Thursday, 10 June 2010

A mad economist writes (some tips on policy-making from over the pond)


The Whited Sepulchre reminds us – and a welcome reminder it is to – about some economic truths that too many commenters ignore. The good blogger asks a series of questions to which you might respond with one of these: 1) Strongly Agree, 2) Somewhat Agree, 3) Somewhat Disagree, 4) Strongly Disagree, or 5) Not Sure.

The questions are:

Mandatory licensing of professional services increases the prices of those services.

Overall, the standard of living is higher today than it was 30 years ago.

Rent control leads to housing shortages.

A company with the largest market share is not a monopoly.

Third World workers working for American companies overseas are not being exploited.

Free trade does not leads to unemployment.

Minimum wage laws raise unemployment.

Restrictions on housing development make housing less affordable.

Now I know The Whited Sepulchre is an American and they speak slightly differently from us but these are important questions. And it is important that we understand the right answers and what they mean for policy making.

The right answer, dear reader, is either ‘strongly agree’ or ‘agree’ in every case (and don’t go trying all that ‘ethical’, ‘socially responsible’ stuff – this is economics we’re talking here and economics is amoral). Having established this we can make informed policy decisions rather than emotive appeals to specific target audiences or ideological obsessions.

This doesn’t mean we shouldn’t have minimum wages, development control or rent measures but we do at least know that these decisions have a downside (which may or may not be significant). And we’ll get away from nonsensical statements like these:

Raising the minimum wage will increase employment by getting people off benefits

The planning system has no influence on house prices

Making trainers in Vietnam is immoral

…and so on. We allow what we would like to be the case to govern our decisions rather than what actually is the case. I’m reminded as ever of the wise words of P.J. O’Rourke:

I have only one firm belief about the American political system, and that is this: God is a Republican and Santa Claus is a Democrat. God is an elderly or, at any rate, middle aged male, a stern fellow, patriarchal rather than paternal and a great believer in rules and regulations. He holds men accountable for their actions. He has little apparent concern for the material well being of the disadvantaged. He is politically connected, socially powerful and holds the mortgage on literally everything in the world. God is difficult. God is unsentimental. It is very hard to get into God's heavenly country club. Santa Claus is another matter. He's cute. He's nonthreatening. He's always cheerful. And he loves animals. He may know who's been naughty and who's been nice, but he never does anything about it. He gives everyone everything they want without the thought of quid pro quo. He works hard for charities, and he's famously generous to the poor. Santa Claus is preferable to God in every way but one: There is no such thing as Santa Claus.

Were Santa Claus an Englishman he would vote Labour. We already know God’s a Tory!

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