 Voices For Freedom Read Columns
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© 2006 Daniel J. McLaughlin Good Intentions Make Bad Policy People are typically good, they want to do what is right, what is best. Good intentions, however, don’t immunize anyone from the harmful effects that inevitably flow from ignoring the laws of nature. Even if you are taking someone to the emergency room, that ice on the curve is no more forgiving because you want to help. If you go too fast, you will end up in a wreck, with more injury than you started with. The basic economic laws, like the basic laws of physics, have been known for centuries. Both sets of laws are still working today, and neither set of laws change because of good intentions. Most people, even non-economists, understand that if you artificially fix the price of a good or service above the market level, you will have a surplus. If you fix the price below the market, you will suffer a shortage. If the supply decreases, the price goes up, and so on. It is not negotiable. Some well meaning people try to change those laws to fit their own agendas, and economic fallacies are born. The physical sciences can deal with fallacies and errors relatively easily because molecules don’t complain or hire an army of consultants. Economic science, on the other hand, is plagued with perversions because people aren’t like molecules. They have selfish interests. Some people don’t like reality and try to use government coercion and force to make it different. They build an economic case, focusing on their own interests, ignoring the predictable negative consequences to other groups. They show the immediate good on their group and forget the long term harm that is sure to arrive for someone else to deal with. Whether the unsound principles are promoted out of good intentions, selfishness, ill will or ignorance, they are always irresponsible and will end up causing pain to someone or everyone. These errors in economic reasoning take many different shapes, but they typically propose using the force of government to gain special privilege, protection or direct payment. Subsidies, price supports, quotas and tariffs protect specific individuals, industries or agriculture segments. The rationalization is that, if you will keep them from losing money, then you will keep them in business and provide more employment. What is not seen is that there is a reason they are not profitable. Economies of scale, technical advances, geographic advantages or any number of other factors make their competitors better at serving the customer. The money paid in higher prices or in taxes comes out of someone’s pocket. That money is then not available to provide jobs in other, more efficient industries and businesses. The favored industry or individual gains while the rest of the people lose by supporting inefficient producers and hurting efficient ones. Government fixing of the minimum price of labor causes a surplus, called unemployment, for employees with low skill levels. Agricultural policy that rewards inefficient producers, distorts markets and causes higher prices to consumers has been a staple of federal policy makers for many decades. Monetary policy that steadily erodes the value of our money by more than 30% per decade doesn’t seem to raise an eyebrow. Government sponsored and protected monopolies are accepted without question, even though they fly in the face of the free markets that get blamed for their ill effects. Support for the absurd level of regulation of all aspects of business and personal life ignores the evils inherent in the regulators, and focuses only the purported good they bring about. The 1990’s was a period cluttered with many conflicting policies. The increase in the money supply by the Federal Reserve Bank caused prices to rise by 30% in that decade. The coincident manipulation of credit by the central bank caused the huge distortions of the financial markets and the subsequent crash. The rapidly expanding markets were the result of those distortions and non-market inputs, not real demand. Thus, the low unemployment levels and the apparent well being for many people masked the ultimate effects of government wage fixing and market tampering. Reality came home to roost, as it always does. The bubble burst, labor markets cooled, and, because of the effects of inflationary policy during the decade, the ultimate effect was that typical working Americans were worse off than they were before. Many economists and politicians avoid the obvious, and take the wrong lessons. Government tinkering and manipulation is the problem, however well-intentioned it’s proponents may be. Good intentions with bad economics always make bad policy. |
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Daniel Mclaughlin
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