Today is the birthday of one of our greatest—and least well-known—founding fathers, Thomas Paine. Although one of the best-selling authors in history, whose Common Sense largely persuaded the public to endorse American independence, Paine is often overlooked in the roll-call of American founders. That’s in part because of his notoriety as a religious free-thinker later in life, and it’s in part because his variety of classical liberalism led him to endorse early forms of wealth redistribution which gained disrepute among many of those who would otherwise be expected to keep his memory alive. It’s really a shame. Paine was a great genius and a brilliant spokesman for liberty, who deserves to be mentioned alongside Jefferson and Adams in every evocation of our founding.
Incidentally, for those of us who cherish economic liberty, check out this passage from Rights of Man, in which Paine—making the case for the superiority of the revolutionary French constitution over the mish-mash of corruption and rent-seeking that was Edmund Burke’s prized British “constitution”—emphasizes that the former protects the right to earn a living, while the latter does not:
The French Constitution says there shall be…no monopolies of any kind—that all trades shall be free and every man free to follow any occupation by which he can procure an honest livelihood, and in any place, town, or city throughout the nation. What will Mr. Burke say to this? In England…with respect to monopolies, the country is cut up into monopolies. Every chartered town is an aristocratical monopoly in itself, and the qualification of electors proceeds out of those chartered monopolies. Is this freedom? Is this what Mr. Burke means by a constitution?
In these chartered monopolies, a man coming from another part of the country is hunted from them as if he were a foreign enemy. An Englishman is not free of his own country; every one of those places presents a barrier in his way, and tells him he is not a freeman—that he has no rights. Within these monopolies are other monopolies. In a city, such for instance as Bath, which contains between twenty and thirty thousand inhabitants, the right of electing representatives to Parliament is monopolised by about thirty-one persons. And within these monopolies are still others. A man even of the same town, whose parents were not in circumstances to give him an occupation, is debarred, in many cases, from the natural right of acquiring one, be his genius or industry what it may.
How sad that much of the same can be said of the United States today.
The measles outbreak has led to much concern about the number of people who refuse to vaccinate their children, often on the basis of false claims that vaccinations are associated with certain maladies. But while these concerns are well-grounded, it’s also rapidly become a stick with which people seek to beat their political opponents. Hillary Clinton—who contributed to the vaccine hysteria herself only a few years ago—immediately took occasion to blast Rand Paul for his perpetuation of the same myth, for instance. And since all good, right-thinking, secular scientist types know that Republicans are evil troglodytes, they’ve taken to exploiting Paul’s comments as an opportunity to replay the “Republican War on Science” trope—ignoring the fact that anti-vaccine pseudoscience is overwhelmingly associated with political liberalism. Whatever its basis, scientific illiteracy is deplorable and dangerous. But at least equally bad is economics denialism—supply and demand denialism—a phenomenon that is also found on both sides, but leans heavily left. The principles of economics are well-founded, robust, testable, confirmed, and economics can tell us with remarkable certainty that certain government policies will have harmful effects for the industry and innovation—and, consequently, for the goods and services that we all rely on—the lessons of economics are routinely ignored or tuned out by those devoted more to political ideology than economic reality.
Consider the minimum wage. It’s a simple policy to understand: the government makes it illegal to employ any person at below some specified number. This prohibition, backers tell us, will enrich working people who find the cost of living just too high.
This is economic illiteracy, plain and simple. Simple supply-and-demand (as basic to economics as gravity to physics or evolution to biology) tells us that the actual effect of a minimum price rule is to create a surplus, as buyers choose not to buy as many of what they previously bought. Set the price of widgets at $100, and people who would have bought widgets at $50 just won’t—leaving you with an oversupply of widgets. In labor markets, “oversupply” is called “unemployment.”
While a minimum wage law might benefit those lucky enough to have jobs, it comes at the expense of those seeking jobs—and particularly at the expense of those who lack skills or experience, and might otherwise have found employment by offering to work for less than the market rate. A minimum wage law doesn’t make people richer—it just makes low-paying jobs illegal. That’s one reason labor unions have long supported minimum wage hikes, which price their competition out of the market. And because it raises the cost of doing businesses, firms will be forced to cut back, or even to shut down—as San Francisco’s landmark Borderlands Books just did, in consequence of the city’s recently enacted “living wage” ordinance. As people often say, if the minimum wage is a good idea, why not make it $500/hr.? The answer makes the fallacy behind the minimum wage obvious.
Rent control, too, harms the poor by diminishing the incentive for landowners to lease out their property to people who need it. At the very least, rent control forces landowners to cut costs elsewhere, since they’re barred from charging what the property is actually worth. Thus they skimp on maintenance or upgrades. Many just choose not to rent their property at all.
More deeply, minimum wages and rent control do not help the poor because they’re based on a misunderstanding of how prices work. Prices are not arbitrarily chosen dollar amounts; they are signals that indicate the value of an item relative to other products or services on the market, and relative to the ingredients that make it up. The reason a piece of jewelry costs what it does is because it is made up of raw materials and craftsmanship, each of which could be used for some alternative purpose, but which is instead used to make that ring or necklace, instead. Prices are a way of signaling to everyone in the market how much of these ingredients go into a thing, and how much other uses for those ingredients might be valued. Commanding a shopkeeper to change the pricetags in his store, or barring a landlord from charging what the apartment is worth, or forcing an employer to add an extra zero to a paycheck—none of these things changes the economic factors—they just mess up the system of price signaling.
That’s why laws prohibiting “price gouging” are also foolish. Prices go up in emergencies because there’s greater demand. When a hurricane’s coming, and stores mark up the price for plywood to reinforce windows, they’re typically denounced as evil exploiters of the needy. What they’re really doing is telling plywood suppliers that there’s a great need for plywood in that place. If they were allowed to, plywood suppliers would then rush more wood to the site—to reap profits, and to supply a big need. Forbidding high prices doesn’t cure the shortage—it worsens it, by depriving suppliers of that information and opportunity.
Prices are also a good indication of the foolishness of many environmental policies. The price of a product or service is the consequence of countless factors: all the people who want that thing, or who could use its ingredients for something else, comparing what they’d be willing to pay for it, compared to other things. It’s all a tradeoff. But the fetish for recycling ignores these facts.
This afternoon, I saw a sign in the Sacramento airport promoting a state-sponsored recycling business that, the poster said, “creates jobs.” Yet these jobs are paid for, not by people who voluntarily support the recycling center, but by government subsidies. Why? Because there is no market demand for that service—people would prefer, if they had the choice, to spend their money on something else. Instead, the state is forcing them to pay for recycling and to “create jobs.” (Incidentally, “creating jobs” is another phrase only economic illiterates use: we do not work to “create jobs,” but to create wealth. If we could create wealth without having to work for it, we’d be better off. Labor saving devices that “destroy” jobs are a good thing because they free up people for other pursuits.)
But why do people not want recycling, when given the choice? The answer is suggested by the one form of recycling people do willingly pay for: aluminum recycling. When it comes to plastic or paper, you’re forced to pay for recycling. When it comes to aluminum, the recycler pays you. Why? Because it’s cheaper for him to reuse aluminum than to make more. But it’s not cheaper to reuse plastic or paper. It’s more expensive. What that means is, it uses more resources—it costs more time and energy to reuse plastic or paper—and that means that resources that might have been devoted to something people really do want (let’s say, cancer research or safer cars or more beautiful art or food for their babies) is instead being used on recycling. And that, in turn, is bad for the environment, because it diverts resources from their most efficient use—which is to say, it creates waste. Recycling is typically worse for the environment in the long run, because it costs more resources to reuse than to make new—expends more energy, requires more fossil fuels, wastes more time and money that could be used to make human life better.
These are not mere opinions, any more than evolution is “just a theory.” It is the basic operation of supply and demand, about which there is broad consensus in the profession, and which cannot be simply waved away under political slogans or emotional appeals to the plight of the underprivileged. Yet every year, politicians and constituents shout these lessons down, or latch on to the unusual study that seems like it might somehow finally be the exception to these economic rules. Yet if a study ever really did show that, everything else being equal, the minimum wage did not reduce employment or raise the cost of living, or that rent control laws actually increased the supply of housing, or that recycling requirements actually allocated resources efficiently—well, such a study would be as much an outlier as a physics study showing that a rock dropped from a height failed to fall, or that non-random selection of randomly mutating genes failed to result in evolution. Any such study would be revolutionary, if true—but for that very reason, should be regarded with skepticism.
Economic illiteracy, like other forms of scientific illiteracy, is dangerous. Ideologues blinded to reality, and power-hungry politicians, are just as likely to exploit it as they are to exploit the public’s ignorance of biology or medicine. Its real-world effects are the destruction of economic opportunity and the stifling of innovation that might bring about cures for some of society’s worst problems. Yet while the media focus attention on the scientific illiteracy that has caused the measles problem, or that manifests in the popularity of creationism or other pseudosciences—they ignore, and even perpetuate, supply-and-demand-denial.
"[W]hilst Men have their five Senses, I cannot see what the Magistrate has to do with Actions by which the Society cannot be affected; and where he does meddle with such, he does it impertinently or tyrannically. Must the Magistrate tye up every Man's Legs, because some Men fall into Ditches? Or, must he put out their Eyes, because with them they see lying Vanities? Or, would it become the Wisdom and Care of Governors to establish a travelling Society, to prevent People by a proper Confinement from throwing themselves into Wells, or over Precipices? Or to endow a Fraternity of Physicians and Surgeons all over the Nation, to take Care of their Subjects Health, without being consulted; and to vomit, bleed, purge, and scarify them at Pleasure, whether they would or no, just as these established Judges of Health should think fit? If this were the Case, what a Stir and Hubbub should we soon see kept about the established Potions and Lancets; every Man, Woman, and Child, tho' ever so healthy, must be a Patient, or woe be to them! The best Diet and Medicines would-soon grow pernicious from any other Hand; and their Pills alone, however ridiculous, insufficient, or distasteful, would be attended with a Blessing.
"Let People alone, and they will take care of themselves, and do it best; and if they do not, a sufficient Punishment will follow their Neglect, without the Magistrate's Interposition and Penalties. It is plain that such busy Care and officious Intrusion into the personal Affairs, or private Actions, Thoughts, and Imaginations of Men, has in it more Craft than Kindness; and is only a Device to mislead People, and pick their Pockets, under the false Pretence of the publick and their private Good."
About a year and a half ago, a friend gave me a T-shirt with the slogan “Peace - Love - Liberty.” This is also the unfortunate title of a new book by my friend, Tom Palmer. But I can never see this slogan without wincing and thinking, “Pick any two.”
This is my personal blog. The opinions expressed here are my own, and in no way represent those of the staff, management, or clients of the Pacific Legal Foundation, the Cato Institute, or the McGeorge School of Law.