Friday, January 13, 2012

Government Regulation is Bad For Business

Despite all the resources at their disposal, it has been found that repairs of roads that need no repair, housing and stock market bubbles, more bureaucracy and an imaginary war with little green men from Mars is all that President Obama and his team of economic advisers can come up with. What else can one expect from the statist economic planner, anyway? History does not recall a government committee to have produced the automobile, transistor radio, personal computer, I-Phone, or comparable invention; nor something simpler, like the hammer, shovel, or even toothpick. While the planners of Hitler’s Germany produced all sorts of killing machines, and those of the USSR even put a man in outer space, the citizens of those societies did not enjoy any benefit from that kind of “progress”—rather they suffered at the hands of it. This is by no coincidence, since the objective of entities in power is to remain there. On the other hand, every single invention that has lead to benefit individuals and societies alike has been produced by personal creativity driven by the urge to improve one’s own condition (something that most people misguidedly classify as "greed"). 

The prevailing economic theory of the past one hundred years is that which John Maynard Keynes introduced and championed in the early years of the 20th century. More than one US president—but most notably the one who disregarded American republicanism the most, FDR—has declared, "we are all Keynesian now." Keynesian theory suggests that various barriers that lawmakers impose on business have no deleterious effects on the economy. Furthermore, John Maynard Keynes was a famous supporter of government intervention in the economy, since according to him the free market by itself will always fail to reach full employment. Since by Keynesian reasoning, the government can do no wrong he propagated that it ought to intervene in the market in order to fix what the directly involved parties cannot. Since Keynes missed the most important point of economics: that money does not equate to wealth he was severely hampered when making his conclusions. Opposite Keynes, Ludwig Von Mises realized that wealth is created by human action, while, Adam Smith had previously noted something else: that capital has no home. That is, capitalists—entrepreneurs—will always seek out the most hospitable environment to put themselves to work in. 

Any proponent of Capitalism is quick to point out that government restriction on business is bad for business. However, whenever such statements are made, most people’s imagination turns to Wall Street. Lost on most people are the incessant regulations that are daily applied to small and medium sized businesses and on the industries that used to produce blue-collar jobs for unskilled laborers. Whether one thinks of minimum wage or environmental laws; ever-increasing workplace and fire safety standards; growing types of insurance policies; or assurances that companies need to provide some government department with and so on, all of this adds to the cost of doing business. Unavoidably the added cost is applied to the various other costs that go into making any given product. Eventually, when two similar products are put side by side, and the consumer is left to decide which one to purchase, invariably he or she will choose with their wallet, and pick the lower priced one. When people wonder why jobs are being exported into Third World countries—China, India, Bangladesh and the like—they are often mislead to believe that it is done out of corporate greed. In fact, they would be closer to finding the culprit by simply looking in the mirror.

The fact is that people, clouded by Keynesian philosophy believe that nominal increases of their salaries mean an earnest increase of their wealth. So, workers support minimum wage laws, just as they support unions in their demands for higher wages and increased benefits. The trouble is, however, that while the increased wage in the medium and long run does not equate to more real wealth for the laborer—and it is in this medium to long run that wealth can truly increase—it does mean an increase in the cost of making the given product these laborers produce. The company selling the product is left with two choices, both of which will hamper it: to price their product higher on the market, and lose profit by losing volume of sales or by taking a smaller profit margin. By losing volume of sale, the company loses the need for some of its employees. On the other hand, while most incorrectly equate profit with greed, they neglect the role that profit has in attracting ambitious people to business, as well as the need for profit to be reinvested into existing companies in order for them to remain competitive and keep providing jobs for their employees.

Of course, the most important little point that is unseen by the workers that support minimum wage laws (as well as union mandated wage increases) is that there is someone else somewhere in the world ready to take a smaller wage if it means a meal and a roof over one’s head. The formerly unemployed persons of the Third World have a lower opportunity cost, that is, they have little else that is a more valuable way to spend their time and effort on than the work that the American laborer is rejecting as unworthy. The formerly unemployed dirt farmer of China or Mexico does not mind working for a wage deemed to be beneath the dignity of the Western worker. The laborer in the Third World is simply happy to have a job, and more importantly, an income. It is the principle that made the West the world’s powerhouse before and especially during the Industrial Revolution: people were willing to work for a living, because there was no better choice. There were no unemployment benefits, nor were there retraining programs paid for by the government, rather, if one worked, one had a house and a meal; if one did not there was no welfare office to collect a cheque from. Today’s Third World worker, unrestricted by minimum wage laws, is more than satisfied to spend his time utilizing his human action for less than his counterpart in the US (as well as Canada and the EU) is legally allowed to settle for.

Beyond the lower wage that people all over the world are willing and unrestricted to accept as compensation for their labor, those same workers do not care much about the safety standards in the factories where they work nor do they care about the environmental impact of their jobs. The irony of environmental laws is particularly painful. Companies are forced out of North America because these laws make it unfeasible for them to operate here. Needing to survive and keep making a living, their solution is simple: move to China, where not only is the labor cheaper, the environmental laws are nonexistent. The temptation is simply too difficult to pass up. For, where half a century ago the political climate in the Third World practically guaranteed a bad investment, today those same countries play good host to capital. And while if those companies were still here the public might be able to influence the companies into finding solutions to the pollution created by these companies faster, by being out of sight, the same companies can, and likely do, pollute exponentially more than they would otherwise.

The banishment of entire industries leads to the problem of overcrowding of the remaining industries, which leads to bubbles, price wars and short life of companies, perpetuating the ailment. While capital moves on to greener pastures, and seeks out hospitable new jurisdictions to practice its trade, labor here is left idle and unemployed. Government regulation, instead of working to improve "working class" conditions, ends up hurting those who the policy aimed to benefit. 

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