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Forget Guaranteed Income — Governments Need to Stop Prohibiting Income


Muda69

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https://mises.org/wire/forget-guaranteed-income-—-governments-need-stop-prohibiting-income

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In most countries, numerous government welfare programs provide benefits (often means-tested) to eligible recipients. Whether these payments arise from unemployment compensation, child tax credits, old age pensions, or a myriad of other programs, the outcome is the same: recipients receive guaranteed payments. The ultimate goal of many poverty warriors is a Universal Basic Income (UBI), often promoted as a supposedly cheaper alternative to the numerous welfare programs it is intended to replace. The UBI is a guaranteed income from the government which varies with age, but is otherwise unconditional. It is not means tested, which means everyone receives the same Basic Income, regardless of their employment status or employment income.

Alexandria Ocasio-Cortez, Kamala Harris, Bernie Sanders, Andrew Yang. These are just a few of the many proponents of UBI or a negative income tax , or some version thereof. The political justification for implementing UBI is to reduce, or even eradicate, poverty, though poverty is a relative term . The problem is that many advocates of the welfare state mistakenly believe that inequality causes poverty. Moreover, they do not understand that poverty reduction comes through the operation of free markets, not through government welfare programs which tend to benefit the bureaucracy by encouraging dependency.

Therefore, if UBI proponents are genuinely concerned about those on the lower rungs of the income ladder, they should abandon their minimum income crusade and instead pressure the government to do two things. First, immediately abolish all regulations which prohibit people from earning income. Second, announce that all welfare programs will be abolished in six months. In this environment, special interest groups (the 1%) lose the regulatory benefits they lobbied for, while the level of prosperity rises considerably for the former welfare recipients and other members of the 99%.

What are these regulations? And if they are abolished, how much higher can the level of prosperity be for the 99%?

Regulations

This is a good definition of regulation: the imposition of rules by a government, backed by the use of penalties, that are intended specifically to modify the economic behavior of individuals and firms in the private sector. That is an accurate definition, and it should concern anyone who recognizes and supports the wealth enhancing effects of free enterprise.

When a special interest group (e.g. a corporation or group of corporations) lobbies the government to enact a new regulation, they are the intended beneficiaries, and they often write the regulation themselves. Politicians promoting a new regulation also act out of self interest, collecting rewards from the regulatory beneficiaries, such as political campaign contributions, corporate jobs after departure from political office etc. The propaganda used to justify regulations is that the government must protect consumers . This conveniently ignores the fact that in an environment of unfettered competition, profit-seeking firms who fail to satisfy consumers will lose those customers to competitors producing superior products. In other words, consumers benefit the most when they, not the government, pick the winners and losers.

Regulations have the effect of lowering the level of competition for the corporations that lobbied for the regulations, exactly as the lobbyists intended. This situation arises because regulations impose significant regulatory compliance costs on many companies. Kel Kelly explains the enormity of the regulatory environment:

There are hundreds of thousands of pages of regulations dictating what can and cannot be produced, how things should be produced, what prices can or cannot be charged, what workers should be hired and at what prices, and what requirements, approvals, licensing, and reporting must be undertaken or performed for each type of business, product line, or transaction. Further, government directly manipulates prices and production.

All firms may pass their regulatory compliance costs onto consumers and workers through higher prices and/or lower wages, but small firms operate at a disadvantage. Smaller firms have fewer employees and a smaller customer base, compared to larger firms. Therefore, the dispersal of compliance costs within small firms can produce larger price increases and/or larger wage reductions, as compared to larger firms. Thus, many small businesses are unable to compete, not because the entrepreneurs, managers, and workers are not good enough, but because they are compelled to obey authoritarian laws favouring large firms with more political influence. Consequently, many entrepreneurs are forced out of business, while many others are dissuaded from starting a business.

(Note: the regulatory ‘compliance cost’ which is ultimately paid by consumers and workers, is estimated to be almost $15,000 annually for each U.S. household.)

As per our definition, we see that regulations, by coercively “modifying economic behavior,” interfere with the voluntary interactions of individuals on the free market. Economic production falls considerably when the regulatory state is used to eliminate competitors. Less competition = less wealth creation, which is reflected in fewer jobs and lower incomes for the 99%. This does not concern the 1%, whose objective is to grab a larger slice of the smaller economic pie. This is not capitalism. This is crony capitalism .

Prohibited Income

In 2013, John Dawson (Appalachian State University) and John Seater (North Carolina State University) published a long-term study (see here or here ) of the effects of U.S. Federal Regulations on economic growth. They estimate that “annual output by 2005 is about 28 percent of what it would have been had regulation remained at its 1949 level.” Their sample period ends in 2005, but under the assumption that the ratio of 28 percent carries forward to 2011, they say that nominal GDP in 2011 would have been $53.9 trillion instead of $15.1 trillion, and “an annual loss of $38.8 trillion converts to about $277,100 per household and $129,300 per person.”

Remember, they are estimating the amount of economic output which has been prohibited by all U.S. Federal Regulations implemented since 1949. So, in 2011, each U.S. household was legally denied the opportunity to increase their income by an average of $277,100. Imagine this happening each year, because that is the reality. For those who would disbelieve, Dawson and Seater simply point out that “Our estimates are consistent with previous estimates obtained from both aggregate and disaggregate data. In fact, our estimates are on the low side compared to many previous results.”

Their calculation captures data only at the federal level. The figure of $277,100 would be higher in consideration of the lower economic output due to prevailing regulations at the state/city/county level.

If all regulations were abolished, individuals’ creative juices could flow freely because innovation would no longer be suppressed. Unfettered competition would produce new products, higher quality, and lower prices. The demand for labor would explode, and incomes, as we have seen, would rise considerably.

Conclusion

As Senator Elizabeth Warren officially launched her 2020 presidential campaign, she expressed concern about “a rigged system that props up the rich and powerful and kicks dirt on everyone else.” She is correct, but this is nothing more than a sound bite designed to resonate with the general public. As with most political speeches, Warren’s comments are vague, providing no details about how the system is rigged with thousands of regulations. Instead of accurately describing the problem, we get hypocrisy: “She wants large companies to be more tightly regulated.” Beware of people like Elizabeth Warren. There are many like her. They are wolves in sheep’s clothing.

Welfare programs and wealth taxes: the government’s pretense of transferring a little bit of wealth from the rich to the poor is a smokescreen for the massive amount of wealth surreptitiously flowing in the opposite direction. So, when Ocasio-Cortez, Harris, Sanders, or anyone else proposes any type of guaranteed minimum income scheme, tell them “No, my preference is to liberate all prohibited income.”

Agreed.  The regulatory state need to be abolished.

 

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2 hours ago, Muda69 said:

Did this study provide an estimate of the likely cost associated with not having all the regulations they imagined away in order to come up with their $38 trillion of "prohibited" GDP? Because a "benefit" number is kind of  meaningless without knowing what it will cost to achieve it.

Setting aside the dollar costs: If you did away with all the auto/airplane/transportation safety regs, all food and drug safety regs, workplace safety laws,  environmental protection laws, etc., etc. enacted since 1949, how many lives would have been lost as a result by 2011?

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4 minutes ago, Wabash82 said:

Did this study provide an estimate of the likely cost associated with not having all the regulations they imagined away in order to come up with their $38 trillion of "prohibited" GDP? Because a "benefit" number is kind of  meaningless without knowing what it will cost to achieve it.

Setting aside the dollar costs: If you did away with all the auto/airplane/transportation safety regs, all food and drug safety regs, workplace safety laws,  environmental protection laws, etc., etc. enacted since 1949, how many lives would have been lost as a result by 2011?

Caveat Emptor.

And as one of the commentators to this story puts it:

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As the author rightly observes, much of the regulatory environment is designed by regulated industries to further their economic interests, not the interests of consumers who pay for their products. It imposes a "tax" on consumers paid to regulated firms who lobbied for the regulation. For example, health insurance companies and the medical industry pushed Obamacare because it forced consumers to buy their products and gave firms a de facto monopoly. Along the way, insurance rates skyrocketed utterly out of control -- mine went from around $400/month to now more than $2,100/month, and grows by double digits each year. In spite of 7 years of promising to repeal Obamacare, Republicans, in the end, did nada la squada to rein in this crony capitalism. "Vote for me! Send me a dollar! I'll repeal Obamacare and make health care affordable!" is a cruel political lie.

A looming repeat of this is happening right now in the energy industry. Monopoly electric utilities do not object to the government demands to replace existing generating facilities with wind turbines and solar panels (the Green New Deal) because it means they will be enabled by government regulation to raise their rates to cover the costs of these new, environmentally friendly facilities. The Green New Deal will "fix" energy the same way Obamacare "fixed" health insurance and health care, by making energy unaffordable and enriching energy providers.

...

 

 

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I think you told someone you'd stick with Forbes, so I'll just leave this here:

https://www.google.com/amp/s/www.forbes.com/sites/robbmandelbaum/2017/02/24/no-obamacare-hasnt-jacked-up-your-companys-insurance-rates/amp/

Caveat Emptor is a great plan of protection so long as you are lucky enough to always be the guy standing second in line to get a drink from the arsenic polluted water fountain....

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9 minutes ago, Wabash82 said:

Caveat Emptor is a great plan of protection so long as you are lucky enough to always be the guy standing second in line to get a drink from the arsenic polluted water fountain....

Life isn't fair.  Get used to it.

 

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  • 4 months later...

The High Cost of Occupational Licensing: https://mises.org/wire/high-cost-occupational-licensing

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One of the most fundamental things about economics — which many people who are passionate about politics do not understand — is that the economy is not like a chess board where you can move one piece with deterministic and predictable consequences. On the contrary, an economy is an intricate fabric of interrelated institutions and actors all of whom act relative to one another. Any one move creates a cascade of domino effects. If the price of milk changes dramatically then orange juice sales might be affected — and with them the prices of other fruits as well. It's impossible to predict.

The role of a good economist is to be able to follow the threads of consequences likely to result from a certain policy. If done properly, this can help to minimize the damage done by the short-sightedness of policymakers (and would-be policymakers) seeking some immediate and favorable end.

Many policies can end up having the opposite effect from what is intended.

Beauty Salon Economics

For example, suppose some of the fancy hair salons are getting irked because cheap salons are popping up everywhere and giving people poor quality haircuts. As far as the high end shops are concerned, those "other" salons are giving the whole industry a bad name. So a coalition goes to the government to pass standards and licensing laws in the hairdressing industry (in some places you currently need a license to braid hair.) That’s going to improve the quality of haircuts, right?

Not necessarily. Now all the hair salons have to send their employees to college for two years to get a license, and when they graduate they are expecting much higher pay because they just sunk two years into an education which they saw no money during. They went out drinking with their student loans, paid rent, and accrued debts. What’s more the salons need to consult special accountants or lawyers to make sure they can prove that they are adhering to the new regulations — even the ones who are way ahead of the law already providing far better conditions and services than the existing standards. Such professionals can charge upward.s of $100 an hour. Many independent salons simply can’t afford the increase in costs and have to close down entirely; others have to jack prices up to pay for the extra costs of compliance and staff. In some areas only one salon is left standing and since people have less choice they can afford to let standards slip.

With the price of haircuts going up lots of people decide to go without. They cut their friends hair at home. Badly. Or they get pretty good at it and don’t have to go to the hairdressers any more but take longer to prepare for going out and miss out of the chat and gossip. What’s more, everyone who does still go for a professional haircut has less left over to spend on a manicure or something else nice, so other industries also suffer. You can add to that the marginal increase in taxes to pay the civil servants in the new public body which acts as a regulator for the hairdressing industry. Now those people are involved in busy work instead of making commodities and providing services that improve people’s living standards in real terms and rather than paying into the public purse they are a net drain on it.

I choose a relatively trivial example because it’s perfectly illustrative of how a seemingly simple and innocuous policy suggestion — mandatory hairdressing licenses — can generate more than its fair share of consequences. (Yes, hair cuts are not a life or death issue. But so are many other activities that are similarly regulated.) An alternative is for a series of private watchdogs to certify only hairdressers that meet their standards and give the ones who do an official number and sticker to put in their window; because they are competing they have to keep the costs of certification to a minimum (no $100 an hour fees), and people who are not fussed to pay extra for a certified cut can take a risk on somewhere cheaper or go by word of mouth.

Occupational licensing makes for an interesting case because it is almost ubiquitously considered in the public interest and even necessary to prevent catastrophe. And yet there is actually zero evidence that it leads to a higher quality of service provision. Zilch!

After compiling a meta-analysis entitled, "Rule of Experts," S. David Young concluded “…most of the evidence suggests that licensing has, at best, a neutral effect on quality and may even cause harm to the consumers. ... The higher entry standards imposed by licensing laws reduce the supply of professional services. … The poor are net losers because the availability of low-cost service has been reduced.”

Stanley Gross of Indiana State University, had to concur, “…mainly the research refutes the claim that licensing protects the public.”

More recently economics PhD Morris Kleiner released two publications (2006, 2013) for the Upjohn Institute for Employment Research demonstrating that licensing occupations does more to restrict competition that to ensure quality.

However, until this is more broadly understood we may continue seeing mandatory licensing, not just for hairdressers and manicurists, but for tour guides, librarians, locksmiths, dry cleaners, auctioneers, fruit ripeners, plumbers, private investigators, Christmas tree vendors, florists, interior designers, funeral directors, cab drivers, shampoo specialists, glass installers, cat groomers, tree groomers, hunting guides, kick boxers, real estate agents, tattoo artists, nutritionists, acupuncturists, music therapists, yoga instructors, morticians with all the all-but-invisible (to the untrained eye) attendant consequences.

 

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