factory and the jobs created.

There's nothing new about this line of thinking. Vance is simply adding a more conservative-coded twist to the same tired arguments that progressives and other advocates for big government have used for years. In either case, the argument rests on the premise that government officials know exactly what levers to pull and what "incentives" to offer. Is a $20 per hour wage enough or should it be higher? How many factories does this town or state need? Which jobs are important enough to protect? Conservatives used to have enough humility to recognize that government officials won't have the answers to all those questions.

In place of that humility, Vance and other right-wing populists are substituting a different idea: that when the government inevitably makes mistakes while picking winners and losers, we should simply ignore the costs and focus only on the benefits.