A shortage of good governance

Dr Richard J Grant is Professor of Finance & Economics at Cumberland University, Tennessee & Free Market Foundation Senior Consultant. 

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This article was first published on Businesslive.co.za on
25 May 2022

A shortage of good governance

There is an important difference between scarcity and a shortage. Scarcity is a natural condition of human life. Its alleviation is the reason we get up each day and “go to work” in our homes, in our communities, and in our places of employment. There is always something we can do to make our lives better by improving the physical and aesthetic structure of our surroundings, by improving our knowledge of life and the world, and by helping others in our community to do the same. In that sense, labour is always scarce relative to our imaginations of how to make our world better.
That tension between imaginations of a better future and the relative scarcity of man-hours to make that future happen is what drives societies forward in material and cultural gain. But when people are not free to act, constrained by their governments, that is when shortages arise.
It is also why shortages can persist. How is it that electric power shortages, what we euphemistically call “load shedding” in a national power grid can persist for years without relief? How is it that the generation facilities were not maintained properly, or expanded to meet future expected demand, or even operated by the best-qualified people? And failing that, why were potential competitors either unwilling or unable to meet the gaps between supply and demand? The answer to every one of those questions implicates government interference negatively in the livelihoods of its citizens.
This is not an argument against any government involvement in the provision of essential services. But it is an insistence that government officials recognise as costs the full implications and burdens that they impose on citizens through government regulations and spending. An insistence that government officials exhibit a higher-level understanding of economics and of moral discernment would undoubtedly bring about a drastic reduction in both government spending and regulatory overreach.
Most overt shortages are the direct result of government regulations, such as price controls or quantity controls. If, for example, the government were to impose a price ceiling to hold bread prices below the market levels, many bread suppliers would have to cut back their production to maintain profitability even though consumers would want to buy more bread than before at the lower prices. But the result is disappointment for most would-be consumers: fewer consumers than before will actually be able to buy bread.
The government then has a political problem to which it can respond by removing the cause of the bread shortage or it can expand the problem by subsidising the bread suppliers to increase production. How did it expand the problem? By redirecting tax revenue to pay bread suppliers to maintain what are now unprofitable levels of production, resources are wasted not only in bread production but also in the loss of projects that would have been undertaken with the resources drained from taxpayers. It could also draw funding away from more highly valued government services such as policing or infrastructure. The net effect is a reduced standard of living.
A minimum wage regulation, which makes it illegal to hire a worker at a wage below the statutory minimum, creates a shortage of employment opportunities that is experienced by workers as unemployment. Even supporters of minimum wage laws must admit that they create a surplus of workers, though they claim the unemployment effect is small. Unemployment always seems smaller when it affects someone else rather than yourself. But the dose makes the poison: the higher the minimum wage, the greater the induced unemployment.
In a country where more than a third of the labor force is officially unemployed, and a further ten percent has given up on even looking for work, one could claim that the number-one product of that country’s government is employment shortages. A minimum wage, which should be unthinkable under such circumstances, is but one of a multitude of employment suppressing regulations currently imposed on citizens.
Unemployment signifies lost opportunities to make the world better. It signifies a reduced standard of living. It also denies workers experience and the opportunity to build their skills and knowledge of how to provide services and to work with others. Such losses compound over time and people literally do not know they are missing.
The impact of the recent hysteria-induced lockdowns around the world has been more obvious in its net destruction of lives and livelihoods. The forced losses of mobility and work opportunities resulted in immediate losses of production, supply chain disruptions, and a political redistribution of resources away from productive activity. Such losses are not recoverable and, going forward, it will take time to overcome lingering shortages in the supply chain. But we will never succeed as long as the regulatory oppression continues, and the threat of future dystopian lockdowns hangs over us.

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