Acceptable Government Coercion?

Ed Glaeser responds to an essay "Economics and the Distinction Between Coercive and Voluntary Action," by Daniel Klein by looking at how the coercive power of the state relates to the minimum wage. This is part of a longer essay:

Coercive Regulation and the Balance of Freedom, by Edward Glaeser, Reaction Essay, Cato Unbound: Daniel Klein has written an elegant essay arguing that minimum wage laws are coercive. He is obviously right. ... Minimum wage laws ... are enforced with the power of the state. Coercion lies at the core of almost all government policies. Rarely is voluntary participation a reliable tool for enforcing rules. If we could count on voluntary participation, we probably wouldn’t need the government involved in the first place.

But, as Klein notes, just because something is coercive, doesn’t mean that it is wrong. The coercive power of the state is useful when it protects our lives and property from outside harm. If we think that state-sponsored redistribution is desirable, then we are willing to accept more coercion to help the less fortunate. We also rely on state-sponsored coercion regularly when writing private contracts. The ability of creditors to collect depends on the power of the state to coerce borrowers.

The great difficulty is that coercion is both necessary and terrifying. For millenia, governments have abused their control over the tools of violence. The historical track record insists that we treat any governmental intervention warily. What principles help us decide on the appropriate limits to government-sponsored coercion? Are minimum wage laws acceptable coercion or do they fall outside of the pale?

I start with the view that individual freedom is the ultimate goal for any government. The ultimate job of the state is to increase the range of options available to its citizens. To me, this is ... justified by both philosophy and history. ...

A belief in the value of liberty flows strongly through mainstream neoclassical economics. Economists frequently speak about an aim of maximizing utility levels, and this is often mistranslated as maximizing happiness. Maximizing freedom would be a better translation. The only way that economists know that utility has increased is if a person has more options to choose from, and that sounds like freedom to me. It is this attachment to liberty that makes neoclassical economists fond of political liberty and making people richer, because more wealth means more choices...

But putting freedom first doesn’t mean abandoning the state. At the very least, we rely on the government to protect our private property against incursions by others. Even most libertarians think that it is reasonable for the state to enforce contracts. ...

While these forms of state action are readily defensible, many of the thorniest questions involve tradeoffs between the liberty of one person and the liberty of another. Taking wealth from Peter and giving it to Paul increases the choices available to Peter and decreases the choices available to Paul. Governmental coercion to redistribute income cannot be opposed purely on the grounds that it restricts liberty. Certainly, redistribution reduces the freedom of the taxpayer but it increases the options of the recipient of governmental largesse.

With this lengthy preamble, let me switch to the minimum wage... The minimum wage reduces the options available to the employer, who must pay his workers more. It also reduces the freedom of both employer and employee, both of whom lose the ability to contract at a lower wage. Opposing this loss of freedom is an increase in the options available to workers who remain employed and now earn a higher wage. While I am no fan of higher minimum wages, I can imagine settings in which the increase in the freedom of the still-employed workers could be more important than the offsetting losses to individual liberty. ...

The case against the minimum wage ... does not, in my view, come from clear anti-coercion axioms or even maxims, but from other more technical reasons that have been emphasized for decades. If we want the state to redistribute income, we have sensible means for doing that like Friedman’s negative income tax or the Earned Income Tax Credit. These tax-based approaches are also coercive, but they can increase the choice set of the poor with less of a reduction in the freedom of others. Obviously, these tax-based solutions don’t restrict the set of available contracts and that is a great plus.

The fact that American minimum wages are too low to create large-scale unemployment shouldn’t blind us to the fact that, across the Atlantic, far more aggressive minimum wages are accompanied by vast numbers of unemployed youths. The minimum wage is also bad redistribution policy because it imposes the costs of redistribution on the employers of the poor, and on their customers who will have to pay higher prices to make up for higher wages. If we want to redistribute income to the poor, then it is appropriate that everyone with resources pay, not just employers in sectors that employ the less fortunate.

A final reason to reject further increases in the minimum wage is that it gets the government into the business of setting prices, and this requires competence that seems far beyond the limits to government. The case for laissez-faire comes ultimately not from unbounded faith in the power of the market, but rather in a realistic appraisal of the limitations of government. Price-setting is a difficult task that is prone to enormous abuse. ...

Perhaps we should use redistributive taxes that reduce the freedom of the wealthy to increase the freedom of the poor, but it is hard to think that the minimum wage is a good tool for redistribution.