Income Disparities and Free Enterprise

It appears that despite 5 years of Obamanomics, income disparities in the U. S. are greater than ever.  Leftist wesites prescribe more government control to cure this problem.  This is a little like the old practice of bloodletting as a cure for disease.  That, distinctly harmful, practice was based on a theory about the human body that was as correct as the flat earth theory.  Despite any real science supporting it , it was practiced to the detriment of the ill for centuries.  

Excesive government intervention in an economy is the cause, not the cure of inequality in income.  Because friends, here is how it works in "nature" so to speak.  When people organize themselves into social groups they tend to specialize.  That is, one person begins to take on a particular task for the whole group because he or seh is better at than others.  Each person tends to pick a specialty and then trade with others for goods and services.  Watch your own social groups and you will see that this tends to happen.  You do the washing and I'll dry.  That kind of thing.  It's based on personal preferences, skills and talents .  Writ large in society, some people make cars and some people grow food.  When someone is very successful at his specialty, he or she hires helpers-- people who are not as knowledgeable but who are willing to learn and to assist for pay.  The guy with the skill, the history and the reputation for having the skill (AKA the "owner") allocates the money and, somewhat naturally, keeps most of it for himself.   That's how employment works.  Unrestricted by excessive government intervention that process goes on until one of his or her longtime employees gets tired of the boss getting the largest share of the profits and decides to strike out on his own.  He sets up a competing company.  He may be able to charge less than his old boss and still make more money for himself because the boss was keeping most of the money for himself or hersself.  

The ability of the employee to make this move is critical to reducing income disparities.  That is why I am going to emphasize that fact here.  Employers and the powerful have historically used all kinds of devises to prevent that kind of competition and the employees have always fought back in one way or another.  As a positive inducement not to leave many employers offer partnerships -- i. e. stay with me and I will share the profits with you, higher wages and security-- the origin of company pensions.  

There have also, hoevr , been negative interventions-- slavery-- I own you you can't leave, indentured workers, I own you you can't leave for 7 years, and non competition agreements-- if you come to work for me you cannot leave and compete with me.  

Now the big rich people have discovered a new, and very effective way, to keep you from competing with them-- well, its not so new.  You have to have a license or a permit to engage in an occupation and I will make sure you don't get it unless I approve.  That actually has been around in different guises for a while.  

But the new wrinkle is that what the rich and powerful do to prevent you from leaving and starting your own enterprise to compete with them is they make it very costly through the use of government regulation. For example, how much trouble and cost do you encounter in starting up as an auto mechanic on your own.  I haven't verified it on my own, but have been informed by at least one client that the cost of strating up a repair facility where you change the oil and perform other tmaintenance and repari tasks on a car is at least $100,000.  Ye one hundred thousand dollars -- and that is just the cost of obtaining a permit.  Here in California the Department of Toxic Substances Control began requiring permits to operate repair and maintenance stations for outo repair in around 1994.  There are a myriad of regulations that have to be satisfied and a a mountain of paperwork.  The delay can be months or years and the cost, just to obtain the permit according to my client, is around a hundred thousand dollars..  The existing businesses were pretty much grandfathered in but new businesses face a formidable obstacle just to obtain a permit.  Of course chain auto repair shops owned by big companies have people on staff who specialize in getting permits and know all the people you need to know at the state regulatory office.  And they have the hundred thousand dollars.  But the average auto mechanic who has perhaps worked for them for 10 or 15 years, doesn't have that kind of resource.  Because the cost of trying to strike out on his own is so high, his employer has much less motive to pay him well.  And as for partnership-- forget it.  

As I said, some big businesses seem to have learned this lesson.  So, rather than saying I don't want Joe to compete with me, they say, it's dangerous to allow Joe to have his own auto repair shop because he is going to destroy the environment.  I am using auto repair shops as an example.  It's true in almost every field of endeavor.  So the cure proposed by the left-- more government regulation--is, in fact, the cause of increasing inequality.  And this effect is what we should come to expect.  Governments tend to  be controlled by the rich and powerful.  The rich and powerful tend to be in favor of those laws and regulations that maintain them in power.  The genius of the left has been to become kind of parasites on the rich and powerful.  They get government grants and subsidies.  They get private foundation grants and subsidies for promoting policies that have the consequence of benefitting the rich and powerful.  So we see the specatcle of a Middle Eastern Oil producer state controlled media, Al Jazeera, sponsoring an anti fossil fuel "documentary".  Why?  They know the main place this documentary will have an impact is in the United States and that it will be used to stop private individuals in the United States from develping U. S. fossil fuel resources, thus forcing the U. S. to import more oil from the Middle East.  

You may get the idea that I am opposed to all government regulation.  No. I  am not.  There is a place for goernment regulation in preventing harm.  It doesn't have to be done by the government.  As an example, Underwriter Laboraties is a private organizaiton, but their seal of approval indicating that an electrical appliance meets therre standards is still seen as a proof of safety which influences consumers. And most state bar associations are private and started out as a way to assure people they are hiring someone who has a certain minimal competence in practicing law.  Government has taken over some of those functions-- as an example the California State Contractor's Licensing Board.   It's seal of approval assures us that the person we hire to build a house or make major repairs has a minimal level of knowledge and competence.  I am in favor of state regulation that helps assure that buildings won't fall down in the next earthquake and airplanes won't fall out of the sky because those are matters that are extremely difficult and expensive to investigate on our own.  But we must always be vigilant that the paperwork is not excessive and not unrelated to the function of protection.  Environmental regulations have become the latest method for preventing individuals from starting their own businesses.  

But they are not the only device.  I will be looking into more of these in other posts, but my point here is that the best cure for income inequality is to reduce the barriers to entry into business to the minimu consistent with safety.