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Friday, December 02, 2005

Ten hard economic truths

These are ten "economic truths" that I use to define how I think about this or that policy. And in general, they are "liberal" in the classical economic sense of the word. Sorry if they seem a bit random.

1. In general, the best way to help the poor is to let the rich get richer.

2. The economy moves forward by inconviencing or harming smaller groups of people so the great mass of people is helped in a marginal way. Stopping this process leads to economic stasis and decline. Examples: Walmart, Voice over IP telephony, which are hurting existing telcos and causing layoffs there.

3. The most obvious way for government to help people rarely works as expected, and often ends up hurting them.

4. In an economy, you will get either low unemployment or artificially high salaries, but not both.

5. Corrolary to 4: a minimum wage, living wage, or other artificial minimum constraint on wages will increase unemployment among those it's supposed to help. Additionally, these will drive jobs into the underground economy.

6. Regulation helps established businesses, especially big business, by freezing business models and slowing down creative destruction. This is why big business isn't always opposed to regulation. But excessive regulation hurts new businesses and hinders the creation of new business models. (For a particularly silly example, see North Dakota's restrictions on Ebay auctioneers.)

7. Regulation and restrictions on land use drive up real-estate prices. If you want truly affordable housing in your area - particularly for the lower middle class as opposed to the poor who can qualify for "Section 8" - fight to let builders build and developers develop.

8. Restrictions on land use enrich existing landholders, creating a constituency for regulations. This constituency fights and defends regulations in the form of people fighting for the environment or "quality of life", but the result is that the lower-middle and middle class is driven out of the market. (See 6)

9. "Big Pharma" helps far more people than it hurts. Weakening or destroying "Big Pharma" will hurt untold billions by denying them the fruits of ongoing medical advances.

10. The most direct way for people to enforce their will on a bureaucracy is to make the bureaucracy compete with other similar bureaucracies for its funding. All other control mechanisms are easily captured by the bureaucracy.

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