Mises Wire

Bernie Sanders Might Learn Something from Venezuela’s Minimum Wage Experiment

There are labor shortages all over the country. There are not enough truck drivers, plumbers, food waitresses, construction workers, and so on. The official unemployment rate is below 4 percent. It was just reported private sector wages popped 2.9 percent.

However, Bernie Sanders and other “progressive” candidates are endorsing the idea of a federal living wage. On his website, Bernie starts with,

Millions of Americans are working for totally inadequate wages. We must ensure that no full-time worker lives in poverty. The current federal minimum wage is starvation pay and must become a living wage. We must increase it to $15 an hour over the next several years.

His latest big idea is to

tax companies with 500 or more employees an amount equal to federal benefits received by their low-wage workers. The bill is designed to discourage large companies from paying their workers so little that they end up relying on federal benefits, such as food stamps, to make ends meet.

If Bernie were paying attention, there is a minimum wage experiment going on in real time in Venezuela right now. Sure, there’s some serious money printing going on there and plenty of socialist schemes to keep the shelves empty. However, the fact there’s nothing to buy hasn’t kept Venezuelan president Maduro from hiking that country’s minimum wage 24 times since 2013 when he took office.

The latest hike went into effect on September 17, and it was huuuge — 3,000 percent. Fabiola Zerpa writes for Bloomberg,

7 million employees are guaranteed 1,800 bolivars a month — worth about $20 at the black-market rate. President Nicolas Maduro intended the mandate as political boost, but it’s having the opposite effect as companies, already hit by Venezuela’s epic economic contraction, tell workers they can’t afford to keep them.

No one should be stunned if employees are told to go home if the government by way of brute force increases pay by 30 times.

“I already told my four employees to go find other jobs,” Caracas garage owner Marcos Vizcaino told Bloomberg. “I’ve decided to close. There’s no need for me to keep to losing money for a third year in a row.”

Zerpa writes,

The higher minimum wage, which Maduro announced last month, was among several bids to steady the rapidly failing state’s economy and stanch hyperinflation. The socialist autocrat also devalued the currency and lopped five zeroes off denominations of the bolivar bill, which has been rendered almost valueless.

Lopping zeros off a currency has never worked and how on earth would raising the minimum wage by 30 times “stanch hyperinflation?” By the way, the zero lopping just happened a few weeks ago and price inflation is 100 percent for the new money.

Maduro’s policies only serve to drive the Venezuelan economy further into a Marxian hellhole. Venezuelan business owners must keep quiet because if they decide to “simply dismiss people. Much of the action happens secretively as companies try to avoid punishment by the government, which has been jailing those it believes are flouting the rules.”

Socialism isn’t like the free market which progresses peacefully. Socialism requires a bureaucratic boot on the neck of business. “Apart from the astronomical rise in wages, companies have limited ability to adapt, thanks to restrictive controls.” Zerpa writes. “Food operations are closely monitored as the government provides them imported raw materials. More than 500 supermarkets and stores have been fined and 200 managers and workers detained since Maduro’s announcements, according to Cedice, a private-property watchdog group.”

Maduro seized a cardboard plant and a pharmaceutical company for not toeing the government’s line. Even businesses with steady payrolls like banks, education, and construction are expected to be hammered by the new edict, because “large firms have collective-bargaining agreements subject to government scrutiny.”

Aurelio Concheso, a labor expert at Fedecamaras told Bloomberg, “The impact can be devastating; it can consume a whole company’s capital.”

Murray Rothbard wrote in The Free Market in 1988,

It is conventional among economists to be polite, to assume that economic fallacy is solely the result of intellectual error. But there are times when decorousness is seriously misleading, or, as Oscar Wilde once wrote, “when speaking one’s mind becomes more than a duty; it becomes a positive pleasure.” For if proponents of the higher minimum wage were simply wrongheaded people of good will, they would not stop at $3 or $4 an hour, but indeed would pursue their dimwit logic into the stratosphere.

Maduro is indeed pursuing his “dimwit logic into the stratosphere.” His country has no food or necessities and soon it will have no jobs.

Image Source: iStock
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
What is the Mises Institute?

The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. 

Non-political, non-partisan, and non-PC, we advocate a radical shift in the intellectual climate, away from statism and toward a private property order. We believe that our foundational ideas are of permanent value, and oppose all efforts at compromise, sellout, and amalgamation of these ideas with fashionable political, cultural, and social doctrines inimical to their spirit.

Become a Member
Mises Institute