Prices contain information. When you mess with prices the economy rebalances into a less optimal allocation of resources.
This is entirely out of Austrian economics playbook, that prices contain information that businesses rely on to plan investment. That a minimum wage distorts prices and induces businesses to misinvest.
And it is always thrown out as dismal has with no further explanation. As if it is so obviously right that no further explanation is required. But I have never met an Austrian economics enthusiast who can explain exactly how the distorted prices cause businesses to misinvest. Does the higher prices in an economy trick the business into thinking that there is more demand for the product for than what, there would be if the business could pay a lower wage? How does this cause a misinvestment? If the minimum wage is still enforce after the investment the business will still get the price that contains the horror of minimum wage distortion. Where is the misinvestment?
Not even to mention that no business relies solely on price to decide whether to invest or not.
The best argument against the rather simplistic Austrian economics is wholly contained within their theory itself. They say that they are going to provide businesses with the freedom to run business the way that the businesses want to be run, without government interference. And yet most of the things that Austrians say is distorting the free market, like business not competing solely on price, are things that businesses freely chose to do, collectively, over time because they realized that competing on price alone leads to the not so unimportant problem of no profits.
So they started to compete on many different factors, which I have listed in another post in this thread. They weren't forced by the government to start branding or advertising to avoid having to solely compete on price, they chose to do these things and more to avoid competing solely on price. Trust me, more than half of the personnel in an average consumer products corporation are employed to avoid the 'discipline of the market' setting prices based on supply and demand. The people who run the business want the price to be distorted, they are the one who are intentionally trying to distort them.
How are they going to be mislead by prices that they are responsible for distorting?
The price distorting of something like the minimum wage is so minor compared to the voluntary price distortion that the businesses do themselves that it can hardly be demonstrated as study after study has concluded.
Besides, second revelation that Austrian don't realize, businesses don't just consider prices when they are considering investments. The main factor is usually the answer to the question is there any demand for the additional production? Yes, the "d" word. Austrian economics makes the rather ridiculous assumption that demand = desire, that if you make it, that someone will buy it, that supply generates its own demand. Yes, when faced with a real decision that will cost real money every businessman or woman becomes, gasp, a Keynesian. Or more precisely, Keynesians economics does a much better job of explaining what happens in the real economy.
