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Cooperation for the Long Run

March 6, 2006

There is a bias to over-emphasize short-run, visible benefits in politics, often to the exclusion of what Frederic Bastiat termed the unseen effects on others and in the long run, because a politicians' primary success requirement is to get elected long before all the consequences of their policies become obvious. T

hat was Henry Hazlitt's central theme in Economics in One Lesson: "...we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed. From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

One of the most essential aspects of these biases is government reliance on coercion, because the use of coercion is government's only comparative advantage, and coercion is an inherently short-run strategy, with seriously harmful consequences that are even worse in the long-run than in the short-run. The reason is that the results of voluntary cooperation improve over time, while coercion's results deteriorate.

The expansion of cooperation over time, as long as it is voluntary, is illustrated by a phrase, "Supply curves and demand curves are more elastic in the long run than in the short run," some form of which is taught in virtually every principles of economics course. That phrase reminds students that the longer the time period sellers have to respond to an increase in demand by buyers, the more their improved incentives will lead them to discover new and better ways of accommodating them with additional output; similarly, the longer the time period buyers have to respond to an increase in supply by sellers, the more their improved incentives will lead them to discover added valuable uses for those goods or services.

Essentially, this summarized the fact that when you give me better incentives to voluntarily cooperate with you in the marketplace, I will discover and implement more effective ways to do so over time, expanding the degree of our cooperation. I will search for better ways to cooperate, whether I am the demander and you are the supplier or vice versa.

On the other hand, if you coerce me, you are making me do something that is against my self-interest-except for the threatened penalties to enforce the imposition. My underlying incentives are worsened. As a result, over time, I will find more ways to respond to those worsened incentives, just as for improved incentives. I will employ my skills and efforts to evade the burdens imposed by coercion, rather than to better satisfy the desires expressed through voluntary offers. Social cooperation will contract. This is why Friedrich Hayek stressed "The fundamental principle that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion"in The Road to Serfdom.

The deterioration in social cooperation due to coercion is illustrated with innumerable price ceilings (such as rent control) and price floors (such as the minimum wage). Over time, people find an increasing number of ways to do less of what they are being forced to do against their interests, and the search for ways to reduce the harm imposed by the coercion undermines cooperation. As Hayek noted, "Any attempt to control prices or quantities of particular commodities deprives competition of its power of bringing about effective co-ordination of individual efforts."

When the government holds the price of rental dwellings below what others would be willing to pay for them by law, with rent control, they reduce the incentives of landlords to supply such dwellings. Over time, landlords find ways to withdraw from the market (via condo conversions, deterioration, etc.) reducing the supply of rental housing-i.e., they will reduce their degree of cooperation with renters progressively over time (an ironic solution to the problem usually cited to justify rent controls--that housing is too expensive because there is too little of it available).

When the government holds the price of low-skill labor above what they would willingly work for by law, with minimum (or living) wages, they reduce the incentives of employers to use those overpriced workers in their production processes. Over time, employers find additional ways to conserve on those artificially scarce inputs, reducing the number of workers hired progressively over time (via changing production processes and products, substituting capital for labor, reducing output, etc.)--i.e., they will reduce their degree of cooperation with otherwise willing low-skill workers (an ironic solution to the problem usually cited to justify minimum wages-that low income workers are unable to earn enough).

The same story plays out in other areas of coercion. When government taxes people more heavily on income earned by benefiting those who voluntarily dealt with them, over time they earn less--i.e., do less to benefit others--and spend more effort looking for ways to hide or shelter their income from taxation instead. When government forces people to provide free habitat to any endangered species that might choose to inhabit their property, they progressively find ways to make their property unattractive to them (sometimes even killing them secretly to avoid the massive property "tax" that would otherwise be imposed on them). When government makes employers provide "free" benefits to workers, they progressively reduce other parts of their compensation bundle that workers have revealed they value more (by accepting them in preference to the mandated benefits, when given the choice) to "pay" for them, or they find ways to make do with fewer workers.

Further, because coercion in any of these forms triggers entrepreneurial attempts at evasion, more and more resources have to be devoted to enforcing edicts, which both takes resources away from productive uses and violates principles of justice that are upheld only when arrangements are voluntary.

Since there are very few areas where coercion is necessary to achieve social cooperation, there are very few areas where government advances such cooperation; its intervention elsewhere necessarily undermines it, and violates justice (particularly "Thou shall not steal") at the same time.

That is why Ludwig von Mises' observation that "Those who ask for more and more government interference are asking ultimately for more compulsion and less freedom" is not just important, but an ominous portent for the direction America is now taking. Not only does each expansion of government power shrink freedom and further constrain the realm of otherwise expanding, voluntary cooperation, its effects worsen progressively over time.

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