In earlier essays I have written that government intervention is based on the assumption that our fellow citizens are incompetent. In a later essay, I elaborated on this, arguing that, while unwilling to call listeners incompetent, most politicians have to postulate some nebulous set of "other people" who are so incompetent to need help.  Now, I am uncertain if all politicians really believe that the majority is actually incompetent, or if they simply adopt the rhetorical position to justify their seizure of power, but it is clear that those who support them must believe it. So, in order to show why I think government intervention is such a tremendously bad idea, let me show why this assumption is both inherent in every liberal policy, and is so dangerous.

Let me return to a question I addressed in my last post, a government regulation mandating that landlords provide heat through the end of March. The logic behind this rule is obvious, the regulators feared that "greedy landlords" would refuse to provide heat to their tenants in order to save money. What is not stated is that this rule also assumes either absolute stupidity, or an inhuman degree of passivity, on the part of these tenants. If you were to rent an apartment, and then discovered there was no heat during the winter, what would you do? Well, first of all, you would likely make sure the lease ensured there was heat, so that would never happen. But let us assume a lapse of judgment ended with you in an unheated apartment, what would you do? I think anyone reading this would answer "move". Which is the logical answer, and the one I think every human would make. Which would mean the landlord would find himself with an empty building very quickly. As landlords with empty buildings usually end up in bankruptcy, the obvious response would be either to start providing adequate heat, or get out of the landlord business. In either case, if one does not assume that tenants are brainless, passive lumps, there is no need for this law, as tenant response will take care fot he situation quite well without any law being required.

Let us look at a second case of a similar assumption, minimum wage laws. Now these are a bit different, as they assume passive stupidity on the part of not only employees, but also assume that either all employers are collaborating or that other employers are as much passive lumps as their employees. Finally it also assumes that investors are also a bunch of passive lumps, who cannot respond to a great investment opportunity.

Let us start by looking at the employees. The minimum wage laws assume that, barring such laws, employers will pay them less than they "deserve", and that employees will simply accept that wage. Now, this is wrong on a number of levels. First, there are many rational reasons an employee may be willing to accept less than "a livign wage", he may want to break into a business, he may realize he is not really worth the minimum wage, or he may want to simply get work experience to demand a higher future wage. There is also the case where the entire category of labor simply does not produce enough value to support the minimum wage*. Whatever his reason, the minimum wage laws now make these rational motives illegal acts, and cut off those options. But let us ignore that for the moment, and just assume that our worker wants as much as he can get, but an "evil" employer decides to underpay him. Now, we may allow that someone looking for work may not be aware of the prevailing wage or his won worth, but that ignorance will not last long. Friends, family, coworkers, even strangers from time to time mention their incomes, and, if he interviews more than one place, he will also get an idea of wages that way. So he will surely know that he can earn more elsewhere.  So, unless we postulate that ALL employers are underpaying, those workers being payed below market wages will know it soon enough, and leave, forcing the employer to either raise his wages or sht his doors. Again, a problem solved by the market without any laws involved.

Of course, the proponents of minimum wages will argue that if such laws were not passed, all wages would be too low. But that idea requires one of two improbable situations. Either all employers are collaborating, which we shall deal with later, or other employers are simply willing to base their wages on the lowest wages paid in their region. Neither one would last long int he real world. If wages are far below what the market would support, a smart employer would raise his wages slightly, attract the best employees, and thrive. A second would outbid the first by a little more, and so on and so on, until market wages would prevail. Even if there were collusion, this possibility of increasing efficiency greatly with a very slight rise in wages would make it hard to keep such a collusion going.

But let us assume there is an iron-clad collusion, or only one employer, as that amounts to the same thing. What then? Well, this supposedly "impossible" situation is only so if we forget that the market also includes investors. With labor costs being held so artificially low, the profit margins will be tempting to a lot of investors. As in the other example, a very slight wage increase will yield huge returns, so thse investors will likely start to exert an upward pressure on wages. As wages approach the amrket wage, profits will decline, and investment will slow, but, as long as wages are too low, investors will be attracted and wages will rise.

In both examples, we can see that the assumption underlying calls for government intervention require that we postulate that everyone in the market is a moron. If we assume even an adequate intelligence on the part of the actors, or even most of the actors, the problems will resolve themselves. Perhaps it will take time, and some may suffer while the situation resolves itself, but it will be fixed on its own, without the state. And usually in a more satisfactory way than would result form state intervention.

So, the next time you are inclined to believe someone's claim that the state needs to intervene to "fix" the economy, ask yourself if the proposal assumes that everyone involved is an idiot.

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* The minimum wage laws actually help to explain both the tendency for companies to move labor intensive seamstress work oversea and to employ illegal labor in some labor intensive farm work. Yes, some do it simply to increase profits, but in many cases, the value added by labor on an hourly basis simply does not rise to the required minimum wage. If a lettuce picker can only do $5 of labor per hour, then paying him the minimum wage means a net loss. The employer is left with the choice of employing illegal labor, illegally paying below the minimum wage, or shutting down the business. Some other businesses also have the option of going overseas, but in the area of farming this is not an option.