THE LAW OF SUPPLY AND DEMAND
AND WORKER MARKETS
M. Northrup Buechner
A series of essays elaborating Objective Economics: How Ayn Rand’s Philosophy Changes Everything about Economics by the author.
First, let us note that the national unemployment rate exceeding eight percent that we observe in the summer of 2012 is the consequence of an unfree economy. It is the consequence of government intervention in the economy, in literally countless ways. Minimum wage laws abound: there is a federal minimum wage and many states have their own minimum wage. The government legally protects labor unions, forcing employers to bargain with them, and forcing up the wage. In farm markets, the government has forced up prices with price supports and acreage controls. There are hundreds of thousands of other restrictions and controls whose cumulative effect we can only imagine.
However, to a certain extent, businessmen, employers, workers and farmers have adjusted to these controls. Minimum wages and the rest create inefficiencies. They waste labor, undermine the standard of living, and reduce economic growth. But they existed in the 1990s and the early 2000s in essentially the same form as today, and the unemployment rate was never eight percent.
By far the most important impositions on the current economy are the enormous uncertainties hanging over every investor in the form of the Health Care Law and Dodd Frank. Implementation of both of these laws has required bureaucrats to write thousands and thousands of new regulations, a process that is still going on. Some of these regulations have been announced to outcrys of horror and indignation by the victims. Some regulations have already been withdrawn. In others, the bureaucrats have remained adamant. No one can know what they have written; no one can predict what they will write; no one can predict what regulations ultimately will be enforced and on whom.
In addition, the new year is scheduled to bring with it a massive increase in taxes. The result is that banks and businesses and other potential investors are sitting on more than a trillion dollars which they are afraid to spend or invest.
There are other uncertainties in the world, in the summer of 2012, that are independent of the economic policies of the United States government: Islamic terrorism, the war in Afghanistan, the atrocities in Syria, Iran’s quest for nuclear weapons, China’s growing economic and military power, and the looming collapse of the European Economic Union. Of these, however, only the last might have a major economic impact on American businesses, and therefore may be counted as a lesser cause of our economic stagnation.
The primary cause is here, in the policies of the Obama administration. In principle, it is the same cause that stretched out the Great Depression for ten years: the fact that nobody knows, or can know, what the bureaucrats will do next. Consequently, every captain of industry is frozen in place, gripping his armrests, refusing to move until the unknowable reveals itself. This is why any significant economic progress until after the fall elections is unlikely.
What would the unemployment rate be if there were no government controls on worker markets? Who would be unemployed? We will take that up next.