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Thursday, July 02, 2009

Even governments are subject . . .

. . . to the laws of economics!
The great achievement of the first economists was their realization that there are natural laws of economics. They noticed real-world chains of cause and effect rooted in the logic of human action. Prices are set by supply and demand. If the supply of a commodity fell or the demand rose, other things being equal, the price rose, activating processes to increase supply either of the commodity in question or alternatives acceptable to consumers. And if the king forbade a price rise, there would be bad consequences for consumers: chronic shortages, queues at shops, and rationing.

So the development of economics was bad news for rulers who thought they were omnipotent. The new discipline told them their powers were limited. They could not decree an abundance of cheap goods into existence. Naturally, rulers did not like that information, so they and their court intellectuals (today we all them New York Times and Washington Post op-ed writers) denied there was such a thing as objective economic theory.

But there is, and it continues to thwart public policies that attempt to defy it. Price ceilings (such anti-gouging laws) will produce shortages. Price floors will produce surpluses. Minimum-wage laws will make jobs more scarce or more unpleasant for the unskilled. And so on.
-- from "Obama the Health-Care Reformer Should Grow Up" by Sheldon Richman

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