RICHARD GRANT: A two-headed monster

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 do the same. In that sense, labour is always scarce relative to what we can imagine would make our world better.

That tension between imaginations of a better future and the relative scarcity of work-hours to make that future happen is what drives societies forward in material and cultural gain. But when people aren’t 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 expected future 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 isn’t an argument against any government involvement in the provision of essential services; it’s an insistence that government officials recognise, as costs, the full implications and burdens they impose on citizens through regulations and spending. Insisting that government officials exhibit a greater understanding of economics and moral discernment would undoubtedly lead to a drastic reduction in 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 keep bread prices below market level, many bread suppliers would have to cut back their production to maintain profitability, even though consumers would want to buy more bread than before due to the lower prices. The result is disappointment for most would-be consumers: fewer consumers will actually be able to buy bread than before.

Government then has a political problem to which it can respond by removing the cause of the bread shortage — the price ceiling it imposed — or it can expand the problem by subsidising 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.

Minimum wage regulation, which makes it illegal to hire a worker for less than the statutory minimum, creates a shortage of employment opportunities that is experienced by workers as unemployment. Even supporters of minimum wage laws admit that they create a surplus of workers, though they claim the unemployment effect is small. Unemployment always seems smaller when it affects someone other 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 labour force is officially unemployed and a further 10% 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 imposed on SA 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 skills and knowledge to provide services and to work with others. Such losses compound and people do not know what they are missing.

The impact of the recent hysteria-induced lockdowns across the world has been most 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 can’t be recovered and 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.

Dr Grant, professor of finance & economics at Cumberland University, Tennessee, is a senior consultant to the Free Market Foundation. He writes in his personal capacity.