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A good deal of regulation consists in creating barriers to entry.
From Don Boudreaux of "Cafe Hayek."
"Quotation of the Day…
… is from pages 38-39 of Israel Kirzner’s excellent 1985 volume, Discovery and the Capitalist Process (original emphasis):
A good deal of regulation consists in creating barriers to entry.
Tariffs, licensing requirements, labor legislation, airline
regulation, and bank regulation, for example, do not merely limit
numbers in particular markets. These kinds of regulatory activity tend
to bar entry to entrepreneurs who believe they have discovered profit
opportunities in barred areas of the market. Such barriers may, by
removing the personal gain which entrepreneurs might have reaped by
their discoveries, bring bring it about that some opportunities may simply not be discovered by anyone.
An entrepreneur who knows that he will not be able to enter the
banking business may simply not notice opportunities in the banking
field that might otherwise have seemed obvious to him; those who are
already in banking, and who have failed to see these opportunities, may
continue to overlook them. Protection from entrepreneurial competition
does not provide any spur to entrepreneurial discovery.
Imposed price ceilings may, similarly, not merely generate
discoordination in the markets for existing goods and services(as is of
course well recognized in the theory of price controls), they may
inhibit the discovery of wholly new opportunities. A price ceiling does
not merely block the upper reaches of a given supply curve – further
increases in supply to meet demand. It may also inhibit the discovery
of as yet unsuspected sources of supply … or of wholly unknown new
products.
The point is straightforward, yet it and its implications are often
missed. One implication is that we must be more skeptical of empirical
studies of the effects of government intervention. By all means,
perform such studies. But in doing so, and in reading and in
interpreting them, be aware that they will never measure that which would
have been discovered but which remains undiscovered. The tamping down
of the discovery – the discovery of new products, sources of supply, and
production processes – that is prevented by regulations (and by taxes)
is among the costs of government regulation (and taxes), yet it is not
seen; it is not quantifiable. Yet it is as real as is, say, the cost to
consumers of waiting in queues for a chance to purchase
price-controlled gasoline or bread.
That these inchoate yet missed opportunities are not seen and
measurable is excuse enough for researchers who mistake quantification
as the chief mark of sound social science to ignore these missed
opportunities. ”If we can’t measure them, either directly or by some
quantifiable proxies, they’re not real. And so we Scientists must
ignore them” – that’s the scientistic attitude. (It’s an attitude that
dominates the economics profession, although, I boast, not at George
Mason.)
Another point: Kirzner above uses price ceilings as his example of
how price controls stymie the entrepreneurial discovery process. Yet
price floors do so as well (as I know Israel would agree). Consider
“Progressives’” favorite price floor: a legislated minimum wage. Not
even the best possible empirical study of the consequences of such
legislation can measure the value of the opportunities that would have,
but for minimum-wage legislation, been discovered, tested, and honed.
Who knows if, in the absence of minimum-wage legislation, some
entrepreneur in the U.S. would have discovered a method of profitably
employing legions of very low-skilled inner-city teens at a starting
hourly wage of, say, $4.00, and thereby have created attractive
employment opportunities for the millions of young people who are today
unemployed or working in the black market?
The current national minimum wage in the U.S. has been in place now
for more than three-quarters of a century, with no reasonable hope (at
least of yet) of it being repealed. This reality is one to which
employers and entrepreneurs (and workers) have long ago adjusted.
Empirical studies of changes in this national minimum wage, or of
differences across states and locales of state and local minimum wages,
are all done against the backdrop of this long-standing policy of
minimum-wage legislation imposed by Uncle Sam. Any phenomena measured
even by the very best empirical studies will never include the possible
employment opportunities that would have been discovered and exploited had there been no minimum wage at all.
Likewise, such studies necessarily cannot quantify the additional job
skills (and, hence, worker productivity and subsequently higher worker
earnings) that might have been gained had these missed opportunities
been realized.
Yet to deny the possibility that such mutually beneficial
opportunities would have been discovered or created and exploited were
there never a minimum wage is to deny the very possibility of
entrepreneurial discovery and creation that we see all around us when
markets are left reasonably free. Such a denial, although allowing the
deniers to strike more-scientific-than-thou poses, is in fact deeply
unscientific. The reason is that it rejects some knowledge of reality –
knowledge of the reality of entrepreneurial discovery and creation –
that we already possess."
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