When government mandates minimum prices for products and services (including for labor), a host of ill-consequences, unintended by supporters of the mandates, occur. This example is from Israel, where the government recently attempted to ‘improve’ the retail book market by imposing price floors on books and compensation-floors for book authors. (HT David McFadzean)
(Note: Had this Israeli government interference into the book market been more modest – had it been an interference that in practice affected the production and sales of, say, only five percent of the new-book market – these ill-consequences would have been fewer in number and, hence, less visible. The ill-consequences would even perhaps have been rendered, to eyes unequipped with well-crafted economic lenses, invisible amidst the other many changes that are forever occurring in dynamic markets.
Empirical studies – designed to test the predictions of those who, using economic reasoning, argue that such price- and pay-floors in fact generate ill-consequences – might well have been unable to detect such ill-consequences. Predictably (!), then, proponents of the price- and pay-floors, citing such studies, would have crowed about how “the data” prove the theory wrong. These champions of government interference with the market’s pricing mechanism – that is, these champions of government forcibly shrinking the scope of people’s freedom to contract – would prance about proudly as soldiers of science who take their marching orders only from the data, ridiculing others who use their reason and understanding of economics to point out the likely reality of ill-consequences too small in the larger scheme to be seen with the naked eye or even with the most sophisticated tools of econometrics.)