Lemon Laws

Imagine the demand for lemons dropped -- not just for a week or two, but for the foreseeable future. If you were a grower/supplier of lemons, what would you do? Probably you would drop the price of your lemons. In fact the buyers of lemons -- e.,g. Safeway -- would probably insist that you do. You would drop the price of your lemons to the point where increased demand at the lower price took up most of your lemon crop.

Now what would happen if the government told you and Safeway that you couldn't lower the price of lemons. What if they enacted a minimum lemon price law? The first thing that would happen is that Safeway would order fewer lemons from you. The next thing that would happen is that you would have a lot of unsold lemons on your trees or in your warehouse. Eventually you might stop even trying to sell your lemons. You might take advantage of government subsidies to uproot your trees and stop selling lemons.

Now imagine the government passed a law that you couldn't lower the price of your labor, nor could an employer offer to buy it from you for less than a certain price. They might call it a minimum wage law. What do you think would happen if demand for your labor dropped? The first thing that would happen is that employers would hire fewer people. Since you can't cut your price, you would end up not being able to work. Let's call that Unemployment. Eventually you would stop even trying to sell your labor. That's called dropping out of the workforce.

If you were economically ignorant or a Congressman (but I repeat myself) you would stand up and insist with great indignation that it "wasn't fair" that you should have to reduce the price of your labor when demand for it falls. Then you would point out that people are not lemons. It's just silly that wages should fall when demand for labor falls or that a surplus of labor should exist if the price of it is prevented from falling. Maybe you would blame the continuing labor surplus on evil bankers or government not incurring more debt. Maybe you would blame George Bush. But what you wouldn't be able to do is change the economics where government imposed price floors create surpluses -- whether they involve lemons or people.