Be Warned About Trusting Local Governments to Restrict Economic Freedoms

by Don Boudreaux on May 28, 2015

in Myths and Fallacies, Regulation, Seen and Unseen, Work

Is toleration of minimum-wage regulations that are imposed locally (in contrast to imposed nationally) wise?  As I noted in earlier posts, if government is to have the power to impose minimum-wage rates, a good case can be made that that power be exercised only at local levels and not at a national (and certainly not at a global) level.  Yet this fact hardly means that locally imposed minimum wages ought in fact to be tolerated.

Minimum-wage regulations, by raising employers’ costs of employing low-skilled workers, reduce the employment options of many of the workers who proponents of such legislation ostensibly intend to help.  The theoretical exception (i.e., monopsony power) to this reality is esoteric and highly unlikely to exist in reality with sufficient clarity and in potent-enough form to make minimum-wage legislation in practice a sensible economic policy if the goal is genuinely to promote the public welfare.  This conclusion holds for locally imposed minimum wages no less than for nationally imposed minimum wages.

The following germane questions can be fairly asked of people, such as Daniel Kuehn, who make a case for tolerating locally set minimum wages:

Why not also tolerate local-government experimentation with restrictions on speech, press, religion, assembly, and consensual sexual practices among adults?  Local-government officials, after all, are likely know better than can national-government officials the details of the preferences and modes of actions and reactions of their fellow local citizens.  Why rule out any potential welfare-enhancing restrictions on individuals’ behaviors given the prospect that local-government officials can be depended upon to reliably determine if and just when such restrictions, confined to each of their local jurisdictions, will be worthwhile on net?  A blanket prohibition on such government regulations reflects hubris on the part of those who recommend such a one-size-always-fits-all insistence that these private behaviors never be regulated even at the local-government level.

It will not do to respond to the above questions with the accurate observation that in the U.S. courts have long been much more tolerant of government restrictions on private commercial contracting and freedoms than of government restrictions on freedoms, such as that of speech, that are allegedly more ‘fundamental’ than freedom of contract.  Carolene Products (1938) famous “footnote 4” is an exercise by the U.S. Supreme Court of judicial fiat.  Justifying the proposition that people’s commercial and contractual rights should be less secure than are other, “preferred” rights requires more than pointing out that that’s the way it’s been for nearly 80 years.

I do not believe that such a proposition can, in fact, be justified save by the highly questionable move of arbitrarily declaring that economic liberties are less important, or less threatened by unwise or corrupt government interference, than are ‘non-economic’ liberties.

If government is not to be trusted with the power to restrict an individual’s voluntary choices of which words to speak, which gods to worship, and which consenting adults he or she may be intimate with and in which particular ways that intimacy may be expressed, why should government be trusted with the power to restrict an individual’s choices of which prices he or she may sell at, which wages he or she may agree to accept, which products he or she may purchase, and which other voluntary commercial and contractual arrangements he or she may enter into?  The knowledge problem – that is, government officials’ inability to know enough in order to regulate in the public interest – is hardly less real for economic matters than it is for non-economic matters.  Ditto for the ‘public-choice‘ problem – that is, the risk that government officials will use their regulatory powers to benefit themselves and their cronies rather than the public at large.  The scope for government officials – at all levels – to interfere with private economic arrangements in ways designed to create rents and special privileges for politically influential interest groups is undoubtedly real, as public-choice scholarship and historical experience amply demonstrate.  Likewise, the scope for government officials at the local level to act on ignorance and prejudice is no less wide and no less likely when it comes to economic regulations than when it comes to ‘non-economic’ regulations.

“Progressives'” long-standing habit of dismissing freedom of contract and other economic liberties as being ‘only’ or ‘merely’ economic – and, from this dismissal, to justify (or at least to gaze upon uncritically) government policies that treat economic liberties as cheap and expendable – stems in part from the failure to appreciate the case for economic freedom.  That case is not meant simply, or even mainly, to make commerce and contracting easier for business people.  It is, instead, meant to ensure maximum scope and necessity for business people unceasingly to compete with each other to use their creativity and properties in ways that most fully satisfy consumers’ demands.  The economic case for secure private property rights and freedom of contract is built upon the recognition that such security and freedom are key to the creation and sustenance of competitive markets that offer the greatest possible economic opportunity and economic flourishing to the masses.

It’s also a mistake – one that “Progressives” routinely commit – to treat economic freedom as a freedom that can be exercised only by businesses or property owners.  But the worker who would agree to work at an hourly wage lower than that which is dictated by the government has his or her economic freedom violated no less than does the employer who is prevented by the legislation from contracting to hire that worker at that lower wage.  And because the typical employer is more likely than is the typical low-skilled worker to have more options and greater ability to get around this restriction on economic freedom, this violation of economic freedom will generally harm low-skilled workers more than it harms employers.  In other words, this economic freedom – the freedom to contract for employment at whatever wages the market will bear – is more important for low-skilled workers than it is for employers.

So why is this freedom – the freedom to sell one’s labor at whatever price one chooses – considered by “Progressives” to be less important and less sacred than is the freedom of speech or the freedom to marry someone of the same sex?  If (as I believe strongly should be the case) government under all circumstances ought to be prevented from regulating sexual practices among consenting adults, prevented from restricting adults’ access to birth control, and prevented from shutting down some churches because of fear of the doctrines that are preached in those churches, there is also every reason to prevent government – under all circumstances – from superintending adults’ employment negotiations.  Is the freedom of each individual to choose, say, which orifices to use during sex really more fundamental and important to human flourishing than is the freedom of that same individual to choose his or her own terms of employment without being restricted in doing so by government?

Please understand that I hold both such freedoms – along with many other freedoms – sacred.  But I do find it strange that many “Progressives” insist that the freedom to choose one’s specific terms of engaging economically with other consenting adults is somehow less important than is the freedom to choose one’s specific terms of engaging sexually with other consenting adults.  Both are important and both are equally of absolutely no business of government.

Bottom line: if one makes the case that local-governments should be trusted to restrict economic freedoms, one has then to accept that these same trustworthy local governments ‘should’ have the power also to restrict other freedoms, such as those of speech, religion, and sexual expression.  These latter freedoms are not more important to ordinary people than are economic freedoms.  And nor are these latter freedoms more likely than are economic freedoms to be violated unjustly and destructively by ignorant or corrupt government officials.

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