An Armor Conspired: the Global Shipping Freeze

Peter C. Earle  – October 2, 2021 @ American Institute for Economic Research

Despite numerous personal shortcomings, Jim Morrison of The Doors regularly evinced considerable writing talents. In the poem-song Horse Latitudes, he describes the conditions under which stalled galleons would, drifting listlessly at certain latitudes, jettison cargo so as to make their craft more susceptible to the slightest winds............Cargo vessels no longer raise sails or require wind to fill them, but doldrum-like conditions are rapidly manifesting near ports all over the world. Last week, 

[s]ixty-one vessels were anchored offshore on Thursday [September 23rd] waiting to unload cargo as the Port of Los Angeles and the Port of Long Beach…In addition to the anchored ships, 29 were adrift up to 20 miles offshore, meaning they were so far from the coast that their anchors could not reach the ocean floor.

And in the east on Sunday, September 26th,

[The] Port of New York and New Jersey appears to be facing similar issues as West coast ports…Around 24 cargo ships and oil tankers [were] stuck waiting to dock off the coast of Long Island, New York…As of 9pm local time Saturday, the ships appeared to have been stuck in place for hours.

Explanations for the increasing delays include slow loading/unloading times, rising costs of shipping, and capital shortages. All of those explanations are correct but incomplete and insufficiently descriptive. To uncover the root causes and trace their evolution, we must go back to the very beginning.

Nominal Rigidities

First, the foundations. While bottlenecks are occurring everywhere, at present US ports are disproportionately affected. Docking locations along US coasts are among the slowest in the world: not because of size or technological capacity but collective bargaining hindrances. As Dominic Pino recently wrote, 

Why are our ports so far behind? Not because we don’t spend enough on infrastructure, as the Biden administration would have you believe. The federal government could spend a quadrillion dollars on ports, and it wouldn’t change the contracts with the longshoreman unions that prevent ports from operating 24/7 (as they do in Asia) and send labor costs through the roof. (Lincicome finds that union dockworkers on the West Coast make an average of $171,000 a year plus free healthcare.) The unions also fight automation at American ports today, “just as they fought containerized shipping and computers decades before that.”

Before the public hysterics, lockdowns, and stay-at-home orders, and even before the first offloading was delayed, nominal rigidities had ossified US port operations and made them particularly vulnerable to even the slightest kinks in supply chains. 

Where It Began

As is well documented by now, the effects of nonpharmaceutical interventions sent measures of economic activity plummeting throughout the second quarter of 2020. Unemployment skyrocketed to levels not seen since the Great Depression. The US government countered with stimulus payments via the CARES Act (March 2020), the Consolidated Appropriations Act (December 2020), and the American Rescue Plan (March 2021). Although state governors adopted independent pandemic postures, the spectrum of stringency ran a gambit from less to more binding as exemplified by Florida and North Dakota versus Hawaii and California. 

The sudden strangulation of in-person commercial activity, coupled with weeks to months of veritable isolation at home, with trillions of dollars being mailed out led to a consumption binge. This was both well documented and empirically verifiable. Where in normal circumstances modern US consumers tend to purchase services more than goods, the circumstances arising of isolation at home for prolonged periods led to a decisive shift toward purchasing goods: electronics, furniture, exercise equipment, home improvement items, and so on...........To Read More.....

 

The Costly but Deliberate U.S. Labor Shortage

Richard M. Salsman  – September 28, 2021 @ American Institute for Economic Research

For more than a year, due mainly to illiberal policies associated with Covid-phobia and lockdowns, the U.S. has experienced various types and magnitudes of labor shortages. In short, the quantity of labor demanded by would-be employers has exceeded quantities supplied by would-be employees, especially in the service sector. The phenomenon is neither accidental nor temporary. Joblessness has been both mandated (by shutdowns of “nonessential” businesses) and subsidized (with lucrative and extended “jobless benefits”), which makes it difficult for many businesses to attract and hire labor of sufficient quantity, quality, reliability, and affordability.

People usually complain about shortages, especially if they are persistent and prove harmful to them as buyers of necessities like food, gas, or housing. Yet few people today, except for labor-begging business owners, complain about the labor shortages. Indeed, many people, being labor suppliers who disdain the greed of profit-oriented labor hirers, like the shortage. They prefer that their labor not be a necessity, so they aren’t beholden to “the man” (aka, capitalist “exploiter”). They prefer more leisure (as we all do), especially when politicians pay them to engage in it. The point of state-based unemployment insurance benefits is that they ensure unemployment. 

Hundreds of thousands of American businesses that have survived the year-and-a-half of Covid-based policy assaults are having a difficult time finding and keeping good, reliable, and affordable labor. Much of the labor pool—especially in services—has become a stagnant swamp. Millions of people prefer to stay home and take a government subsidy. 

Figure One illustrates the extent of the current labor shortage in the U.S. Notice how job openings (vacancies) far exceed the number of unemployed workers – and the gap has widened over the past year or so. Worse, the long-term unemployed have become a larger share of the total unemployed. Vacancies are at record levels (20.5 million) even amid high joblessness (9.5 million). The gap between vacancies and the number of people living idly in long-term joblessness (seven months or longer) is also the widest on record. Figure One also shows employment costs rising, which ultimately trenches on profitability. 

The unemployed depicted in Figure One are not those who’ve dropped out of the labor force but those who claim, while applying for and renewing their jobless benefits, that they’re looking for work but somehow can’t find it. How can they not find it, when job vacancies are at record highs? In truth, they can’t find a job that pays more than they believe they’re worth to some employer and they won’t bother taking even a slightly-lesser-paying job, because they’re now paid above-normal jobless benefits from Covid bailout spending and federal largess. This supplements what the 50 states pay in jobless benefits. Yes, some states are now decreasing or terminating jobless benefits, but the data still show a large labor shortage.

Basic economics teaches that when markets are left free, they “clear,” which means prices help equilibrate supply and demand. Neither surpluses nor shortages become material or chronic, for surpluses entail quantities supplied exceeding quantities demanded while shortages entail the reverse. Sellers facing surpluses and preferring sales and profits to excessive inventories will gladly reduce their stocks by lowering prices. Likewise, buyers who face shortages and prefer to obtain more product than not willingly pay higher prices.

Material or chronic surpluses and shortages reflect not “market failure” but the failure of governments to let markets clear. It is believed that “fairness” requires that certain prices be higher or lower than the equilibrium level. Politicians proceed to tax, regulate, price-set, and subsidize. In democracies, where majorities dominate, electorally astute, vote greedy politicians necessarily favor the larger population of employees versus employers (except to the extent they peddle their influence, via rent-selling, to extort campaign contributions from the latter). Instead of being seen for what they are – labor market manipulators – populist politicians can pose as benefactors aiding that quintessential economic contradiction, the non-working worker. 

As Paul Krugman put it recently, “Workers Don’t Want Their Old Jobs on the Old Terms,” so they welcome politicized, non-economic policies that use taxpayer funds to pay the voluntarily jobless to hold out for higher wage rates than they’d otherwise deserve or obtain from the perspective of marginal productivity. For Krugman and his acolytes, this is better even than a minimum wage mandate (which Krugman also supports), as it doesn’t require employers to pay the above-market wage rate (i.e., they’re not – yet – compelled to hire overpriced labor; they can use more capital instead, as occurs at banks, gas stations, toll booths, airline check-in counters, fast-food restaurants, with automated tellers, toll takers, and kiosks). 

Daniel Alpert, senior fellow in macroeconomics and finance at Cornell Law School, concurs with Krugman and declares that “Americans Don’t Want to Return to Low Wage Jobs.” Alpert blithely assumes that wage rates (all wage rates?) are “too low” and will be until and unless government intervenes forcibly to rectify the “market failure.” He fails even to relate low-wage jobs to less-skilled jobs, or to acknowledge that the problem is best rectified by introducing still more and higher-quality capital (“labor-saving devices”), not by boosting “jobless benefits” or by imposing a still-higher minimum wage rate which rational, profit-maximizing employers shouldn’t bother to pay.

Labor market “experts” have recently confirmed and fueled such anti-employer biases. A recent New York Times Op-ed by MIT economics professor David Autor was titled: “Good News: There’s a Labor Shortage.” That was the online title; the print edition was titled “The Labor Shortage Has Empowered Workers.” This assumes workers lack bargaining power under normal conditions, as when markets “clear,” supply equals demand. How can professional economists believe such nonsense? Why applaud market disequilibrium? Autor, a co-director of “the MIT Task Force on the Work of the Future,” has spent years reprising the undue fears of early 18th-century British economist David Ricardo (1772-1823) – a devotee of the socialist “labor theory of value” (LTV) – about machines displacing physicalist labor. Fear of all fears! Barack Obama, in his last major address as president in January 2017, echoed Autor’s (and Ricardo’s) themes, claiming that automation was deleterious and divisive because skilled workers who can operate technology are better paid. But of course they’re better paid; they have a skill not everyone has. Echoing the fears of many, President Obama suggested that this may justify slowing and impeding capital formation and deployment. But that favors the cronies no one dares mention: unskilled laborers perpetually on the public dole. Autor, Obama, and countless others are more concerned with achieving equity than prosperity. 

By now it should be obvious, especially to experts and Presidents, that more and better capital increases labor productivity, real wages, and living standards; it also should be clear by now that capital isn’t the alien, alienating, or impoverishing force, but a frozen form of human labor – the embodied labor of brainiacs, inventors, engineers, and entrepreneurs. Capital isn’t “dead labor,” but vital, perpetual-motion labor, powered by energy and kept vibrant by maintenance and upgrades. Capital, and profit, its income, isn’t “blood-sucking” parasitism, but the lifeblood of a dynamic and flourishing capitalist economy. 

Why is so much of this unclear even to people who should know better? It’s not because they don’t know basic economics, the meaning of equilibrium, or the problem of shortages. They are clearly, unambiguously, and ideologically anti-capitalist; only derivatively are they anti-employer, because they can’t deny that most employers are capitalists at least financially (if not always ideologically). Channeling Marx, those suspicious of employers today believe capitalists profit by underpaying workers what they’re “really worth” and by charging customers more than what’s proper per that unicorn model in academic economics known as “pure and perfect competition.”

The many economists who emulate Marx today remain convinced that wage rates in a capitalist system are determined not by someone’s net contribution to the total market value of goods and services created by commercially-viable enterprise – i.e., by their “marginal productivity – but arbitrarily, by employers who pay whatever they wish (including bare-bones “subsistence wages”) – and by policies that sustain a vast “reserve army of the unemployed” that’s easily exploited, because starving workers are eager to accept any job on any terms. The “army” metaphor reflects the Marxist premise that workers are conscripted and regimented in a hierarchy under the thumb of capitalists. 

Short of revolution – an overthrow of capitalism itself – “democratic socialists” seek first not to prevent widespread joblessness, but to ensure that joblessness exists (especially among the less skilled) where it didn’t previously exist at all, namely, in a freer, non-emergency setting (see 2019). Next, they seek to make taxpayers – which, in their “progressive” tax code of graduated rates, means mostly the rich and corporations – will pay the jobless not to work. They believe capitalists will be induced or compelled to “do the right thing” and finally raise wage rates. A “reserve army of the unemployed” still exists in this model, but is kept “off the market” by the equivalent of a public bribe. Thus, the jobless are “liberated” from “greedy capitalists” but come to depend on politicians.  

Socialists, who believe that laborers are exploited by capitalists, fight to make economies unfree. Their goal is to “turn the tables” and “expropriate the expropriators,” to ensure that capitalists (employers) are exploited by laborers (employees). Socialists accuse capitalists of paying labor next to nothing for doing something great, but their “solution” is to force taxpayers to pay greatly for labor that does next to nothing.

These themes illuminate the aims of the Biden administration and its allied Democratic socialists in the U.S. Congress; they seek to spend an additional $3-5 trillion over the coming decade—on top of their already reckless and wasteful spending over the past 18 months—on “human infrastructure.” This entails spending on labor that doesn’t work (jobless benefits, family leave, etc.), on public schooling that doesn’t work (except to corrupt and erode human capital), and on energy that doesn’t work (more costly, less reliable “renewables”). The goal is to have as many American citizens and non-citizens alike dependent on government handouts for as long as possible, dependent on politicians directly and taxpayers indirectly. It’s a deliberate policy of subsidized parasitism. Covid “lockdowns” are the ideal policy for promoting this non-labor, anti-employer agenda. Lockdowns weren’t necessary to curb the spread of Covid; they caused more harm than good. Yet millions of people today are still compelled or induced by Covid policy to stay home, shutter businesses, and take jobless subsidies. 

Today’s U.S. labor shortage is both uneconomic and unnecessary, yet nonetheless what appears to be a deliberate policy aim. Sadly, the same can be said about a wide range of other anti-capitalist policies being advanced by the Biden administration.

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Richard M. Salsman

AIER Senior Fellow Richard M. Salsman is president of InterMarket Forecasting, Inc. and a visiting assistant professor of political economy at Duke University. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored the books Gold and Liberty (1995), The Collapse of Deposit Insurance and the Case for Abolition (1993) and Breaking the Banks: Central Banking Problems and Free Banking Solutions (1990), all published by AIER, and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (2017).  His fifth book – Where Have all the Capitalists Gone? Essays in Moral Political Economy – was published by AIER in 2021.

Dr. Salsman earned a B.A. in economics from Bowdoin College (1981), an M.A. in economics from New York University (1988), and a Ph.D. in political economy from Duke University (2012). His personal website is https://richardsalsman.com/

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Senate Republicans Greenlight Outsourcing of U.S. Manufacturing Jobs with Infrastructure Bill Passage

John Binder 10 Aug 2021

A group of 19 Senate Republicans helped greenlight outsourcing of American manufacturing jobs with the passage of the so-called bipartisan infrastructure bill that provides giant carve-outs for industries to bypass “Buy American” rules.  On Tuesday, 19 Senate Republicans joined Senate Democrats in a 69-30 vote to pass the Infrastructure Investment and Jobs Act. Those Senate Republicans include:

Dan Sullivan (R-AK), Shelley Moore Capito (R-WV), Mike Crapo (R-ID), Roy Blunt (R-MO), Richard Burr (R-NC), Deb Fischer (R-NE), Lindsey Graham (R-SC), Rob Portman (R-OH), Thom Tillis (R-NC), Lisa Murkowski (R-AK), Jim Risch (R-ID), Chuck Grassley (R-IA), Bill Cassidy (R-LA), Kevin Cramer (R-ND), Roger Wicker (R-MS), Mitch McConnell (R-KY), John Hoeven (R-ND), Susan Collins (R-ME), and Mitt Romney (R-UT)

As Breitbart News reported, the bill allows the heads of federal agencies to issue waivers to corporations to work around Buy American requirements if they consider the requirement “inconsistent with the public interest,” does not meet “satisfactory quality,” or if they believe buying American will increase costs for the projects.

The bill reads:.......To Read More...

The Labor Shortage Is a Government-Contrived Scarcity

Richard M. Ebeling  – June 14, 2021 @ American Institute for Economic Research 

Not long ago, my wife and I decided to go out to our favorite Thai restaurant not far from our home in the Charleston, South Carolina area, which we had not been to for well over a year. With so many retail businesses having returned to a no-mask, no-distancing “normality,” we were looking forward to a tasty inside, sit-down meal. But when we arrived we discovered they were still only doing takeout orders because the management had not been able to find enough willing waiters to rehire. America is suffering from an apparent “labor shortage,” in spite of unemployment levels being significantly above what they were before the government-imposed lockdowns and stay-at-home orders in early 2020. 

Before these shutdown orders and restrictions on freedom of shopping were imposed by, especially, the state governments and reinforced by federal policies in March of last year, the economy-wide average unemployment rate hit a low of about 3.5 percent of the labor force in February 2020, according to the Bureau of Labor Statistics (BLS), something not experienced for several decades. Plus, this unemployment low had its counterpart under the subgroups of men and women, whites and blacks and Hispanics, and for adults and youths. Indeed, if the coronavirus crisis had not occurred with the accompanying government-created collapse of much of the economy, 2020 might have turned out to be an exceptionally good year in terms of many of the standard economic benchmarks. 

The BLS June 2021 report on “The Employment Situation” for the month of May showed that the overall unemployment rate stood at 5.8 percent of the labor force, or still about 35 percent higher than in February 2020. And, comparably, each subgroup remains noticeably above their, respective, unemployment rates of 15 months ago. 

At the same time, the BLS’s June 2021 report on “Job Openings and Labor Turnover” stated that at the end of April, job openings for which employers were willing and able to hire stood at 9.3 million positions. But hires to fill employment slots in April totaled 6.1 million. The number of people quitting or not willing to accept work increased, especially in the food service and retail sectors, while the number of workers let go or laid off remained low. 

Unemployment Due to Government Paying People Not to Work

Clearly, to use Keynesian terms, employment in the United States is not suffering from an “aggregate demand” failure. There are plenty of job openings; it is a failure of a good number of employable people not being interested in filling the slots employers would like to fill. Why?

A number of commentators have suggested that many are still concerned about and fearful of returning to the workplace due to the potential of still catching the coronavirus and the risk of serious illness or death. Some have argued it’s because employers are too cheap; that is, they are unwilling to pay a wage high enough to draw unemployed workers back into the active labor force. The problem with this latter explanation is that it does not make clear why wage “x” at which some of these workers were willingly employed 15 months ago is now unacceptable just a little bit more than a year later, given the lost income experienced during all that time. 

However, suppose that before the coronavirus lockdowns and lost employment, a low-skilled employee was making, say, $500 a week. But now let us suppose that during the last 15 months, due to extended unemployment insurance payments and supplementary federal emergency transfers introduced during the coronavirus crisis, this person was continuing to have a government-supplied weekly income of $500, or maybe even more, say, $600. For as long as this continues, what is the incentive for him to return to the workplace for the previous salary when, instead, this individual can stay at home and be no worse or maybe even better off than working his old 40-hour week as before March of 2020? 

A few weeks ago, the Foundation for Government Accountability (FGA) issued a report based on work and wages versus government income-transfer programs (state unemployment insurance, supplemental federal emergency insurance bonus, child care credits, earned income tax credit, and food stamps) in, for instance, the state of Florida. A person could receive up to the equivalent of a $20-an-hour wage by staying home rather than accepting available employment. 

Government Created Artificial Benefits to Not Take a Job

This, obviously, has nothing to do with a “failure of the market” in not providing jobs or from employer stinginess in the salary being offered. Government redistributive benefits have priced some workers out of the labor market by giving them more received income by not working than from accepting the employment available at more market-based wages reflecting employer estimates of those workers’ value-added contribution in various lines of production, including in the service industry.

What has been created by these government programs is a false “opportunity cost” for those in these labor categories in terms of their trade-off between work and non-work. I say “false” due to the fact that if these redistributive programs were not present, lower-skilled workers would have to weigh differently the income forgone by not accepting gainful employment versus perhaps not earning anything. Instead, for as long as these types of programs are in effect, they, basically, establish a “floor” below which more is lost by working than taking a job. 

Even if the government transfers are slightly less than the salary that would be received from working, the trade-off can still be in favor of not taking a job. Suppose someone could earn a weekly salary of that $500 versus unemployment insurance plus some of these other government redistributions that give him the equivalent of, say, $475 or $450 per week. Would it always be in every such worker’s personal interest to give up the $475 or $450 of government-supplied income to, instead, work 40 hours a week to make an extra $25 or $50 for that total of $500 of earned weekly income? Surely, for most people an extra $25 or $50 a week would not be worth foregoing the 40 hours of free time the government money enables him to enjoy. 

Limited Means to Serve Our Many Ends Require Trade-Offs

We can see, therefore, that the current “shortage” of labor is, in fact, “contrived” and not “natural.” I am using this particular terminological distinction because the cause and nature of market-based scarcity versus government-created scarcity was explained with great cogency a long time ago by the British economist, William H. Hutt (1899-1988) in a neglected essay of his on “Natural and Contrived Scarcities” (South African Journal of Economics, September 1935). (See my article, “William H. Hutt: A Centenary Appreciation”.)

Hutt reminded us that man cannot escape from the fact that he is always confronted with the need and necessity to make choices, to accept trade-offs between alternatives, and decide what he values more highly and what he values less highly. The inescapable reason for this is the scarcity of means available in their quantities and/or qualities to serve and satisfy fully all the ends, goals and purposes for which we would like to apply them.

Our time is scarce, with only twenty-four hours in a day. Our mental and physical strength is limited with which to pursue our purposes. The resources and raw materials around us that we identify as “useful things” to make the finished goods and services that we desire are limited in their amounts to produce all the consumer items for which we think them usable. 

In the free market economy, the relative scarcities of both finished consumer goods and the resources, labor and capital equipment out of which those consumer goods can be made are all registered in the form of the competitive prices at which they may be bought and sold.

If we, as consumers, demand more automobiles we may offer to pay higher prices for the greater number of cars we wish to purchase. But to produce more automobiles off the assembly line means that fewer of the scarce resources that go into the manufacture of cars – workers and their labor time, resources, raw materials, component parts, and the machinery needed – will now be available to produce other, alternative goods that could have been produced with those same means of production, instead.

The prices paid to attract those greater quantities of scarce means into the auto industry (including the additional wages to draw more workers into this sector of the market) are what economists call their “opportunity costs.” That is, the prices that need to be offered and paid that are just sufficient to attract them from an alternative employment in which they also have value in producing something else that consumers also want, but not as intensely. 

This is the reality of a world in which we are not able to have everything we want, where we want it, in the full amounts we desire. This is why, no matter how hard we try, we can never “have it all.” Trade-offs are an inescapable part of virtually every aspect of our life. 

Even when through savings, investment, innovation, and industry we succeed over time in increasing our ability to produce more of the things we wish to have, we still never have it all. It is part of the human make-up that as soon as we have successfully reached some desired goals our mind and imagination run ahead to new and different things that are, once again, not fully within our reach.  

It is like walking towards the horizon; no matter how far we go and how fast we try to get there, the horizon remains in front of us, and out of our reach. This is man’s frustration but also the stimulus for all the material and cultural achievements that we call “civilization,” which have raised humanity up from primitive subsistence existence. (See my articles, “Preserved Primitivism versus Freedom and Prosperity” and “Has Modernity Made Us Indecent?”)

The “Natural Scarcity” of Limited Means is Inescapable

In the competitive free market, the limits on how much of goods in general and the relative amounts of each within that total is possible of being produced is limited and constrained by what William H. Hutt defined as the “natural scarcities” existing in any society within any period of time. Said Hutt: 

We must conceive of a society in which there are no restrictions on the free movement, adjustment and full utilization of the productive resources in response to the dictates of consumers’ will [as expressed in their market demands for various goods and services].

Under the “natural scarcity” of things in a free market, some people may wish that more hospitals were built for the sick or more research undertaken for a cure for cancer, or more wildlife areas set aside for peaceful contemplation of the beauty of nature. But the critic has no one to blame but the free choices of his fellow citizens and even himself in actually demanding more of other things in the marketplace that prevents the necessary scarce resources and labor from being available to do more of these other desired things as well. Our own market choices and demands, and that of all of our fellow consumers in society, determine what goods will be profitable to manufacture with what combination of those “naturally” scarce resources, and, therefore, available in which relative quantities in their finished forms as purchasable goods and services. 

“Contrived Scarcities” and “Contrived Plentitudes” Caused by Government

However, the critic may not be satisfied with his own failed attempts to persuade enough of his fellow citizens to demand and spend less on these other things so more scarce resources can be freed up and used for more hospitals, medical research, and nature preserves. He may then turn to the government and its political power to get what he wants without the agreement and voluntary participation of his “preference-misguided” fellows in society. 

Hutt argued that when various individuals and special interest groups turn to the State to get what they want it brings about what he called “contrived scarcities” and “contrived plenitudes.” If the government increases taxes on the citizenry to fund the supplying of more hospitals, cancer research and wildlife areas, it creates a “contrived plenitude.” That is, an amount of these things is supplied in excess of what the market would have found profitable to supply if production had been guided by what consumers would have wanted and demanded if more of their earned income had remained in their own pockets and not been taxed away.

The amount of such “good things” as hospitals, medical research facilities, and nature areas are, in fact, out of balance – over supplied – with what a free market would have supplied of them if the determination of production in society had been left more fully to be guided by the wishes and desires of the income-earning consumers, themselves. 

On behalf of those not satisfied with the free choices of their fellow citizens and who are willing to use political compulsion to get what they want, government has intruded into and violated the “sovereignty of the consumer” to peacefully, honestly, and voluntarily decide what he wants based on his values, beliefs and desires, and to make it profitable on the competitive market for others to provide him with what he wants out of the income he has peacefully, honestly and voluntarily earned in his own role as a producer.  

But the other side of this coin is that there are “contrived scarcities” – a reduced availability – of the goods and services that those sovereign consumers would have been able to have if the greater taxes collected and spent by the government had not resulted in scarce resources and labor being drawn away from producing the goods and services those consumer/taxpayers would have spent their income on if it had not been reduced due to those higher taxes.

“Contrived Scarcities” from Import Tariffs and Price Subsidies

Such contrived scarcities take on various forms, as well, other than only the direct taxing away of people’s income. If the government imposes an import tariff or an import quota on foreign goods entering the domestic economy, the available supplies of those goods will be less; and the prices of these goods that consumers will now have to pay will be higher, as a result, than if free trade was practiced and consumers had had a wider free market choice of domestic and foreign suppliers. 

Suppose that the government starts to guarantee dairy farmers minimum prices for their produce (as the U.S. government does under its farm price-support programs). With a higher guaranteed price than the market-established price, dairy farmers would find it profitable to expand their dairy cowherds; a “contrived plentitude.” But this requires more grazing land for the increased number of cows.

The expanded grazing land will have to come from somewhere. Suppose that this land comes out of wheat growing. The wheat crops will tend to decrease, an essential ingredient in bread baking will be reduced in quantity, and the supply of wheat bread available in groceries may be less, with a resulting higher price per loaf that consumers now must pay; a “contrived scarcity.” 

Thus, government interventions such as these would abridge the market-based sovereignty of the consumers, bringing about too much of some goods being produced and too little of others being supplied. 

Difficulty of Seeing Government’s Hand in Contrived Scarcities

But the perversity from these types of “contrived scarcity” policies is that consumers often find it difficult to know whether and to what extent the supplies available and the prices paid for goods are due to market-determined “natural scarcities” and how much is due to government manipulation of quantities produced and offered on the market.

In the case of the farm price-support programs, consumers in the market end up paying no less than the government guaranteed price for dairy products, for example, since dairy farmers have no incentive to offer it for a lower price on the market since they know that any unsold surpluses at the guaranteed price will be bought up by the government at taxpayers’ expense. 

At the same time, the possible reduced wheat crops that negatively impact the supply of wheat bread and raise its price, for instance, is so many steps away from the immediate vision and understanding of the consumers of bread that it is nearly impossible for ordinary citizens to appreciate the links in the chains of government intervention that has made bread costlier and less available. Thus, the “free market” gets blamed for high or rising prices for various goods because of the apparent businessman’s “greedy profit motive” that makes him fail to produce more of what people want and desire. 

Consumers seem to be unrestricted in their choices concerning how to spend whatever after-tax income may remain in their pockets; market interactions of supply and demand seem to determine the prices that those consumers pay; and, thus, the reason for any frustrating scarcities and expensiveness of desired goods gets placed at the doorstep of “selfish” acts of profit-motivated capitalists and businessmen, in general. 

But behind the scenes the incentive, profitability and opportunity to produce goods guided by the actual demands of the consuming public have been thwarted by government taxing, pricing and regulatory policy manipulations bringing about contrived or artificial scarcities of some goods on the supply-side of the market or wasteful overproduction, or “contrived plentitudes,” of other goods not reflecting what those consumers would really want produced if the market was left free of the intervening and distorting hand of those in political power serving particular special interest groups.

Getting Government Out of the Market Can End Contrived Scarcities

While “natural scarcities” can only be reduced in the longer run through savings, investment, innovation and industry that increase the supply and improve the qualities of desired goods, in principle, “contrived scarcities” and artificial “plentitudes” can be corrected much sooner.

Or as Hutt expressed it, “Contrived scarcities, unlike natural scarcities, are not beyond the power of change by individuals and hence of a different degree of permanence: restrictions can be overcome . . . Contrived scarcities involve, then the frustration of consumers’ sovereignty; and what is usually meant when the removal of restrictions on competition is recommended is that such contrivances shall be eliminated.”

This is the current situation in the American labor market. The government’s income transfer programs such as unemployment insurance payments in general, and the “emergency” income supplements mentioned earlier, have all created a contrived scarcity that the media and others refer to as a “labor shortage.” Yes, labor in a variety of occupations and employments is in short supply, but there is nothing “natural” about it in the manner that Hutt explained a natural scarcity of limited means to serve consumer ends in a free market. 

It is “contrived” shortage of labor due to the government’s manipulation of the trade-off and opportunities costs offered to segments of the labor force through the artificial income supports that have been made available. The other side of this coin is that there has been a government-created “unemployment plentitude;” that is, an amount and level of unemployment in various occupations and lines of work more than would “naturally” exist due to ordinary and ever-occurring dynamic changes in competitive supply and demand conditions. 

A growing number of state governments have announced their decision to opt out of some of these federal “emergency” income transfer programs, meaning the financial benefit of being unemployed will decrease, and the income gains from accepting offered work in the marketplace will seem more attractive. There will remain in place enough government programs that will continue to “contrive” artificial labor scarcities and unnecessary unemployment, including minimum wage laws, small business regulations, occupational licensing restrictions, as well as others. But the type of contrived scarcities of labor created by these particular Covid-related transfers can all be gone practically overnight by simply ending them, and making market-based employment more attractive again, in comparison.  

Educating Others on Natural versus Contrived Scarcities

Finally, in more general terms, one of the tasks of friends of competitive free markets is to explain to our fellow citizens that while a “natural scarcity” of useful means to achieve our various ends is inescapable in the reality of the human circumstance, there are some scarcities of resources and desired goods that are artificial, “contrived scarcities,” precisely due to government and its interventions in the market process. 

Such contrived scarcities, in principle, could be gone tomorrow if the government’s economic policies fostering, creating and sustaining them were abolished and eliminated. The individual’s freedom of choice and action as both consumer and producer will have been more fully restored with a less intervening government. 

Free men in free markets would then be at liberty to improve their conditions without the disrupting and distorting hand of political power and special interest politicking that invariably makes many things less available and more expensive than if competitive markets were unshackled from the government policies that only succeed in making us poorer and far less free than we need to be. 

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Richard M. Ebeling

Richard M. Ebeling, an AIER Senior Fellow, is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel, in Charleston, South Carolina.

Ebeling lived on AIER’s campus from 2008 to 2009.

Books by Richard M. Ebeling

 

 

What about the Workers? A Libertarian Answer

by Sean Gabb

(Editor's Note:  This is in England and I don't really know what all the issue involves there, but I'm posting it because it does show how government interference into the labor market generates long term negative effects.  I'm also posting it because I find the media choreographs an issue by painting a  picture in the most negative emotion stirring terms possible, and then working the narrative to get the answer they want, which may not be the right answer.  I view this much like state licensure requirements by States here.  But read it for yourself and decide.  RK)

I was called this morning by the BBC. It wanted me to comment on the claims that Sports direct, a chain of sports clothing shops, mistreats its workers – keeping them on zero-hours contracts, sometimes not paying them even the minimum wage, scaring them out of going sick, generally treating them like dirt. Would I care to go on air to defend the right of employers to behave in this way? I am increasingly turning down invitations to go on radio and television, and this was an invitation I declined. I suggested the researcher should call the Adam Smith Institute. This would almost certainly provide a young man to rhapsodise about the wonders of the free market. My own answer would be too complex for the average BBC presenter to understand, and I might be cut off in mid-sentence.

Here is the answer I would have taken had I been invited to speak on a conservative or libertarian radio station on the Internet.

First, it is a bad idea to interfere in market arrangements. Sports Direct is in competition with other firms. Making it pay more to its workers, or to give them greater security of employment, would require it to raise prices and make it less competitive. A general campaign against zero-hour contracts and low pay would raise unemployment. In even a reasonably open market, factors of production are paid the value of their marginal product. Establish a minimum price for labour above its clearing price, and those workers whose employment contributes less than this to total revenue will be laid off. If I felt more inclined than I do, I could produce a cross diagram to show this. The downward sloping curve would show diminishing marginal productivity, the upward the supply of labour at any given price. The point of intersection would show the clearing price. Draw a horizontal line above this clearing price to show the minimum allowed price, and you can two further lines from where this intersects the curves to create a box showing the unemployment that would result. I leave that to your imagination. Or here is a representation I have found on-line:

Second, intervention of this sort tends to benefit larger firms at the expense of smaller. Sports Direct might be able cope with the resulting increase in labour costs by replacing labour with capital, or by squeezing its suppliers. The result would be increased market concentration, and this might not be to the benefit of workers.

Third, let us suppose that intervention for the alleged sake of the workers was actually to their benefit. It would still be undesirable, so far as it made the State the arbiter of fair practice and raised the prestige of the State still higher – thereby justifying still more interventions. I do not believe that any state intervention for the alleged benefit of ordinary people has been other than to enrich or empower some special interest group. But every state has its tame intellectuals to cry up whatever it does as steeped in the public good.

So far, I could pass – age and appearance always excepted – as one of Madsen Pirie’s young men. The difference is that I do not see the present state of the British labour market as the best of all possible worlds. I repeat – it is a bad idea to interfere in market arrangements. But we should look beyond the cross diagram I have described. Market arrangements do not emerge in a vacuum. Their forms are determined by legal and institutional arrangements that can be judged in terms of how they contribute to the national wellbeing, and that, where they fail this test, ought to be changed. Here are my further comments.

First, the bottom end of the labour market is distorted in ways that force workers to present themselves to firms like Sports Direct. Many years ago, when I was a student, I was in want of money, and so I worked in London as a mini-cab driver. All I needed was a car and driving licence and a certificate of hire and reward insurance. I paid a weekly rent to the cabbing company, and worked what hours I found convenient. I found myself working beside a milkman who wanted money for his daughter’s wedding, and a bus driver who was saving up for a deposit on a house, and men who were unable to find work anywhere else. When I no longer wanted the work, I stopped paying my rent and walked away. The market is nowadays regulated and licensed. Costs of entry can be as high as £60,000. Once in the market, these costs are handed on to the passengers, but initial entry has costs that deter most ordinary people.

I could go through dozens of other occupations that are effectively closed. But the point I am making is that, for most people, there is no alternative to paid employment, at whatever rates of pay.

Second, mass-immigration imposes terrible costs on the working classes. Think again of my cross diagram. Flatten the supply curve until it is almost perfectly elastic, and you have something like most labour markets at the bottom end. When the clearing price of labour is less than the minimum wage, that is what will be paid. If there is some enforcement of the minimum wage, then overall wage costs will be lowered by denying customary benefits like tea breaks and sick leave.

Third, there has been a consistent bias, at least since 1979, against any kind of enterprise that may give comfort and dignity to the working classes. In part, patterns of comparative advantage have shifted against mass-manufacturing in this country. In part, the behaviour of the trade unions after 1945 made much manufacturing unviable. But it is also a fact that policy since 1979 has been to promote the service sectors of the British economy. This has been greatly to the advantage of anyone who can get into the financial sector. For those at the bottom, it means semi-casual labour in places like Sports Direct. Indeed, I am not convinced that the patterns of comparative advantage I mention are as impersonal as changes in the weather. Globalisation is not free trade in the sense conceived by the early liberals, but is managed trade – regulated at almost every point in the supply chain to produce a determined outcome.

My answer, then, to the BBC’s question is not to lean on Sports Direct or other firms of its kind, nor to celebrate the glories of our alleged free market. It is instead to insist on non-intervention in market arrangements, while taking a strongly critical look at the wider arrangements within which market activity takes place. I trust you will agree that this would not have been the sort of answer appropriate to the average BBC discussion, and that I was right to decline that invitation.

Thanks for reading this. If you liked it, please consider doing one or some or all of the following: 1. Share it on social media – see buttons below; 2. Like my Facebook page; 3. Subscribe to my YouTube channel; 4. Sign up for my newsletter; 5. Check out my books – see below. Best regards, Sean

The Other Demographic Demise Democrats Should Worry About

Arthur Schaper Jan 25, 2018

The Democrats want open borders, since their future election chances depend on massive demographic shifts through mass third-world immigration. To their consternation, the #SchumerShutdown fight whimpered out because the public doesn’t want more immigration. That avenue for increasing their voter base is closing on them.

Democrats are ignoring another declining base of support to their hurt: organized labor. For decades, labor unions ensured victory. Minority Leader Chuck Schumer won his Senate Seat because labor unions held him crushed his Republican opponent in 1998. Unfortunately, despite two major opportunities for long-term pro-labor reforms, unions have seen Democrats taking them for granted. Now union support is disappearing. 

Why is the Democratic Party losing their once-stalwart political allies?.....To Read More....

My Take - The answer is simple.  They're middle class, they're mostly white, they're getting smaller by the year.  They can't win supporting labor's needs, and as history has shown time and time again, leftists will adopt anything that will garner them power and money, and just as quickly abandon anything or anyone that doesn't, because the left has no moral foundation except the intense graving to gain enough power control everyone's life. 

Now what could be more insane?

Trump dismantling Obama's workplace law legacy

by Sean Higgins | Jun 9, 2017

The White House is systematically dismantling former President Barack Obama's legacy on labor and employment regulations, reversing course on changes Obama made to overtime law, business liability, federal contract bidding and worker exposure to harmful circumstances, among other policies.

The latest move came late Thursday when the Labor Department announced it would start the process of rescinding the "persuader rule," which forced labor lawyers to publicly divulge whenever they were hired by businesses. Previously the contracts only had to be divulged when lawyers spoke directly with workers. The rule, which unions applauded, was widely expected to cause many lawyers to stop the consulting altogether. A Texas court in April declared the rule unconstitutional.

Such efforts have been made easier by the Obama era changes being reinterpretations of existing rules or other uses of executive authority. That allowed the White House to adopt the changes without congressional legislation. It also has allowed its successor administration to undo those efforts with relative ease.......To Read More.....

The Virtuous Circle of Ever-Lasting Expansion of Domestic Demand and Labor Supply Is Broken: Yes, Ireland Really Is Dying

Or, how I learned to stop worrying and love brain drain.

September 24, 2013• By Jim Russell

Almost a month ago, I wrote a blog post titled “Ireland Is Dying.” I did not intend to probe into an existential crisis. When I tease that “X” place is dying, I play with the geographic stereotype of communities in decline. One week, Detroit is dying. The next, San Jose is the victim with essentially the same problem:

“We’re Silicon Valley, we’re not Detroit,” said Xavier Campos, a Democratic city councilman representing San Jose’s poor East Side. “It shouldn’t be happening here. We’re not the Rust Belt.”

According to venture capitalist Danny Rimer, San Jose is the Rust Belt. Perhaps Rimer is right and Campos is wrong. But for our dearly held geographic folklore, nothing in Silicon Valley can be Rust Belt. It does not compute. Dying cities are only located here. Geography is a social science, not a map of objective reality. Birmingham, Alabama, the Pittsburgh of the South, is located in the Sun Belt:…To Read More….