Conservatives all know that the welfare state muffles the punitive incentives the poor feel. It’s a subject we never seem to tire of talking about it. Less mentioned, though, is how the regulatory state suppresses the rewarding incentives the poor would otherwise feel. Why is this?

That people respond to rewards is such a basic element of human nature that it’s often taken for granted; it’s easy (especially for the conservative temperament) to focus on the punishments instead. Perhaps most of us never experience the kind of toxic situation or inner demons that makes all paths ahead seem like paths of punishment, but someone who has experienced that knows that punishment produces nothing useful if there isn’t an alternative reward. People who cannot trust that there are carrots lurking somewhere among the sticks often just give up.

Getting off welfare is hard enough for the average human soul. It’s made even harder when productive alternatives to welfare are illegal.

Suppose I’m a single mom on welfare in the Chicago ghettos. Since I’m caring for a kid anyhow, maybe I could make some extra money babysitting other single moms’ kids so that those moms felt more comfortable taking jobs of their own, knowing that their kids would be in my trusted hands. But if I get caught babysitting too many kids, or doing too good a job of it, I could be busted for providing unlicensed day care. Or maybe, like a lot of women throughout history, I know how to cook or do hair. But if I sell the food I make in my own kitchen, or braid others’ hair without a license, I’m technically a criminal.

A fair amount of this sort of economic activity already takes place off the books. Unfortunately, our side’s most audible complaint about this off-the-books activity is that it often coincides with welfare fraud. This misses the bigger point: It’s hard to grow your business and climb out of poverty when the business you run is made illegal by the state. (How do you publicly advertise? Who’ll loan you money for expanding your venture?) Sure, some drug lords make it big, but they sell an unusual product that faces little licit competition – and very few people are jonesing for good collard greens or a nice hairdo the way an addict is jonesing for his high.

Conservatives relish pointing out the martyrdom of the middle class to the regulatory state. When we’re not completely tone-deaf, we choose our representative regulatory martyrs from the lower middle class. But the poor who never go into business because of regulatory hurdles – or who can’t report their businesses because they’re illegal – go largely unnoticed, even by us.

Hernando de Soto noted of the poor in third-world countries that

Because [their] rights to these possessions are not adequately documented, [their] assets cannot readily be turned into capital, cannot be traded outside of the narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against investment.

Much the same could be said for for the ghetto-dwellers in our own country running perfectly innocent, yet illegal, businesses – their rights cannot be documented because they’ve been outlawed. A burdensome regulatory state hurts the rich and middle class, obviously, but it especially hurts the poor, turning them into third-world citizens, even in a first-world country.

Many thanks to Tom, Mike, and Sal, who saw the first draft.