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Oct

9

Government Invented Jobs and Industries Need to Go

October 9, 2007 |

Let’s say I had a business that employed people digging ditches, only to fill them right back up? Would you care? Probably not. But if I added that my contracts came directly from the government, you might change your mind. And, you probably wouldn’t mind if politicians decided to cut the program that financed my career.

Yet were I to point out that cutting my funding would cost some good employees of mine — decent hard working people — to lose their jobs, suddenly otherwise reasonable folks pause to ponder that maybe my venture isn’t so bad. After all, these people are working — and they are contributing to the economy with the wages they earn. The thought, then, is that were we to cut them off of their careers, then we’d hurt the economy, right?? (Hmmm. FDR’s “New Deal”, anyone?!??)

This logic is a form of what’s called the broken window fallacy that was observed by Frederic Bastiat in the 1800s. Simply, Bastiat noticed that if a window at a local business — say, at a bakery — was broken by hoodlums in the night, people managed to turn the costly event into a overall good in that the broken window actually provided economic activity by generating revenue for the glazier who replaced the window, who in turn would spend his earnings in the community. I Such logic produces a belief among some that the any old broken window is a net good, since otherwise money would have sat unused by some baker who might miser it away from doing any good.

The same logic is hardly dead today, and it shows up in a variety of formats. A very popular related theory is that war is good for the economy because it puts so many to work. Less direct variations occur, such as one recently that showed up in a major publications read by the Investment Advisory community, written by prominent name listed on Forbes’ wealthiest 400, Ken Fisher, who suggests that vast credit expansions financed by printing money is always good — even if directed into the highly wasteful housing bubble, oversupply of Miami Condos and get-rich-quick house-flippers who blew tons of cash, included.

Now, the impetus for this post was another such variation exemplified in a Letter to the Editor in the Post Gazette from a Pittsburgh area Restaurant family member who was critical of proposed PA beer legislation. The author is miffed that the state legislatures might actually allow for a little more freedom with PA’s absurdly restrictive beer sales laws. You know, in 98% of states in the U.S. (and all other countries with the exception of those under strict Islamic law) , consumers are afforded the very basic freedom to purchase beer in the exact quantity they actually desire from virtually any retail establishment that is convenient and happens to be in the business of providing consumers with quality products at a reasonable price. (Ghadzooks! How would PA ever survive with such anarchy!)

Yet, that’s the same basic tenet of free market competition 101 is not afforded to PA residents, and the author of the letter stopped to the broken window fallacy to defend why legislators should not remove some restrictions on 6-pack sales in PA:

“It’s sheer economics: If local restaurants and taverns [Who currently have a 6-pack sales monopoly -Ed.] lose revenue they would have to lay off employees since they would not be able to support the extra costs. “

Uhh… and what about the consumer you’re supposedly there to serve? What about what’s good for them? No mention!

Now, that’s not to say the proposal itself is not badly flawed. It is because it still enshrines poorly conceived laws on the books to protect the existing PA beer cartel and its employees.  (The same could be said for the PA liquor system in its entirety.)  The 6-pack law proposed would allow the already protected beer distributors to sell 6-packs, whereas they are currently only allowed to sell by the case.  I presume the law is in response to a prior legislative relaxation that has allowed new, hyrbrid beer emporioum 6-pack shops to exist — so long as they serve food to qualifie as a restaurant.  Whatever the case, naturally, our author is worried about beer wholesalers taking away the lucrative 6-pack business.

But wind back to reality — freedom and basic common sense — for just a moment, if you will please. Why can’t I buy a 6-pack, or just one beer for that matter, when I go to a grocery store or the local Kwiki-mart like you can in the rest of the civilized world? Well, its for two reasons: it’d cost the current beer cartel its protected status AND MORE IMPORTANTLY, it would cost politicians a valuable voting block — the same cartel that contributes a lot of money for that privilege.

Oh, but isn’t the inconvenience worth the jobs these laws protect? Am I not just throwing a selfish tantrum that will hurt people? Absolutely not, and to suggest as much is sheer economic illiteracy. What’s missed in the logic that defends keeping some people’s job ahead of overall market efficiency, is that someone else is paying for the extra cost of supporting something that otherwise is not needed in an economy.  Protecting these jobs is no different than protecting blacksmith’s and the horseshoe industry form competition from autos, or the seemstress industry from the sewing machine.  Resources that would otherwise be redirected to produce something that truly is needed, towards more wealth and the greater good, are instead wasted through protectionism.

The baker who loses his window, for example, does generate some economic activity, but at the end of the transaction — with the window replaced — the overall economy is one window less wealthy than it was before it was broken, and the baker’s plans for putting his savings to use are delayed by the amount he had to pay for a replacement window. We forget that the baker might be saving for another new model oven or new ingredients or a new employee — all forgotten by supporters of window breaking.

Consider the economic calamity that is war. Supporters of the “war is good for the economy” theory point at all the jobs and economic activity war creates while failing to consider what all the resources redirected to war would have created absent the war. Moreover, wars are about destruction. Bombs are blown up, destroying the wealth used in their creation as well as whatever was targeted. Consider what all might have been created instead if hundreds and billions of dollars were just left in the hands of those earning the dollars through real, mutual exchange of value? All that is lost through inane logic.

While protecting the PA beer cartel might seem to be a comparatively small cost, this example is but one of millions in the U.S. economy in which jobs that apply drag to an economy are protected. Politicians with gleaming toothy “vote for me” smiles point to what their legislation creates, but don’t be suckered by the fallacy that it is. Remember what they don’t want you to see behind the curtain: What would have been had the politicians and their protected constituencies not co-pted rights, freedom and wealth — the real economy functioning in ways that are actual self-supporting and wealth creating. Compare that to, say, the $460 million tunnel under the river that just broke ground a few weeks ago. What might that money have contributed to the local economy that truly was needed?  Consider all the job creation programs that effectively dig and fill ditches in ways the economy really does not need — and wonder what might have been had the politicians not been allowed to coopt so much wealth and rights and redirect them to their favored constituancies?

But don’t expect any of those feeding from this quid-pro-quo trough to change any time soon. From government schools, to attorneys and CPAs who help their clients navigate the punitively complex tax code, and on and on to Tavern owners wanting their 6-pack sales covered by law, waste is enshrined by government. Until reason is given a chance in politics — and citizens rights to say no thank you to such stupidity is restored — it’ll just get worse and worse. Plan on it!


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