Perspective ~ When Will They Ever Learn?
NOVEMBER 01, 2002 by SHELDON RICHMAN
Many years ago Ludwig von Mises wrote a thin book called A Critique of Interventionism, which argued that government regulation of economic activity invariably causes problems-even from the point of view of the regulators-and thus creates the excuse for more regulation.
The classic case is retail price controls on milk for the purpose of making it more affordable. Of course, if the price ceiling is fixed below the price that consumer demand would have set, consumers will buy more milk, but no new supply will be summoned. Empty store shelves will become common. So now the regulators have a new problem to solve. They may try to solve it by expanding the controls to the wholesale and processing levels, which is Mises’s point.
The current business scandals illustrate the point in a less direct way. When Enron fell, everyone lamented the misfortune of employees whose retirement accounts were heavily invested in Enron stock. The company was criticized for encouraging and even permitting such a risky portfolio. Diversification, of course, is ultimately the investor’s responsibility, but one culprit was left unscathed: the federal government. Some years ago an enlightened Congress passed a bill to encourage "ESOPs," employee stock-ownership plans under the misguided idea that this would achieve the best of socialism (worker control) in a capitalist context. Under the law, the corporation can lower its taxes by meeting a certain level of employee investment in the company. It can profit a company to heavily promote such investment for 401(k)s. There’s nothing wrong with employee stock ownership as long as the government is neutral about it. But the government was not neutral, creating problems it now seeks to solve with a new round of legislation.
A second illustration concerns stock options. Whatever one thinks of them, there is little doubt they were given a boost a few years ago when Congress passed a law forbidding corporate tax deductions for the portion of executive salaries over $1 million. Suddenly it became cheaper to pay in stock options than in cash. What do you think happened?
Will they ever learn?
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