A few weeks ago I signed up for an on-line college course in Macroeconomics. I am not taking the course for credit, but rather my own enlightenment. Economics is one of those fields of study where I do not have the sort of grounding I would like have, and as an SF author it has also bedeviled me in world-building.

The course has been very interesting and I do not doubt that some of my ignorance is being shaved away. As I have been going over the material I had an idea occur to me. Now I am sure brighter minds than I have already plowed this ground, but it is virgin territory to me and it is certainly something that has captured my attention.

First a re-cap on the Tragedy of the Commons.

Imagine you have a common – a pasture of grass that is owned by no particular individual. A group of people graze their sheep on the common, 2 sheep per person and every sells the wool from their sheep. As long as the number of sheep is not so high as to overgraze the common and kill the crass everything is fine. The trouble comes from the individual’s incentive. Each person can make more money for themselves by grazing more sheep, it cost that person nothing and gains them more wool to sell. If all the people do this, the common is destroyed and all are destitute. The idea of the Tragedy of the Commons is that individual incentives can work against both the common and individual good.

Now out modern economy is driven by a supply of goods and services which are purchased by consumers. The consumption by regular individuals is the largest factor in the equation. As people have greater incomes and more wealth they consumer more, causing greater production and the economy expands. It works best when all person have the greatest possible income that does not endanger production. All is well and good, until we consider the incentives of the individual producers; those who employ and distribute income.

Their twin motivations are to sell their goods and services for the highest possible price and to make the greatest possible profit from their production. In addition to seeking greater efficiencies, and lower cost materials, the producers have an incentive to lower the wage as far down as they can and keep the difference as increased profit. The Tragedy of the Commons rears its head in that if all or even most producers do this, then income falls, consumption falls, and in the end their sales and profit falls. Like the overgrazed common, it becomes a disaster for all.

This brings me to the concept and setting of a minimum wage. Like restriction on how many sheep can be grazed, a minimum wage, as I see it, could be used to stave off a contracting spiral in an unregulated economy. The best argument for a minimum isn’t justice, or fairness, or what kind of apartment can people earning it afford, it is what is the effect on aggregate consumption? When does having it too low become a drag by strangling consumption and when does having it too high choke production? Those, in my mind, are the truly critical questions.