Tuesday, May 13, 2014

Entrepreneurs create child care, not politicians

A recent Toronto Star editorial and article perpetuated a long-standing and pervasive economic myth: that any business sector can be run well by government.  In this case the editorial said the government should "create spaces" and "offer opportunities" because tens of thousands of families are on waiting lists. What the Star did not address is the cause of such waiting lists and the moral and rational solution to such economic problems.

In a free country each individual has the right to make his own choices in life and the right to be free of coercion by other individuals and the government, so long as he recognizes the same right of others.  A free society has an economy driven by individual preferences: choices people make about how they will produce enough to earn their way in the world and how they will spend what they earn.  In such a society you are free to produce to extent of your ability and motivation, free to create wealth greater than you consume, free to trade your time, labour and products of your mind with others. You are not free to force others to pay for your food, housing, transportation, entertainment or anything else.  In a free society the initiation of force against citizens is prohibited by law and enforced by the police and the courts.

Freedom is the freedom to think, act, produce and to own the product of your efforts.  This is the essence of the concept of individual rights.  There can never be such a thing as the right to an outcome or to a product that must be provided by someone else - this would negate the very concept of rights and freedom.  It would make others slaves to your needs and wishes. It is the incorrect and immoral attitude towards rights and the role of government that is at the heart of the daycare problem.

In a free market there is a price mechanism that integrates the preferences of all citizens into a beautiful, coordinated and ever-adapting system of immense complexity.  The price signal indicates to producers and consumers how much value society places on each good or service when compared to all possible alternative priorities.  Through their spending and producing choices, every citizen has a direct vote on these priorities.  If many people place a high value on widgets and thus bid up the price, this signals to producers of all kinds that widgets are in demand and to increase the supply because it is profitable to do so.  If preferences shift then prices tend to fall and so do profits, so capital and labour is reallocated elsewhere. This is how a proper economy works.

Now imagine a government intercedes at the behest of a group of citizens who lobby for favours.  The group declares that there are not enough widgets or that widgets are too expensive for their liking. Government responds by regulating widget production, forcing widget prices down by subsidizing some suppliers and by opening government owned widget factories. The marketplace responds rationally to the lower price by withdrawing capital from widget production and seeking to reduce the cost of making widgets, even if the quality declines. Thus, the supply and quality of widgets adapts to the forceful intervention by doing less of the activity in question. "How can I compete with subsidized widget-providers?" says one company. "How can I complete when the government takes money from me through taxes in order to open a competing business?" says another.

The widget lobbyists go back to the government and wail that more force is needed because the bad (free) producers are not making enough widgets at a low price.  You can easily see how a vicious cycle of force-begetting-force is created.  It is always thus - the introduction of improper laws and economic interventions breeds more of the same in order to fix the supposedly unexpected consequences - consequences that could actually be predicted using rational economic principles. 

Have you even wondered why there are waiting lists for day care?  What barriers exist that prevent the marketplace from filling this apparently severe consumer need? Who stops people from opening day care businesses? What economic facts cause such a high need for day care?  It can only be the presence of coercion/interference in the marketplace that creates the problem.  There are severe limits on who is allowed to open a day care, where it can be, how many kids can be there, who can be hired, what employees can be paid and onerous regulations that raise the cost of being in the day care business.  On the other hand, parents are forced to pay such high taxes that they must work more than otherwise to afford their target standard of living, so they have less time to do parenting and so they need day care.

The correct solution to the problem of child care supply, as is the case for every economic problem we face, can be answered with one simple statement and all that it implies: laissez-faire (leave it alone). Laissez-faire economics, also known as economic freedom or capitalism, is the optimal political and economic system for mankind because it allows each individual complete freedom to choose and to let the marketplace see those choices.  Anything less than freedom has been called "shackled", "fettered" or words of a similar meaning, and the negative connotation those words carry becomes an actuality whenever government uses force against innocent citizens.  To solve the shortage of child care (and everything else) - laissez-faire!

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