Views of the Economy and Reality

By Kevin Price, Publisher and Editor in Chief,  USDR.

I am often shocked by the type of policy proposals that come from those who see the government as a solution to our economic problems. As a rule, such people largely disregard the ability of humans to respond to policy in a protective manner — be it taxation, regulation, or licensure laws. The way individuals and businesses protect themselves is usually in a manner that does harm to the larger economy. For example, when minimum wage goes up, unemployment always goes up for the very groups such a policy is “intended” to help — young people and minorities. The law is suppose to increase the quality of life for these low income earners, but the result is typically less jobs, which means there is no benefit at  all.

An article in the Wall Street Journal by Daniel Klein begins to shed some light on the real reason there is a distance between policies that promote “government solutions” and reality. The column discusses the results of a simple economics test among people of different ideological perspectives and it shows a huge disconnect among those who want more government when it comes to the logical consequences of certain public  policies.

The article asks the reader to “Consider one of the economic propositions in a poll: “Restrictions on housing development make housing less affordable.” People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure. Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical. Therefore, we counted as incorrect responses of ‘somewhat disagree’ and ‘strongly disagree.’ This treatment gives leeway for those who think the question is ambiguous or half right and half wrong. They would likely answer ‘not sure,’ which we do not count as incorrect. In this case, percentage of conservatives answering incorrectly was 22.3%, very conservatives 17.6% and libertarians 15.7%. But the percentage of progressive/very liberals answering incorrectly was 67.6% and liberals 60.1%. The pattern was not an anomaly.” It would be nice if the above was an exception, but these answers epitomize the thinking of those looking for government solutions when it comes to the link between policy and  consequences.

Klein points out a trend through exploring other questions. 1) Mandatory licensing of professional services increases the prices of those services (unenlightened answer: disagree). 2) Overall, the standard of living is higher today than it was 30 years ago (unenlightened answer: disagree). 3) Rent control leads to housing shortages (unenlightened answer: disagree). 4) A company with the largest market share is a monopoly (unenlightened answer: agree). 5) Third World workers working for American companies overseas are being exploited (unenlightened answer: agree). 6) Free trade leads to unemployment (unenlightened answer: agree). 7) Minimum wage laws raise unemployment (unenlightened answer: disagree)…How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal,  5.26.”

How big was the gap between those with a free market philosophy and those who support excessive government action? Klein notes, “Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians  (21%).”

When I look at the gap between those seeking government solutions and those who support a view grounded on personal responsibility and individual liberty, the psychologist inside of me wants to come out. I want to evaluate those seeking more government and determine why the link between policy and consequences is not there. It could be they make decisions that are emotional and with little regard to logic. The desire to take away economic and social problems through mandates seem wonderful on the surface, but they do not happen in reality. It is interesting that those advocating more government, which seems to make decisions based on emotions, does not understand the role emotions play when it comes to bad policies. Such individuals seem to think people are like trees, if they are attacked they will obediently comply. In reality, when people or businesses are attacked by harmful policies, they fight or take flight. Because of this reality jobs disappear (with higher minimum wage), businesses close (because of excessive regulations), and people suffer from policies that simply do not work in the real  world.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.