Wednesday, October 12, 2011
Government planned regulation and over regulation as a job creator? Huh?
‘ "I think the answer is no," Ellison said when asked if he believes regulations kill jobs. "And here is why: When we talked about increasing fuel efficiency standards, the industry responded, and they need engineers and designers and manufacturers, and they need actually more people to help respond to the new requirement."
"I believe if the government says, look, we have got to reduce our carbon footprint, you will kick into gear a whole number of people that know how to do that or have ideas about that, and that will be a job engine. I understand what you mean, because if anything adds a cost to a business, you could assume that that will diminish that business's ability to hire. But I don't think that's actually right. I think what businesses want is customers and what -- if they are selling product, if they have a product to sell they will do well even if they have some new regulations to meet," the Congressman said.’ (1)
For a moment examine Rep. Ellison’s economics. “I understand what you mean, because if anything adds a cost to a business, you could assume that that will diminish that business's ability to hire. But I don't think that's actually right“. OK, and an increased cost is not a factor of production due to what? “I think what businesses want is customers and what -- if they are selling product, if they have a product to sell they will do well even if they have some new regulations to meet". Hence cost is a non-factor in production and firms merely need to “want customers” and product is sold regardless of cost.
That’s it, is it? Amazing economic breakthrough!
Therefore we need to throw out the following economic axions: regulation is a form of tax, regulation is generally a limitation on private property rights, capital and human capital migrate to the environment of lowest tax and lowest regulation, overtime most capital and most human capital migrates to the environment of lowest tax and lowest regulation.
Here is a another gem from Rep. Ellison and regards to his breakthrough work in the field of economics: “When we talked about increasing fuel efficiency standards, the industry responded, and they need engineers and designers and manufacturers, and they need actually more people to help respond to the new requirement”. Hence additional resources are required [“…need engineers and designers and manufacturers…”]. Apparently those resources appear magically and have no effect on other recourses with alternative uses within a macro economy. According to Ellison we merely throw out the current economic axiom that we live in a world of scarcity, there is never enough of anything to satisfy all those who want it, hence a rationing agent must be introduced which is price in a free market economy. That the allocation of scarce resources with alternative uses is merely a fallacy. You merely regulate allocation!
Tax comes in many forms including regulation. Regulation besides acting as a tax is also a form of central planning. Maybe Rep. Ellison should consider the following:
(1) A tax levied on corporate profit reduces the care and effort owners put into its operation, since part of the return that would have been received by owners will go to the state. Defacto, private owners of the corporation are saddled with a shirking partner, the state, which takes part of the revenue and provides none of the effort to improve the firm’s return. Consequently the greater is the corporate tax rate, the greater the incentive for corporate owners and management to pursue the “quiet life”. - Harold Demsetz, From Economic Man to Economic System, page 158.
(2) This way lies charlatanism and worse. To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.
But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. - F.A. Hayek, from the essay The Pretense of Knowledge.
(3) Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do-- and nothing is more unpredictable.
The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics. - Thomas Sowell
H/T: Our Dinner Table blog