A recent letter to the editor of the Washington Daily News misunderstands an example I had earlier used on Nov. 24 to demonstrate the self-adjusting nature of wages in a free market economy. The letter asked why a more profitable firm, paying lower than competitive wages would not attempt to expand its own market share in the event of a challenge from a less profitable firm paying higher wages. The low-wage firm could, of course, try to survive by expanding, but it would need to raise its low wage rates as it sought to hire additional employees for its expansion. There would be a bidding war; non-competitive wages would be driven higher until the supply and demand for jobs came into balance.

The letter also stated that in my example the more profitable, below-competitive-wage firm would be better able to acquire market share than its competitor. Not true. New entries to an established industry are quite common, i.e., Home Depot, Apple, Whole Foods. New firms are often initially less profitable than established firms. Yet, if an established firm attempts to maintain profitability by paying less than market wages, then it literally invites competitors to bid its best employees away. Consequently, in a free market, firms which base their profitability on underpaying their workers will be vulnerable to newer firms who can achieve profitability even while paying higher-wage rates. Since capital markets focus on the expectation of future profits rather than past profits, looming competition and the prospect of a reduced availability of underpaid labor would mean firms relying on non-competitive wages for their survival would have difficulty funding future operations.

I echo the sentiments of the recent letter’s author concerning the political meddling and corruption that fosters a special-interest tax code, corporate welfare and subsidized cronyism. However, none of this is a reflection of individuals and firms bargaining as buyers and sellers within free markets.

Over the last 10 years, Beaufort County has experienced the shock of a government-sponsored mortgage melt down and the collapse of homebuilding as a prime employer. At the same time, we have seen no reduction in the county’s government spending, watched our property taxes increase at twice the rate that local incomes rise and saw the minimum wage jump from $5.15 to $7.25.

What have we gotten from government solutions to our problems? Our population has stagnated and home values have not recovered. Our work force has shrunk from 21,000 to under 20,000, as our number of employed has fallen from over 20,000 to roughly 18,500.

The War on Drugs has left growing numbers of local young men and women with criminal records that limit employment opportunities, and the minimum wage has made sure that low-skilled and entry-level jobs are not created quickly enough to pick up the slack in the job market. Raising the minimum wage will guarantee that even fewer of these opportunities for employment are created.

Maybe we should give lower taxes and fewer regulations a try.

Warren Smith is a Beaufort County resident.