Poverty explained.

This is going to be a little brutally honest. Some people are poor because of the choices they make as opposed to situations that they have no control of.

There are only 0.4 workers per household in the poorest income quintile as opposed to 2.1 workers per household in the richest income quintile. [1]

Also, nearly 20% of poor households are single women with children as opposed to 3.6% for rich households. (This may not be the woman's fault if the father of their children walks out on her). [1]

It's also worth noting that only 3% of full time workers live below the poverty line according to US census data. This is in stark contrast to 33% of the unemployed living below the poverty line. [2]

Similarly, the Heritage Foundation notes:

"In good economic times or bad, the typical poor family with children is supported by only 800 hours of work during a year: That amounts to 16 hours of work per week. If work in each family were raised to 2,000 hours per year-the equivalent of one adult working 40 hours per week throughout the year- nearly 75 percent of poor children would be lifted out of official poverty.

Father absence is another major cause of child poverty. Nearly two-thirds of poor children reside in single-parent homes; each year, an additional 1.5 million children are born out of wedlock. If poor mothers married the fathers of their children, almost three-quarters would immediately be lifted out of poverty." [3]

If everyone emulated the actions of the very rich (get married, have a full time job, etc), poverty would decrease dramatically.

Citations:

[1] http://en.wikipedia.org/wiki/Household_income_in_the_United_States

[2] http://www.census.gov/hhes/www/poverty/data/incpovhlth/2012/table3.pdf

[3] http://www.heritage.org/research/reports/2007/08/how-poor-are-americas-poor-examining-the-plague-of-poverty-in-america

(below graphs are taken from citation #3 (top) and citation #1 (bottom))

Income inequality

Many people think that economic freedom will necessarily lead to wealth being concentrated in the hands of a few powerful elites. “Why, if people are free, wealth won’t be distributed fairly!” they claim. Here are some reasons why that argument is completely fallacious:

1) Wealth isn’t distributed, it’s earned.

In the market, people earn money by being productive, allocating resources more efficiently than their competition, making wise financial decisions, etc. Naturally, there are inequalities between people’s abilities to do each of these things; thus, any inequality arising in a free market comes about because of inequality of skills, intelligence, work ethic, luck, etc. In the end, income inequality shouldn’t matter because one man does not gain at the expense of another (people must create wealth in order to earn money).

As Milton Friedman once said, “Most economic fallacies derive from the tendency to assume that there is a fixed pie [of wealth] that one party can gain only at the expense of another.”

2) For those who actually care about income inequality:

Empirical research continually finds that economic freedom is positively correlated with income EQUALITY. For example, a 2007 study of the relationship between economic freedom and income equality concluded, “the estimated relation between economic freedom and income inequality is positive, statistically significant, but relatively inelastic” [1]. A 2013 study found similar results. According to the authors, “Using fixed effects regression analysis, we find evidence that increases in economic freedom are associated with lower income inequality, but the dynamic relationship between the two variables depends on the initial level of economic freedom” [2]. Since economic freedom is positively associated with income equality, it is impossible to claim that increasing economic freedom will lead to wealth concentration among the very rich.

NOTE: Keep in mind, the US’s economic freedom rating has been dropping for a decade whilst income inequality has risen.

In conclusion, the claim that in a free market wealth would be concentrated at the very top is not supported by empirical evidence. And even if it were true, all that would indicate was that the people at the very top of the income ladder are extremely productive (or had more valuable skills, knowledge, etc) relative to the rest of the populace. Unfortunately, today the US has a government which is so powerful that it can manipulate interest rates, tax codes, and the law to favor special interest groups engaged in rent seeking. Ultimately, if people are worried about inequality, they should be more concerned about what the government is doing to promote it than the free market.

Citations:

[1] http://link.springer.com/article/10.1007%2Fs11127-006-9078-0#page-1

[2] http://www.jrap-journal.org/pastvolumes/2010/v43/v43_n1_a5_bennett_vedder.pdf

Government spending and growth

A study in the Journal of Macroeconomics reports:

"The Government Size and Economic Growth coefficient of the additive term of the government-size variable indicates that a 1% increase in government size decreases the rate of economic growth by 0.143%, ceteris paribus" [1]

When the authors say 'ceteris paribus', they mean that they controlled for all the independent variables other than the one being studied, which in this case is the size of government. Thus, they are able to discern the effect the size of government has on the economic growth rate. According to the statement above, as government grows, the economy grows more slowly.

According to the author's conclusions, a 10% increase in the size of government (measured as a % of GDP) will decrease a country's economic growth rate by 1.43%. A country's economic growth rate is extremely important for short run employment, but even more important for long run prosperity.

Economists use what is known as the rule of 70 to determine how long an economy is expected to double in size. According to the rule of 70, (70/ economic growth rate), let's analyze how many years it will take for an economy to double in two scenarios.

Scenario 1) Government spending is 15% of GDP and the economy grows at 5% per year (adjusted for inflation).

70/ 5 = 14 years. Thus, according to the rule of 70 it will take 14 years for the economy to double in size, which will raise the standard of living for all its citizens.

Scenario 2) Government spending is 25% of GDP. Based on the findings above, we can expect the growth rate to be 1.43% lower.

70/3.57 = 19.6 years. According to the rule of 70, it will take this economy 19.6 years to double in size. This means that the economy in scenario 2 will take 33% longer to double the size of its economy than the economy in scenario 1.

Many other studies find similar results [2]. If we want the standard of living to rise for everyone, keeping government small is a step in the right direction. Also, if you like posts like this be sure to leave a comment.

Economic Freedom

Classical Liberals and Libertarians have long been proponents of free trade, private property rights, and free markets (economic freedom). But will these things lead to prosperity for everyone? Luckily, researchers over the past few decades have used quantifiable measurements as performance indicators of countries around the world to see how varying countries with varying amounts of economic freedom compare. The Heritage Foundation and the Fraser Institute use the following to quantify economic freedom:

1. Rule of Law (property rights, freedom from corruption);

2. Limited Government (fiscal freedom, government spending);

3. Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and

4. Open Markets (trade freedom, investment freedom, financial freedom).

Empirical research continually finds that countries which score higher on the economic freedom indexes have higher living standards, higher average incomes, less corruption, less political violence, and faster economic growth than countries which score lower on the index. ¹ Indeed, one study on the relationship between economic freedom and economic well-being found concluded, “regression analyses indicate that growth in economic freedom and the level of economic freedom have a significant impact on the growth in per-capita GDP and the level of per-capita GDP.” ²

Another study attempting to discern the same relationship found that when measuring real GDP growth per capita from 1980-2000 of 94 countries, the most economically free countries had the fastest growing economies. According to the study, “the persistently free group [of countries] achieved an average annual growth rate of 3.44%, compared to 1.67% for the middle group and 0.37% for the least free group.” ¹

They also found that foreigners were more willing to invest in countries which had liberalized (free) economies. “foreign direct investment per worker of the persistently free economies was more than 45 times the figure for the persistently unfree group.” ¹ Indeed, investment per worker in economically unfree countries was a fraction of what it was in free countries (see below).

Lastly the study noted that when comparing countries with low national incomes, the ones that had more economic freedom grew richer, faster, than the ones with less economic freedom. In fact, “the average annual growth rate of these countries [countries which scored highly on the Economic freedom index] was 4.2% compared to 1.0% for the other countries [which scored lower]. The ten freest economies among those with low incomes in 1980 grew more than four times the average of the other countries” ¹

A study by the Independent Institute analyzed the benefits of economic freedom and stated, “Free Markets are conducive to growth, which is why measures such as privatization, freedom to establish new businesses, freer pricing, more flexible contract laws, and less regulation of domestic and international trade and of capital transactions are important” ³. This study also summarizes the findings of decades of research on the relationship between economic freedom and economic growth. Here is a small excerpt:

“Hanke and Walters (1997) study the relationship between economic freedom and GDP per capita and find it to be significant and positive. Leschke (2000) shows that, in particular, the framework within which the market economy functions and the degree of interventionism in the political process are of great importance for the wealth of nations… Wu and Davis (1999) investigate the relationship between economic and political freedom and growth. They find that economic freedom is important for growth and that a high income level is important for political freedom.” ³

You get the point; economic freedom is correlated with economic growth. A neat graph (below) presents the observed relationship between a country’s Economic Freedom and its real per capita income. Keep in mind, per capita income is the average income of a country (national income/ total number of citizens).

However, correlation does not prove causation. Can we be sure that that economic freedom is causing prosperity? A study titled, "Causality in the freedom-growth relationship" set out to find out whether or not economic freedom causes economic growth (and thus prosperity). The author uses a Granger causality test, a method of determining causality, to test the relatioship. According to the study:

"We then use Granger causality tests to address the issue of causality in the relationship

between various measures of institutions and growth across countries. The results suggest

that the overall level of economic freedom appears to cause growth, while changes in

freedom are jointly determined with growth. Among the underlying areas of economic

freedom, levels of freedom relating to use of markets and property rights appear to be

driving the causal relationship between economic freedom and growth. These results

emphasize the importance of economic freedom, in general, and the role of free markets

and property rights, in particular, in fostering long-run economic prosperity...When the Granger analysis is extended to the relationship between economic freedom and investment, we find evidence that both the level and changes in the broad measure of freedom cause investment."¹⁰

Another study by James D. Gwartney et. al, titled, "Economic freedom and the environment for economic growth" found that, “The empirical results show that economic freedom is a significant determinant of economic growth, even when human and physical capital, and demographics are taken into account.”¹¹

On the other hand, many may argue that the income gains of economic growth only benefit the very wealthy. People who make this claim assume that income concentrates among the top 10% of income earners whereas the rest of the populace sees no gains at all. May I remind those people that economic freedom is positively correlated with income EQUALITY. Recent research has found that, “the empirical evidence reveals that there is a positive relationship between changes in economic freedom and equality: the more a country increased its economic freedom between 1975 and 1985, the higher the level of equality around 1985. Most important in this regard is trade liberalization and financial deregulation.” ⁴ 

Another study published in the Journal of Regional Analysis and Policy stated, "We find evidence that increases in economic freedom are associated with lower income inequality, but the dynamic relationship between the two variables depends on the initial level of economic freedom”¹⁵ These findings do not prove that economic freedom promotes income equality, but they do cast doubt on the claim that the gains from economic growth go solely to the super wealthy. 

(See citation #13 for source of graph)

It's also worth noting that the poor in economically free countries are far better off than their counterparts in less free countries. In fact, the poorest 10% of citizens are MUCH RICHER in economically free countries than countries which lack such freedom. The poorest 10% earn $823 a year in the least economically free countries compared to $6,877 in the most economically free countries (in 2002). ⁵

What is the relationship between the size of government and economic growth?

The majority of empirical research has found a negative relationship between government spending and economic growth.  A recent study published by the Research Institute for Industrial Economics noted that:

“The most recent studies [on the relationship between government spending and economic growth] find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate.….When we singularly focus on studies that examine the correlation between growth of real gross domestic product (GDP) per capita and total government size over time in rich countries (OECD and equally rich), the research is rather close to a consensus: the correlation is negative.” ⁶

The Fraser Institute has also made a similar conclusion:

“A survey of the literature shows that numerous studies document a negative empirical relationship between government size and economic growth rates. As well, there seems to be an association between smaller public sectors and greater efficiency in public service provision, as well as better performance outcomes” ⁷

Even when controlling for other relevant factors, government spending continues to be a burden on the economy. According to the same Fraser Institute study:

"After controlling for the effect of confounding variables, public sector size remains a potent long-term determinant of economic growth... A government expenditure to GDP ratio of 30 percent is associated with a per capita GDP growth rate of just under 3 percent, while a ratio of 40 percent is associated with a growth rate of 2.1 percent.“⁷

^{Lastly, and most convincingly, in a study prepared for the US government's Joint Economic Committee, researchers showed that when measuring countries over time, the economic growth rates of those countries increased as the size of government (measured as a % of GDP) decreased, and decreased when the size of government increased. According to the researchers:}

“Government expenditures as a share of the economy for each of the countries in the top part of Exhibit 6 [below] exceeded the OECD average (27.0 percent) in 1960. At the same time, their average growth rate (4.3 percent) during 1960-65 was less than the OECD average (5.5 percent). This situation was exactly the opposite for this same set of countries in the 1990s. By the 1990s, government expenditures as a share of the economy for those in the top group were below the OECD average, while their average growth rate (2.7 percent) exceeded the OECD average (1.9 percent)… It would have been difficult for a researcher seeking to isolate the impact of size of government on economic growth to have designed a more relevant experiment”¹² 

(Graph taken from citation #12)

^{What is the economic growth maximizing size of government?}

Most empirical research shows that the ideal size of government (as a % of GDP) is between 10-26%. An article in the Economic Inquiry in fact reported, "The optimal government size is 23 percent (+/-2 percent) for the average country. This number, however, masks important differences across regions: estimated optimal sizes range from 14 percent (+/-4 percent) for the average OECD country to…16 percent (+/-6 percent) in North America." ⁸ Another study published by the Institute for Market Economics made similar conclusions. According to the authors:

"The evidence indicates that the optimum size of government, e.g. the share of overall government 
spending that maximizes economic growth, is no greater than 25% of GDP (at a 95% confidence level) based on data from the OECD countries. In addition, the evidence indicates that the optimum level of government consumption on final goods and services as a share of GDP is 10.4% based on a panel data of 81 countries. However, due to model and data limitations, it is probable that the results are biased upwards, and the “true” optimum government level is even smaller than the existing empirical study indicates."¹⁴

Total government spending in the United States is currently around 40% of GDP.

In conclusion, Classical liberals and Libertarians haven’t been promoting small government for no reason, we do so because we know it will lead to the best outcomes for everyone while preserving individual liberty and the rights of all people to engage in voluntary exchange, without the coercive power of the state manipulating their lives. If you have a friend or family member that believes larger government is the answer, perhaps you should share this information with them. Even if they disagree with libertarianism philosophically, the evidence is overwhelming that economic freedom is the key ingredient in improving the standard of living for the lot of all men and women.

As Nobel Laureate Milton Friedman once said:

“There is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.” ⁹

Citation:

[1] http://www.cato.org/pubs/efw/efw2004/efw2004-2.pdf

[2] http://www.freetheworld.com/efna/3EFNAch3.pdf

[3] http://www.independent.org/pdf/tir/tir_08_2_2_berggren.pdf

[4] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1491582

[5] http://www.econlib.org/library/Enc/EconomicFreedom.html

[6] http://journalistsresource.org/wp-content/uploads/2011/08/Govt-Size-and-Growth.pdf

[7] http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/measuring-government-in-the-21st-century.pdf

[8] http://www.heritage.org/research/reports/2005/03/the-impact-of-government-spending-on-economic-growth

[9] http://www.goodreads.com/author/quotes/5001.Milton_Friedman

[10]http://webcache.googleusercontent.com/search?q=cache:xs1e6MPoZs4J:www.researchgate.net/publication/222674979_Causality_in_the_freedomgrowth_relationship/file/79e4150991d3adc52c.pdf+&cd=6&hl=en&ct=clnk&gl=us
[11] http://www.jstor.org/stable/40752161
[12] http://frihetspartiet.net/function.pdf
[13] http://www.creativeclass.com/_v3/creative_class/2010/04/20/free-tolerant-and-happy/

[14] http://ime.bg/uploads/335309_OptimalSizeOfGovernment.pdf
[15]http://www.jrap-journal.org/pastvolumes/2010/v43/v43_n1_a5_bennett_vedder.pdf

Wal-Mart

I keep hearing a claim that goes like this: 

"Wal-Mart costs taxpayers billions of dollars a year in welfare payments because they don't pay their employees a living wage"

This argument is utterly fallacious. The people making this argument fail to recognize that without Wal-Mart employing the employees in question, these people would likely be in a lower paying job or be unemployed. Either way, these latter options would cost the taxpayers even more money than if Wal-Mart employed them. It's also worth noting that worker compensation is based on worker productivity, not a worker's needs or wants.

Here is a thought experiment to consider: Suppose a potential worker applies for employment at two stores, Wal-Mart and Costco. Costco is not willing to hire this person but Wal-Mart is, for a relatively low wage of $8/hr. What store is worthy of condemnation by the public? The one that refused to hire the potential worker or the one that employees him at a low wage? Also, are not the taxpayers and the potential worker better off thanks to Wal-Mart's hiring of said worker? Or should Wal-Mart have denied the fellow a job as well and left him to apply for unemployment or welfare?

New Deal

During the New Deal, the FDR administration committed many economic sins. This included paying farmers to destroy millions of acres of crops and millions of farm animals in order to boost food prices, at a time when people could barely afford to feed their families. Additionally,

-New Deal policies forced wages above market levels, leading to large unemployment numbers, especially among unskilled black laborers. 

-The National Industrial Recovery Act made it illegal to increase output or to cut prices in nearly every conceivable business enterprise. According to Historian Jim Powell, "a forty-nine year old immigrant dry cleaner was jailed for charging 35 cents instead of 40 cents for to press a pair of pants" [1]

-The second Glass-Steagall Act was a banking regulation passed during the New Deal which separated commercial and investment banking. However, banks which acted as both commercial and investment banks were far less likely to go bankrupt than banks which only had one function.

-According to Historian Jim Powell, "FDR didn't do anything about a major cause of 90% of the bank failures, namely, state and federal unit banking laws [which restricted nationwide branch banking]...Canada, which permitted nationwide branch banking, didn't have a single bank failure during the Great Depression." [1]

-"FDR tripled taxes from $1.6 billion in 1933 to $5.3 billion in 1940... Federal taxes as a percent of GNP jumped from 3.5% in 1933 to 6.9% in 1940." [1]

These are just some of the things the FDR administration did during the Great Depression that were just plain idiotic. However, people who know nothing of the New Deal keep repeating the nonsensical claim that "FDR saved the country from the Great Depression".

Citation:

[1] Jim Powell, "FDR's Folly", Chp 1.

Wages vs. Productivity

Left wing individuals and think tanks (like the Economic Policy Institute) continuously argue that real wages have not kept up with increasing productivity. This is typically followed by claims that the government needs to tax the rich more, or we need more labor unions, a higher minimum wage, etc. However, as usual, the claims made by the left typically are either disingenuous, or based on ignorance, and the claim that worker’s wages have stagnated is no different. 

First of all, how are wages and productivity related? Economic theory predicts that worker's compensation is based on their marginal productivity. This theory is called the Marginal revenue product theory of wages. According to wikipedia, the "marginal revenue product of labor, is the change in total revenue earned by a firm that results from employing one more unit of labor." In competitive labor markets, neoclassical theory predicts that a worker's wages will be equal to the marginal revenue product that, that worker brings to the firm employing him. This is because if firms do not pay workers according to what their labor is worth (the more productive, the higher the wage), other firms have an opportunity to profit by enticing that worker to work for them at a higher wage. It's sort of like biding on a dollar. If one person bids $0.90 on a dollar, another person will bid $0.91 because there is an opportunity to profit from doing so. This bidding war will continue until there is no longer an opportunity to profit from doing so. However, has economic theory been debunked by the fact that wages and productivity have not grown together?

It's important to note that wages are not the only form of worker compensation. Today, a large share of worker compensation is in the form of  health benefits, pensions, etc. When we take these into account, it is clear that total worker compensation has in fact risen 30% since the 1970's, when adjusted for inflation using the consumer price index. 

But there is still a large gap between worker compensation and productivity. How can this be explained? Well, this is mainly due to the fact that economists measure average productivity for inflation using an index known as the implicit price deflator. When left wing thinks tanks like the Economic Policy Institute measured worker's wages for inflation, they did it with the consumer price index (also the above chart measures worker compensation using the CPI). Comparing the relationship between average worker compensation and average productivity, while using different price indexes is comparing apples to oranges. Martin Fieldstein, the former President of the National Bureau of Economic Research has written:

"Although any consistent deflation of the two series of nominal values [avg productivty vs. avg worker compensation] will show similar movements of productivity and compensation, it is misleading in this context to use two different deflators, one for measuring productivity and the other for measuring real compensation...when we recognize the multiproduct nature of the economy, we say that the competitive firm pays a nominal wage equal to the marginal revenue product of labor, i.e., to the marginal product of labor multiplied by the price of the firm’s product. The key real relation must therefore be between changes in productivity in the nonfarm business sector and changes in the nominal compensation paid in that sector deflated by the product price and not by some consumer price that also reflects goods and services produced outside the domestic nonfarm business sector." [1] 

In short, the consumer price index measures inflation for certain consumer products. However, worker's don't just produce consumer products, they also produce goods and services which are bought by businesses and are thus not represented in the consumer price index.To accurately compare average worker compensation and average productivity, one must measure inflation for each of them using the IPD. When this is done, Fieldstein finds:

"the doubling of productivity since 1970 represented a 1.9 percent annual rate of increase. Real compensation per hour rose at 1.7 percent per year -- when nominal compensation is deflated using the same non-farm business sector output price index. In the more recent period between 2000 and 2007, productivity rose at a much more rapid 2.9 percent a year and compensation per hour rose nearly as fast, at 2.5 percent a year." [2]

As you can see, when average worker compensation is measured for inflation using the same deflator as average productivity, the gap between them is very small. Even then, Fieldstein writes:

"Changes in productivity are not immediately reflected in compensation. The concurrent (within year) effect of a rise in productivity is less than a one-for-one rise in compensation." [1]

Thus, there is a lag between an increase in productivity and an increase in worker compensation. According to his calculations, the within year effect of a rise of $1 of productivity will lead to a rise of $0.79 of worker compensation. However, after two lagged changes in productivity are measured, worker compensation rises $0.94 for every $1 increase in productivity. [1] 

Fieldstein says that the reasons for these lags must be examined further, but concludes saying, "basic theory reminds us that real compensation should be measured using the same price index that is used to calculate productivity. When this is done, the rise in compensation has been very similar to the rise in productivity" [1]. 

It is also worth noting that, "Total employee compensation was 66 percent of national income in 1970 and 64 percent in 2006. This measure of the labor compensation share has been remarkably stable since the 1970s. It rose from an average of 62 percent in the 1960s to 66 percent in the 1970s and 1980s, and then declined to 65 percent in the 1990s where it has remained from 2000 until the end of 2007." [2] Thus, there doesn't seem to be much evidence that workers are not benefiting from increased productivity and there is a tremendous amount of evidence that they are. 

Citation:

[1] http://www.nber.org/papers/w13953.pdf?new_window=1

[2] http://www.nber.org/digest/oct08/w13953.html

[3] All graphs taken from here: http://www.heritage.org/research/reports/2013/07/productivity-and-compensation-growing-together#_ftn2

Capitalism vs. Child labor

Myth: Capitalism exploits child laborers

This myth is extremely annoying since it is so commonly accepted as a fact. According to the distorted history children learn in government schools, children like themselves were forced by companies into working in factories in mines doing extensive physical work for hours on end. Their teachers blame capitalism for the hardships of the young and praise the government as the entity by which child labor has been abolished, through law.

While it is true that children in the 19th century and beforehand has to work hard and for many hours a day, such conditions are not caused by capitalism but rather inherited by capitalism. To paraphrase Thomas E. Woods Jr., it is not as if throughout the history of mankind, children skipped through meadows all day and then one day, capitalism came along and their parents said, "Capitalism's here kids, off to the mines".

In truth, poverty is the natural state of man and child labor has existed throughout the history of the human race's existence. Child labor has not disappeared in developed countries because governments passed laws prohibiting it, rather it has disappeared because our economy has become so advanced and productive that it takes less people to support a family. The wealth an individual produces today is far greater than the wealth that an entire family would have produced 100 years ago.

The question is, why are the children working? The answer is that the society in which they live is so unproductive that if they don't work, they will likely starve. In the 19th century and before then, whether the child works or not may be the difference between whether the family eats or not.

Also, banning child labor in developing countries has been a terrible idea and has lead to children being put into even worse conditions than the ones they previously had. I want all you Austrians to take a breath (I knew I had to) for a moment because you're about to agree with Paul Krugman.

"In 1993, child workers in Bangladesh were found to be producing clothing for Wal-Mart, and Senator Tom Harkin proposed legislation banning imports from countries employing underage workers. The direct result was that Bangladeshi textile factories stopped employing children. But did the children go back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced child workers ended up in even worse jobs, or on the streets -- and that a significant number were forced into prostitution." - Paul Krugman

I would also like to share a personal experience. When I was 17 years old, I worked a summer job as a dishwasher. I wanted to work as much as possible so I could save up for the school year and spend my money as I saw fit. Unfortunately, child labor laws prevented me from working more than 30 hours a week. I was ready and willing to work but the law denied me the opportunity to do so. This must be certainly damaging to low income families whose children chose to work summer jobs as it limits the amount of income the child can actually earn.

In conclusion, child labor has existed since the beginning of mankind and is by no means the result of free market capitalism. Contrary to what the thought controllers in public schools want you to believe, Free Market Capitalism is the cure to child labor as it allows society to become vastly more productive than it otherwise would have been which means that people have to work less to survive and Mom and Dad can support the family without having their kids work.

"How much more delightful would have been the gambol of the free limbs on the hillside; the sight of the green mead with its spangles of buttercups and daisies; the song of the bird and the humming bee...' But for many of these children the factory system meant quite literally the only chance for survival. Today we overlook the fact that death from starvation and exposure was a common fate before the Industrial Revolution, for the pre capitalist economy was barely able to support the population. Yes, children were working. Formerly they would have starved. It was only as goods were produced in greater abundance at lower cost that men could support their families without sending their children to work. It was not the reformer or the politician that ended the grim necessity for child labor; it was capitalism."

--"The Incredible Bread Machine" a book published by "World Research, Inc." in 1974

Does Australia's minimum wage defy the laws of supply and demand?

Many leftists claim Australia has a $16 minimum wage with no adverse effects. 

1) Minimum wage laws have nothing to do with recessions

2) Australia has the 3rd highest cost of living in the entire world.

(1)

3) This assertion relies on nominal exchange rates rather than the more accurate Real Exchange rate (which is adjusted for inflation).

When using the real exchange rate, the Australian minimum wage is:

$10.22 per hour for people age over 20 years old

$7.14 for people who are 18 years old (lower than US minimum wage)

$3.85 for people who are 16 years old or younger

4) They vast majority of workers make more than the minimum wage and thus the overall unemployment rate is irrelevant.  Instead we should focus on the unemployment rate in the demographics most likely affected by minimum wage increases (low-skilled, poor, and young workers).

5) Youth unemployment climbed to 17.3 per cent, its highest level since October 2010. That's pretty bad for a country that supposedly escaped recession. (3)

The workforce participation rate, which measures the number of people working or looking work, fell by 0.1 per cent to a near seven-year low of 65 per cent (in September 2013). Basically, just like in the USA, many people have stopped looking for work and dropped out of the workforce.

6)A private organization, Roy Morgan Research, found that Australia’s unemployment rate is closer to 10.4%. A survey found that the majority of Australian’s believes Roy Morgan’s methodology and unemployment rate is more accurate than the Government’s statistics. This isn’t necessarily related to minimum wage laws (2).

Roy Morgan counts someone as unemployed if they aren’t working but looking for work.

Australian Bureau of Statistics measured the unemployment at around 5.6% and counted someone as unemployed if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week and if they were available for work in the reference week.

7. Past studies of minimum wage increases in Australia have shown they lead to disemployment. One Harvard University study found that "that for each 1 percent increase in the minimum wage we can expect... [to lose] 96,000 jobs" in Australia". (4)

Citations:

(1) http://www.numbeo.com/cost-of-living/rankings_by_country.jsp

(2) http://www.roymorgan.com/morganpoll/unemployment/rmr-vs-abs-estimates

(3) http://www.abc.net.au/news/2013-09-12/jobless-rate-up/4953338

(4) http://andrewleigh.org/pdf/Minimum%20Wages%20(AER).pdf