State of Innovation

Patents and Innovation Economics

Lack of Demand – More Economic Stupidity from the Financial Press

The present economic doldrums (depression) are often blamed on lack of demand.  For instance, I heard a news report that suggested lower interest rates will not help the economy because there is “lack of demand” for loans and it was implied that there was a lack of demand in the economy as a whole.  The idea that there is ever a lack of demand, is economic stupidity.  One of the defining points of economics is that it examines how scarce resources are used to satisfy unlimited wants.  Did people stop wanting new cars, new cell phones, updated kitchens, to go on vacation, etc? – of course not.  What has happened is that government has raised the cost of production through excessive regulation and taxes to the point that people cannot afford these things.

 

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September 20, 2011 - Posted by | -Economics |

2 Comments »

  1. Of course regulation increases costs but it reduces other costs. I prefer to look at specific examples and specific regulations rather than making a blanket statement.

    There are regulations regarding earthquakes and fire that make construction cost a lot more. 69 people were killed in the 1989 California earthquake. Smaller earthquakes in other countries have killed thousands. We had one 2,000 times stronger where I live and nobody got killed because we have more expensive regulations. We also average a major storm every two years often stronger than what hit Louisiana or Florida but nobody gets killed and it doesn’t make the national or international news.

    Many people are against the regulation called minimum wage; but I happen to think it helps to keep the low income population in check. If one’s children are a burden because they can’t get a job because their work is not worth minimum wage, one is likely to have fewer children. If people have as many children as they can in order to increase the income of their household, who is going to pay to educate all those below minimum wage children? Who is going to pay to police that increased low income population?

    Sure regulations create a burden but eliminating them allows other burdens. Even though the construction costs are higher where I live because of more expensive regulations it is cheaper for us to rebuild after a natural disaster than other places that do not have regulations as expensive as ours.

    Our expensive construction regulations make our other expenses lower. This also helps during bad economic situations. Our steel reinforced concrete homes and commercial buildings can sit abandoned for decades without substantial structural wear, and when the economy is better can quickly be put back into service with a new coat of paint and new fixtures. We are talking low maintenance costs. Ants and termites don’t cause our buildings to collapse.

    Yes the cost and burden is high if you are the builder; but if you are the owner the cost of ownership is lower. If you are the government that has to respond to disasters, the cost of responding to disasters is lower.

    Sure the Chinese got it cheap now; dumping toxins into their drinking water, but they are going to have to pay for that decision eventually. Even the Japanese are protesting in the streets for more regulations regarding nuclear power plants.

    I’m sure some of our regulations can be changed for the better; it’s just the blanket statement I can’t get behind. I think it is easy to show that deregulation is good for a particular business. But just because deregulation causes us to pay less to the business does not mean we are paying less. If we have to pay to fix the problems caused by an unregulated business we are still paying. Sometimes when we talk about regulation and deregulation we are just talking about changing who gets paid how much, but we are still going to pay.

    To gain or create political support I think it is best to identify a specific regulation to change. Going after all regulations at once is like the old saying “he who chases two hares catches neither”. I do agree with your position on specific regulations you’ve brought up in the past and still look forward to continuing to read your blog.

    Comment by Matthew Artero | September 20, 2011 | Reply

  2. Matthew, Regulations never reduced the overall cost of anything. They may have shifted the cost from one thing, earthquake rebuilding to higher insurance cost for cars. Because people spent more on their houses they drive less safe cars. You cannot get something for nothing and because of entropy you cannot get something without a loss. Regulations are always inefficient because they substitute the judgement of a few bureaucrats for individual choice. A bureaucrat can never make as good a decision for millions of people than they can make for themselves.

    Most importantly, regulations violate the Constitution and morality. A regulation assumes your are guilty until proven innocent. This is immoral and against the Constitution. The empirical evidence shows that governments do not impose intelligent regulations, they impose job and wealth reducing regulations that result in human misery and unnecessary deaths.

    Comment by dbhalling | September 20, 2011 | Reply


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