The Coercion Fallacy

One of my favorite Facebook pages, “Unbiased America”, posted a status update that details and refutes a persistent economic fallacy; that government regulation and control can lead to prosperity. If you like the quote, check out their page at http://www.facebook.com/UnbiasedAmerica

“Perhaps the biggest fallacy in economics is the idea that people can be coerced into prosperity. Many ideologies have prescribed to the notion that threats, penalties, regulations, redistribution, and other forms of coercion can shape an economy into the goals envisioned by its planners. Yet history has shown that freedom, not restriction, is far more effective in promoting growth, cooperation, and prosperity than coercion.

Compare North Korea with South Korea, China with Taiwan or Hong Kong, East Germany with West Germany. Look at what happened when the Soviet Union forced all farmers to give up their surplus crops to be redistributed. Crop yields plummeted. The same farmers who for years had grown plenty of food voluntarily, stopped producing a surplus when they were ordered to turn it over to the government. Mass starvation resulted.

One would think that such devastating consequences would have rendered coercive economics to the dustbin of history long ago. But we still hear calls for government wage controls, confiscatory taxation, limits on profit, etc. Such coercion will have the same negative impact today that it did a hundred or a thousand years ago.

As economist Lawrence Reed once wrote, slaves don’t produce great works of art, prisoners don’t innovate, and Edison didn’t invent the light bulb because he was ordered to do so. If you want the baker to bake a bigger pie, you don’t beat him up and steal his flour.”

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On the “Maximum Wage”

There is a growing movement amongst leftists and “progressives” for the United States to establish a federal “maximum wage”. Essentially, this would mean that CEO and other executive salaries would be legally capped in some manner — whether at an actual dollar amount or forbidden from exceeding a certain ratio relative to the lowest paid workers in a particular corporation.

There are a variety of problems with forbidding executive salaries from rising above a set amount: not the least of which being that the reasoning behind the law negates the fact that CEO pay, just like any other wage or price, is a function of market forces. As such, a price ceiling on executive salaries will create a shortage of people willing and able to work such jobs.

The article linked below goes into more detail on how the proposition of the maximum wage is fallacious.
6731
http://mises.org/daily/6731/Killing-the-MaximumWage-Myth

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