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.
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