Invisible Hand, Invisible Consequences


On minimum wage:

You cannot make a man worth a given amount by making it illegal to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situations would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. -Henry Hazlitt

As you can tell, I have finished reading Economics in One Lesson. While a purposefully simplistic work, it evoked two questions in my mind concerning the betterment of humankind through free market economics. To take a lesson from Mises (who I am also perusing) and Fukuyama, the answer to these questions lies in the praxeology (human action) and thymos.

1. Is it possible for taxes to be lowered after a war, particularly in the case whether either the reparations costs are so high or the debt has increased exponentially due to war manufacturing?

There has been a case before where taxes were lowered in the United States post-World War II and revenues increased to make up the difference. There were concerns of unemployment as male soldiers sought to gain back their jobs from the female workers who had replaced them. However, unemployment was short-term because humans are, by nature, productive beings. The US experienced a golden age of commerce.

Well, you might say, the United States was not bludgeoned half to death as Europe in terms of reconstruction. Fine, let’s take West Germany, where Berlin alone was bombed multiple times by Churchill’s Air Force. Chancellor Adenaur and his Minister of Economics Erhard cut taxes down to 18% and introduced currency reform. What followed was the Wirtschaftswunder –  the rapid reconstruction and development of West Germany.

But the skeptic might claim that these are both useless examples because both of these countries had skilled workers in developed economies. Recuperation was inevitable!

One final example: South Korea. While the recovery was delayed by some five years and tariff barriers were raised in the 1960s, the Park government gave tax breaks to businesses and brought up interest rates to bring up savings, leading to an ample supply of credit and capital. At the same time, South Korea began to develop its labour force, responding to global manufacturing demand for its exports. Money and manufacturing led to the further specialization of South Korea into the ICT industry, where it continues to be a leader to this day. So it is possible to have tax cuts and higher revenues in a post-war world!

2. What does Hazlitt think about dumping – the act whereby a country floods a developed or developing market with cheaper goods (and theoretically, destroys all hope of that country ever developing its industry and improving its economic welfare)?

Given Hazlitt’s anti-tariff attitude, I think he would wholeheartedly embrace the Walmart effect of cheaper goods flooding a given country’s market. Consumers have more purchasing power, the manufacturing workers receive profits, and more jobs are created because consumers can spend more. The only short-term fall-out is the temporary unemployment of manufacturing workers as other countries gain a competitive advantage and these skilled workers must find new jobs. However, developed economies are sufficiently diversified as to make absorption amenable.

But what about the effects on a developing country with no developed industry? Well, the same effects occur, but the unemployment is a little more sharply felt. However, in a purely free market world, there should be no such thing as an unproductive worker. If cheaper manufactured goods obliterate  a given industry, then the people of the developing country must simply find another good to develop: agriculture, mining, services, etc. Unfortunately, countries with high unemployment rates love to use this opportunity to beg for more foreign aid, the blank welfare cheque to much of the developing world. If aid were cut off for these countries, they would be forced to produce.

Countries that are rich now were not always rich. There are even some poor countries now who were once rich. In a free market world, it is entirely possible for a poor country to become rich, but not possible for a poor country to stay poor.

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