Minimum Wage and CAFE standards

Apparently, I'm a bit more liberal than Joe:

I know Joe, and from all I can tell he's a good guy, and his heart is in the right place, but we seem to differ a bit in our politics, especially when it comes to economics. Joe seems to be pretty much straight down the line libertarian, which I respect alot more than I respect run of the mill Republicans, but it is a political philosophy I often disagree with.

Take this, from Joe's blog...

Increase the minimum wage and index it to the CPI...
No. It's damn near an axiom of economics that if you increase the costs of something (e.g. labor), the substitutes will be far more attractive (e.g. outsourcing or organizing in a less labor-intensive manner). Raising the minimum wage from $5.15 to $6 will mean that the people whose labor is worth $5.50 will go from employed to unemployed. If you support the minimum wage, your heart is in the right place, but your brain isn't.

Well, despite this "axiom of economics," I had an economics professor who supports the minimum wage. Joe isn't entirely incorrect. Obviously a higher minimum wage does affect the demand for labor, but the question is how much? My professor showed me, and I'm sorry I don't have a link, studies have shown that the demand for labor doesn't change much as the minimum wage goes up.

First, lets get one thing straight... We're not talking about manufacturing jobs. Most of these jobs have left the country already, and the ones that are here are not minimum wage jobs. So changing the minimum wage won't cause jobs to fly to Mexico.

What we're talking about are service jobs. The people that are offering you "fries with that." And raising the minimum wage a bit will have almost no effect on the number of these jobs that are still around. Ok, lets say McDonald's figures out a way to make fries a bit more efficiently, and a few jobs are eliminated because of minimum wage. So 1 of every hundred jobs is eliminated. So you have 990 people making 6 bucks an hour instead of 1000 making $5.15. To me, that's a worthwhile tradeoff.

Now, let's hear what Joe has to say about CAFE standards....

Increase CAFE standards. Some other environment-related regulation
No. This is classic "you are dumb; we know what's best for you" thinking. If Americans want more fuel efficient cars, they will buy them. If Americans don't want lighter vehicles, then they should have the freedom to do otherwise.

The thing is, the free market doesn't always produce the best result. I do understand the merits of capitalism, but with a completely free market, there are market failures. The difference between my philosophy and that of a libertarian is that I think it should be the goal of government to correct market failures.

Everyone working in their own self interest is the foundation of our economy, and it is a philosophy that has produced some pretty nifty things. I understand that. But while it is in our interest on a macro level to protect the environment, the free market doesn't always do this. Many people think driving a gas guzzling SUV is in their best interest. Heck, maybe they're right. Maybe we're talking about a 90 year old with no family who doesn't give a shit what happens to the planet when he's gone. But as a group, it's in our best interest to protect the environment, and have CAFE standards.