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Curing the Unemployment Blues: Deregulation Is Our Last, Best Hope
One of the enduring faiths of modern progressive thought is that omniscient policy makers can cancel out the errors of one form of economic intervention by implementing a second. That lesson was brought home to me when I was a third year student at Yale Law School, whenever discussion turned to the perennial debate over the minimum wage.
The charge against the minimum wage was that it had to introduce some measure of unemployment into labor markets by raising wages above the market-clearing price. “Not to worry,” came the confident reply. The way to handle that imperfection is to raise the level of welfare benefits in order to remove the dislocations created by the minimum wage. If one government program had its rough edges, a second government program could ride to the rescue. Implicit in this argument was the tantalizing, but fatal, assumption of economic abundance: The government has the power to tax, and with that power, has access to a cornucopia of public funds that never runs empty—at least until it does.
The massive level of economic dislocation both at home and abroad offers conclusive evidence that this venerable two-part strategy does not, and cannot work, as I argue over at Defining Ideas in my weekly column. Rather than pursue foolish government programs to counter unemployment, the U.S. government should eliminate the elaborate regulations placed on capitol and labor markets. A thorough program of deregulation will reduce the wealth that is directed into costly compliance and unwise transfer systems, and unleash a wave of productivity in the broader economy. The systematic deregulation of our labor and capital markets offers the best, last hope of tackling unemployment.
Continue reading my column at Defining Ideas.
Published in General
Every regulation the government imposes on business comes at some cost. The minimum wage law reduces the opportunities at the bottom of the scale, but that has impact on all the levels above. The Sarbanes–Oxley Act was intended to make corporations more transparent, but its unintended effect is that it puts additional hurdles between private companies and the capital market that could be available if they could justify the costs of going public. This has not only led to fewer companies going public, it actually has caused companies already public to go private. And if a company is considering an IPO, the London Stock Exchange provides a more conducive atmosphere.
Why not raise the minimum wage to a level equivalent to the upper level of wage earners?
It seems that raising the minimum wage 50 cents or a dollar does little to “rescue” the low wage earner. Why not then really raise the minimum to say $30 or $40 per hour? Would that not fix all the problems with poverty?
Of course this reductio ad absurdum reveals why any minimum wage is a fallacy. You just never hear it used.
To paraphrase Princess Leia, it’s our ONLY hope.