Oregon Legislature Repeals Laws of Supply & Demand

Like the apocryphal story of the state legislature that passed a law dictating that pi equals 3, the Oregon state legislature has passed two laws that pretend the laws of supply & demand don’t exist. The difference is that, in reality, no state legislature ever did pass a law saying that pi equals 3, but Oregon’s legislature is totally ignoring basic economic principles.

First, earlier this week, the legislature passed a new minimum wage law increasing the minimum to as high as 14.75 per hour in the Portland area by 2022 (with lower minima for other parts of the state). This will supposedly be the highest in the nation, but only in the unlikely event that no other state raises its minimum wage in the next six years. However, after adjusting for the cost of living, Oregon’s new minimum wage probably is the highest in the nation even before 2022.

Proponents claim the minimum-wage law will improve Oregon’s economy by putting more money in the hands of its residents that they will spend in Oregon businesses. The new minimum wage “is going to be good for Oregon families and is going to add to consumer purchasing power that will benefit our small businesses,” Oregon’s labor commissioner told a reporter. That’s like warming the bed by cutting off one end of a blanket and sewing it on to the other end. If increasing the minimum wage does so much good, why not increase it to $15 right away? Or $50? Or $500?

The reality is that a minimum wage law is a balancing act for politicians. They have to have the wage be just high enough to create a constituency for the wage that will support them but not so high that people who actually vote will lose their jobs. As a Congressional Budget Office study concluded, for every two people who benefit from a minimum wage law, one is put out of work. That’s okay if the people who are out of work don’t vote.

The Oregon situation is complicated by threats by higher wage advocates to use the initiative petition process put a $15 wage on the November ballot. The legislature hopes its bill can forestall that without causing the economic damage that an immediate $15 wage would do.

Buoyed by its success, the legislature yesterday passed a law legalizing inclusionary zoning, that is, forcing homebuilders to sell a certain percentage of their products below cost. This will also lead them to build fewer homes and to sell the market-rate homes they do build for higher prices to offset their losses on the “affordable” homes. In other words, this law relies on the counterintuitive notion that making housing more expensive will make it more affordable.

Once again, the legislature is playing a balancing game. A few people will get–and be very grateful for–more affordable housing. Every other homebuyer and renter will end up paying more, but not enough more for them (the legislature hopes) to complain about it.

The Oregonian, for example, accompanied my recent article criticizing the urban-growth boundary with a photo of a man who enjoys “affordable” housing provided by the city of Bend that was funded by taxing all other new homes in the city. Where are the photos of the people having to pay higher taxes or who can’t afford to buy a new home because of that tax?

Are the legislators who voted for these laws really really trying to promote their political careers by cynically benefitting a few at everyone else’s expense? Or are they just ignorant of simple economic principles? Either way, their votes demonstrate the flaws in a society that believes it can get rich by robbing some people and giving it to others.

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12 thoughts on “Oregon Legislature Repeals Laws of Supply & Demand

  1. FrancisKing

    “The new minimum wage “is going to be good for Oregon families and is going to add to consumer purchasing power that will benefit our small businesses,” Oregon’s labor commissioner told a reporter. ”

    Well, yes. Putting more money into people’s pockets will increase the size of the economy. All things being equal, which they generally aren’t. For example if someone’s slogged their way through college and then a tough job, they won’t want to be the only person without a pay rise. And so on. Most of these clever plans fall over when people don’t do what they’re supposed to do.

  2. OFP2003

    A close relative works in two franchises of the same retail business, they have to set different menu prices because they are in different counties with different mandated minimum wages. When the minimum wage goes up in the liberal county… the menu prices in the liberal county go up. Only the extravagant really go to this franchise anyway so I doubt they are losing a measurable amount of business.
    PS CBO link doesn’t work for me, would love to see that report.

  3. Sandy Teal

    Economics: A city’s economy is drawing upon centralization to be the hub of the region. The land becomes more valuable in the there, so the cost of living is higher and the jobs are higher paying. There are still minimum wage basic service jobs in the city too, but it is strange to think of those jobs as solely funding a household in the city.

    Politics: Nothing is cheaper political gain than a politician mandating that a business pay minimum workers more. Politicians get the credit of being the “boss” and then you get the credit and graft of giving tax breaks to bring in jobs lost to the high minimum wage.

    Consumer: Life in a city is expensive, and a higher minimum wage at least gets restaurant businesses to hire clean and English speaking service workers instead of those minorities and teenagers with problems. You can always drive out to the suburbs in your SUV and shop at Costco and Discount Box Store to buy stuff that is cheaper, or just use Amazon free shipping.

    Police: Now the minorities and teenagers with problems have no chance for a job, so they leave (yea!) or turn to illegal activities.

  4. Frank

    “Well, yes. Putting more money into people’s pockets will increase the size of the economy.”

    Except that people who are educated, skilled, and experienced will want wage increases, too, as they won’t settle for making a dollar or two an hour more than the kid flipping burgers at McDonald’s.

    People will bid up prices with their new wages, and nothing changes. Well, those who can’t produce value equivalent to the cost of their rates won’t be hired. Teen unemployment will increase.

    Wealth can’t be created through decree.

  5. P.O.Native

    Surely since tax payer funded government benefits to the working poor will be reduced by millions and millions of dollars as their wages rise our taxes will be reduced by that same amount, right? If not this is clearly a back handed scam by democrats (the party for government employees and nobody else) to enrich their government deity farther at the expense of everyone else in Oregon. Will the last employer leaving the state please turn out the lights?

  6. JOHN1000

    I can’t agree with the blanket statement that: “A few people will get–and be very grateful for–more affordable housing.”

    It would be more correctly written : “People will get more affordable housing and a very few of them might actually be grateful.” This has become another entitlement with many demands and very few thanks.

  7. OregonGuy

    Some people, with a passing acquaintance of economic theory, may be familiar with C + I + G = GDP. They may not know that transfer payments are not included with the value we express as G.
    .

  8. metrosucks

    Politicians always claim that transfer payments increase the size of the economy. That’s what attracts votes, not some economist’s lecturing.

    On that point, we are aware of some “economists” who do insist that welfare of various forms increases the size of the economy. I would certainly call printing money welfare for certain sectors. Hello, Paul Krugman?

  9. C. P. Zilliacus

    metrosucks wrote:

    Hello, Paul Krugman?

    That would presumably be the very same Professor Paul Krugman who has repeatedly been critical of government regulation of land use and zoning?

    I have posted his best op-ed on the subject here before. A Google search with “krugman flatland zoned zone” as the terms should find it. Or “krugman that hissing sound” should also work.

    I assert that you will probably agree with Krugman, at regarding land use regulation.

    The Antiplanner wrote:

    Buoyed by its success, the legislature yesterday passed a law legalizing inclusionary zoning, that is, forcing homebuilders to sell a certain percentage of their products below cost. This will also lead them to build fewer homes and to sell the market-rate homes they do build for higher prices to offset their losses on the “affordable” homes. In other words, this law relies on the counterintuitive notion that making housing more expensive will make it more affordable.

    Oh, where to start.

    In my experience, when local governments start to force builders to build “affordable” housing, it is generally a symptom that land on which homes can be build is in short supply. Never mind that the higher home prices ought to be a signal that more supply is needed. Never mind that there are many middle-class individuals and families that cannot afford a home anyway, because they have incomes too high to purchase a home under “inclusionary” zoning, but do not have enough income to qualify for a market-rate home either.

    What do these “in between” families do? They probably end-up moving away (usually further out from the regional core) to a place where they can afford to purchase a home. Here in Maryland that frequently means moving to a county where development of land is not severely restricted by the county government (most zoning and land use regulation is by counties in this state – some is at the municipal level). Or they just move out of our small state to a neighboring state where land development is less-regulated (Delaware, Pennsylvania and West Virginia seem to be the favorites now – land use in Virginia is pretty strictly regulated).

    Hence “leapfrog” development, which even the most-ardent Smart Growth promoting county or municipal elected official can do little or nothing to stop, though it probably makes trip lengths longer and puts more load on the highway network.

  10. Not Sure

    Proponents claim the minimum-wage law will improve Oregon’s economy by putting more money in the hands of its residents that they will spend in Oregon businesses.

    I suppose those proponents are assuming that businesses (actually, the people who own those businesses) who would be paying higher wages would otherwise be rolling around in piles of gold in their vaults like Scrooge McDuck, if it were not for the enlightened proponents’ valiant efforts. Just on the off-chance these proponents might be open to reconsideration, here’s a link to a post by an employer who agrees that the minimum wage should be raised, but who will be closing his business because it will.

    https://ecomcrew.com/seattles-15-minimum-wage-is-driving-our-restaurant-out-of-business/#pq=5cCXEp

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