United Airlines was the middle layer of the public relations disaster sandwich of stories to which the public has been treated over the past week, bookended by a Pepsi commercial and a White House press secretary who argued that Hitler didn’t use chemical weapons.
No doubt most have seen the video by now, in which security drags a passenger in a disturbingly rough manner from a United plane after he belligerently protested being bumped from a flight he had already boarded to make way for airline employees. The details have been a point of evolution and contention, but it was originally reported that passengers were offered $800 to voluntarily leave the flight — a point not disputed — and, when no one accepted, the airline used a computer model to select who would have to go. I won’t say anything more about the actual controversy, except that Nicole Gelinas at City Journal summarizes my thoughts nicely when she writes, “The customer isn’t always right. But an airline [or security] that assaults a customer is always wrong.”
One of the most fascinating reactions was from The Federalist’s Mollie Hemingway, who argued that United could have avoided this whole mess by applying basic economics to the situation, linking to story about Delta doing just that.
But why didn’t United just do the simple thing of understanding that the money it was offering was insufficient and needed to be raised? …. If $800 wasn’t enough, what about $1,000? If $1,000 wasn’t enough, how about $1,200? They were receiving real-time information about price setting and they weren’t responsive to it. Every passenger has a price point at which he or she is willing to disembark a given plane. For some passengers, they need to get to a funeral and the price will be high. For others, they might not even want to be making the trip and can be bought for much cheaper. United needed to find the passenger with the lowest price point. The way to do that would have been to make incremental offers until they found it. (Emphasis mine)
There are federal regulations limiting the extent to which United could have incrementally offered compensation, but this got me thinking about how wage mandates, such as minimum wages, enshrine unresponsiveness to price setting into law — with the state acting as security in this metaphor.
Imagine, for example, you are a teenager of high school age looking for your first job. You have few marketable skills, with no work experience, so the only employment available to you is entry level. At this point in life, this is not much of a problem, because you will gain experience and skills in this job and each subsequent one, making you more marketable and thereby increasing your earning power.
Now imagine that the minimum wage goes up to $15 per hour, as it has in some places. You would love to work for $15 per hour, but you’re willing to settle for $12 or $10. Businesses that are hiring would love to pay $8 per hour, but will agree to something in the double digits for a new worker with few or no skills. Much like the United passenger (and Delta Airlines, in the comparative example), each party has a price. United, as seems to be their MO, chose to pay the price of a poor customer service reputation.
Minimum wage laws prevent the parties from coming to an agreement voluntarily. Rather than allowing both from adjusting to information about prices, cutting negotiations short and dragging both parties away from the table. Like the would-be United passenger, they must take it or leave it. Often, businesses have no fiscally feasible choice but to leave it, leaving the potential employee without a job.
This is why, figuratively, free market advocates refer to state violence. Generally, it doesn’t mean dragging someone through the aisles of a 747, but the government literally does use the force of law to keep the two parties from coming to a mutually agreeable solution.
(Unions do the same thing, except rather than enforce the wage minimums through legalized force, they do so through the bargaining power created by aggregating the supply of labor: “no one will come to work unless everyone is paid X.” In Right to Work states, they do so at the voluntary behest of people who want their own bargaining power increased as regards wages and benefits.)
The monopoly on legitimate force is put to work in this case purportedly for the benefit of workers who might be exploited. If the wage is too high, however, it turns an opportunity for mutual benefit into a scenario in which no one is happy. As Frederic Bastiat and Henry Hazlitt famously argued, it has visible benefits, but invisible costs.
Naturally, these costs land hardest on the most vulnerable among us, like the teen in a bad neighborhood with a failing high school, who, without another opportunity to improve his situation, becomes more susceptible to falling into drugs or crime, with little way out of poverty. The ladder is not kicked out from underneath him. It is dragged away before he can begin to climb.
The thoughtful reader may object to the metaphor on the grounds that United Airlines is not the government, but rather a business that did not negotiate prices with its customers. This is correct, but there are three reasons why that objection does not undercut my argument. First, United had at its disposal the ability to use force, primarily because of the leverage of airline security. It had a (bad) alternative to continuing to negotiate, which is not at the disposal of most businesses, and it took it. Second, government, unsurprisingly, is part of the problem here — again, by limiting a business’s ability to use market mechanisms to solve the problem (Delta’s ability to deal with them notwithstanding).
Finally, United is paying the price for its terrible decision. Its reputation has worsened. Its stock is dropping. Competitor airlines are benefiting by distinguishing themselves from its disastrous decisions. In short, United has reaped — and will continue to reap — economic costs from this event.
Rightly so. The free market allows for such punishment and correction. Government mandates do not. The most vulnerable among us are dragged away from jobs and opportunities for skills and experience as a result.