• A Modest Proposal

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    The
    other day, I went to my friend Dick and showed him a proposal I
    was working on. Dick happens to be a life-long Democrat, and as
    the proposal forwarded a new plan for the government to help the
    underprivileged, I was sure he would approve. Here’s the proposal
    I showed him:

    Today,
    many corporations in our strong economy have been left behind
    by the general prosperity. These may be old-industry stalwarts
    who have not been able to gain the skills necessary for a smooth
    transition to the electronic economy. Or, perhaps, they are new
    companies, just getting going in industry, whose penny stocks
    are undervalued by investors. Perhaps, through no fault of their
    own, these companies have had a run of hard luck – the
    CEO died
    , a major customer went belly-up, or a new product
    from a competitor rendered what they produce obsolete.
    Many
    employees, suppliers, investors and customers are relying on these
    companies. Meanwhile, these businesses are suffering from a simple
    lack of capital. If they had sufficient funding, they could invest
    in new plants or modern technology and could then aid other players
    in the economy by buying more of their goods, supplying them with
    better products, or employing them at higher wages. Not only is
    it compassionate to help out these companies, it will help the
    economy as a whole by boosting purchasing power.
    Therefore,
    I forward a modest proposal. I recommend that the government set
    a national minimum stock price. A reasonable first estimate of
    where this should be set might be $10 per share. Once this law
    is passed, it would be illegal to sell the stock of any company
    for under this amount. (And of course, this is $10 per share for
    the full number of currently outstanding shares – we can’t
    have ruthless exploiters trying to skirt the law by forcing a
    company to do a reverse split or buy back its own shares.)
    The
    effects of this law would be entirely salutary. No capitalization
    need be taken from any other company to boost the capital of the
    most-needy corporations. These corporations, now able to float
    shares at least at this minimum price, will quickly become more
    prosperous. The flow of funds to these enterprises will ripple
    throughout the economy, spreading wealth all around.

    “But
    wait a second, Gene,” Dick said. “You’re not serious about this,
    are you?”

    “Yes,
    quite serious,” I reply. “Why wouldn’t it be a good idea?”

    “Well,
    first of all, your point about ‘spreading wealth around’ is ridiculous.
    If anyone is buying these stocks at the new minimum price, they
    now have less money than they would have had at the old price –
    in fact, exactly as much less as the company in question now has
    more. So there is no ‘new wealth’ at all.”

    “Hmm,
    you may have a point there. I’ll have to try and work around that.
    But do you see any other problems with my plan?”

    “Of
    course! You heard me say, ‘If anyone is buying these stocks at the
    new minimum price…’ But why would they? If yesterday, I was only
    willing to pay $5 for a share of Dotty Dotcom, why in the world
    would I suddenly be willing to pay $10, just because some new law
    is passed? I’ll still only pay what I think an item is worth!”

    “So,
    what do you think would happen to the shares of Dotty?”

    “Well,
    they would simply stop trading. Dotty, far from being able to raise
    more capital, would no longer be able to raise any money at all.”

    “You
    have some good points there, Dick. But the funny thing is, I showed
    my plan to a few CEOs, and they all loved it.”

    “Were
    these the CEOs of companies whose stocks were trading below $10
    per share?”

    “Well,
    no, in fact, everyone of them has a stock trading above $10 per
    share.”

    “Then
    of course they’d recommend it! They’re trying to cut off competition.
    Since their shares are currently above $10, their stock will
    continue to trade. In fact, without the competition of the lower
    price stocks, demand for their stock will go up. They’re simply
    trying to enrich themselves at the expense of the less fortunate.
    They’re a bunch of scoundrels.”

    “You
    know, Dick, you’ve convinced me. My plan is stupid. Thanks.
    But you’ve left me with one question.”

    “Sure,
    anything I can do to help.” Dick was feeling quite confident, having
    thoroughly debunked my proposal.

    “Since
    you can see how stupid my plan is, why do you support raising the
    minimum wage? In fact, why do you support having a minimum wage
    at all? Aren’t low-wage workers exactly analogous to the low-priced
    stocks I was describing? Aren’t employers equivalent to the investors
    in my scenario, in that they will only pay the wages that particular
    work is worth to them? And aren’t the labor unions, the main supporters
    of minimum wage legislation, the same as the wealthy CEOs I described
    to you, enriching themselves at the expense of the less fortunate?”

    It
    took me a while to revive Dick, but when he finally came to, he
    claimed that he couldn’t remember a word of our conversation.

    November
    4, 2000

    Gene
    Callahan is a regular contributor to mises.org.

    2000, Gene
    Callahan

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