Iatrogenic Government; R. Shannon

RussellShannon IATROGENIC GOVERNMENT THIS past May, Mount St. Helens erupted in the Pacific Northwest. Almost simultaneously, at the other extremity of our contiguous states irate blacks erupted in violent dem onstrations; 14 people perished and many buildings burned. Although the immediate cause was largely local in nature, the underlying con ditions in Miami so closely resemble those in other urban cores that many people predicted more widespread death and devastation. Later events in Orlando and Chattanooga proved that these fears were not entirely unfounded. That our cities are sick is surely no news to anyone who has seen their graffiti -smeared ~tores and garbage-strewn streets. The disease is chronic, the decay corrosive. The problems exceed the aesthetic: the Idemoralizing effects on the urban inhabitants defy denial. Russell Shannon Is a professor In the Department of Economics, College of Industrial Management and Textile Science, Clemson University.

724 Two needs seem especially ur gent. We must (1) increase job oppor tunities and (2) improve living con ditions. To achieve these ends, many public leaders insist on getting ad ditional federal financial assistance. But these two particular prob lems have another, superior solu tion, one that will relieve the fed eral government from having to butter up to cities just when Ameri cans perceive a greater need for more guns. It will also not place further inflationary stress on our sadly ail ing economy. Instead of spending more, the gov ernment could simply regulate less. In fact, certain regulations intrude catastrophically in both these urgent areas. One lethal regulation is the legal minimum hourly wage. In January 1981 it rises to $3.35. Any worker whose productivity is less than that will no longer be worth hiring. Many urban youths, lacking skills and ex perience, could not get jobs at the IATROGENIC GOVERNMENT 725 previous mInImum wage. Those willing to work for less are turned away. Why exacerbate this problem?

If business firms were permitted to pay less, they could provide ener getic youths with an honest income and spare them from aimlessly roaming the streets. They could also offer something of even greater value than money-a sense of self-worth and an opportunity to gain useful skills and experience. Before long, 'the young workers' wages would likely rise and they would be ea gerly sought out elsewhere. There is another regulation, local in scope, which should also be re pealed. That is rent control. Just as minimum wages prevent companies from providing jobs, so do maximum rents discourage people from offer ing living quarters. Sure, rents may be ((too high" for some people in some places. But if that means landlords are raking in lots of profit, then someone with en trepreneurial drive (sometimes known as greed) will come along and build more apartments. As a re sult, rents will fall. People will not only have access to more places to live, but also less rent to pay.

In fact, viewed in this light, gov ernment is not the solution to some of our most important problems. Rather, it seems clear that, more often than not, excessive govern ment is actually the cause of them. There is a medical term which applies here: ((iatrogenic." It refers to sickness caused by the doctor. Last February, for example, the Wall Street Journal reported on a study which, the Journal said, showed that ((mistakes by physicians are respon sible for more than one-fourth of the incidences of the leading cause of ill ness and death among newborns." latrogenic-a medical term refersto sicknesscaused by the doctor. The term ((iatrogenic" need not necessarily imply malign intent. Doctors may well prescribe medi cine by mistake or provide advice which unexpectedly makes their pa tients worse. But in either case, the doctor's business is apt to expand. Such beha vior is not peculiar to medicine, of course. Business firms regularly strive to increase people's dependency on them. After all, that's the purpose of most advertising.

\ Should we really be surprIsed, then, that government policies often turn out to increase our need for govern ment? Just like physicians, preach ers, and the producers of Pontiacs, Polaroids, and Poptarts, politicians would like to expand the market for their product. We can observe the process at work in the field of energy. To please the public, politicians impose price con trols on gas. But that causes short ages: at such low prices, there's not 726 THE FREEMAN December enough to go around. How do we al locate the gas? We must establish a government agency to determine who gets it! Likewise, excess profit taxes de prive oil companies of the funds and incentives to discover new supplies and develop novel sources. What do we do?That's right! Establish a mas sive federal funding program to fi nance energy research. Iatrogenic government rides again! Perhaps it is in the realm of un employment that the government's iatrogenic inclinations are the most devastating. The effect of the legal minimum wage has already been described. But that is only one of a number of government policies which have the effect of increasing unemployment statistics.

Another is unemployment com pensation. Certainly this program provides important benevolent ef fects by enabling workers who lose their jobs, through no fault of their own, to make ends meet for them selves and their families. Yet this compensation is often so generous that it almost equals the workers' net take-home pay when they are actually employed. Thus, there is little or no incentive to take a new job, so search is prolonged, and the unemployment statistics paint a grim though somewhat misleading picture. The government's taxes also contribute to unemployment, beyond the fact that they may themselves be a serious disincentive to work. Re cently there have been numerous reports about our large and growing ((underground" or ((subterranean" economy. To avoid the growing bur den of federal income and social se curity taxes, more and more people are working for cash so their income will not be recorded or reported to the Internal Revenue Service. At the same time, however, in order to qualify for welfare benefits, these people may report themselves as unemployed. Once more, the unem ployment statistics may be miscon strued.

All of these factors added to gether have increased the nation's reported unemployment rate to the extent that many economists now believ~ it is simply no longer possi ble to reduce the unemployment rate below 5.5 or 6 percent. Yetthe govern ment has a mandate, under the Employment Act of 1946 and the more recent Humphrey-Hawkins Act of 1978, to provide ((full employ ment"-which is presumed to imply that only 3 or 4 percent of the labor force is without jobs! In short, various acts of Congress have exacerbated chronic unem ployment. At the same time, Con gress has charged itself with heal ing the sick patient. What does Congress then prescribe? Massive 1980 IATROGENIC GOVERNMENT 727 doses of government training pro grams (such as CETA) and even more substantial expenditures to provide jobs. As Paul Craig Roberts pointed out in the Wall Street Jour nal, «It is, after all, unemployment that provides the rationale for defi cit spending-Congress's (something for nothing' method of giving handouts." And quite likely an appreciative but unwitting elector ate will gratefully return their bene factors to office at the next opportunity!

However, spending enormous amounts of money will not assure success. R. J. Reynolds has just proven that. It recently withdrew uReal" cigarettes from the market after having spent an unprece dented $40 million to convince peo ple of their worth. But whereas corporate advertis ing at least has some prospect of success, government employment projects are almost surely doomed to be a failure at increasing the total number of jobs. Rather, they are simply apt to appear successful after all, we can see the people em ployed by government-while ac tually there is almost certain to be a corresponding reduction of em ployment in the private sector which is hidden and unobserved. We should not forget that the money the gov ernment spends to provide jobs ei ther comes directly from our pockets (via taxes or borrowing) so that we have less money to buy goods and provide jobs, or else it results in an excessive expansion of the money supply which taxes us via inflation.

An exception to this rule is said to occur during a recession, when gov ernment spending may increase em ployment. But the recessions of both 1974 and 1980 were brought about by restrictive policies imposed by government in an effort to reduce inflation-which government itself had caused. Once again, ((iatro genic" is the appropriate inference. Clearly, there is an important dif ference here between persuasion of the private sort and that applied by government. We are not compelled to buy what producers offer to sell. If you suspect your doctor is making you sick and lose your patience with him, then he will lose his patient! Not so with government! It makes offers which we too often cannot refuse. Its growth can put cancer to shame. Only the stout resistance of taxpayers and voters can stem its re lentless tide. Unless we hold back, it will end up by ravaging us all. By comparison, the devastation in Miami or at Mount St. Helens will seem minuscule indeed. If this judg ment seems harsh, just remember: in the United States, government has already (1) deprived some peo ple of the right to earn a living and (2) denied others a decent place to live! i Tibor R. Machan Individual Rights and the Police Power of States DOES the legal system of the United States of America rest, as most peo ple believe, mainly on the Constitu tion including the Bill of Rights?