AUGUST 01, 1990 by DOUGLAS MATACONIS
Mr. Mataconis recently graduated from Rutgers University. He will be attending George Mason University School of Law in the fall.
Nearly every day we are confronted with newspaper and television stories about society’s less fortunate members—families living in squalid conditions, and homeless people sleeping on the streets of America’s greatest cities. Understandably, these stories are shocking to most of us; no one in a country such as ours, we say to ourselves, should be reduced to living in conditions like these. Someone should “do something” about it.
Unfortunately, this urge to help the poor typically leads people to believe that only government-sponsored programs can provide the needed aid. Whether the proposed remedy is a government-mandated “living wage,” rent control laws to ensure “affordable” housing, or other interventionist policies, the underlying premise is that compassion for the poor demands that we increase the size and scope of government. When we look at the results of these policies, however, we see that government intervention doesn’t improve the lot of the poor; in fact, it often worsens the situation.
Supporters of the minimum wage, for example, assert that the poor should be helped by insuring that their jobs pay a wage that meets their basic needs. That sounds reasonable and compassionate. However, what if a worker’s productive output is less than the minimum wage? In this case, the very people who are supposed to be helped by the minimum wage—the low-skilled working poor—are hurt the most, since employers are less likely to hire them at this new, higher wage. As a result, a law that was passed out of compassion for the needy produces higher unemployment and more deprivation.
The results are similar with rent controls. In this case, a law is passed to make housing more affordable for those with low incomes. Again, this sounds reasonable and compassionate. The actual result of such a law, however, is to reduce the supply of affordable housing. By setting a ceiling above which rents cannot rise, such laws prevent landlords from earning returns comparable to other investments, such as stocks or bonds, that require less time and fixed capital. Thus, investors are discouraged from building new low-income housing or maintaining properties they already own. Once again, a law that was passed out of a sense of compassion for the poor does the greatest harm to precisely those it is supposed to help.
One is led to ask: If we really care about the less fortunate members of society, why do we pass laws and implement policies that make them worse off than they were before? It would be far better practically and morally to abandon this blind faith in the state’s ability to help the poor, and search for a better way to assist those in need.
For example, instead of a government-mandated minimum wage, we should allow employers to pay what they believe the labor in question is worth, in light of competitive market conditions. Admittedly, there will be people who will be earning less than what many would consider “decent,” but isn’t it better that these people be employed at a job paying $3.00 or $3.25 an hour, and thus gain the experience needed to advance and earn more, rather than be unemployed under a system where the government has decreed that wages cannot fall below $4.25?
Similarly, we would find that a free market in housing is the best way to alleviate the crisis in low-income housing. Whereas now in many cities the only area of housing attracting investment is high-income housing, rent decontrol would restore the profit incentive to low-income housing. We would find that, at least initially, the costs of low-income housing in cities currently practicing rent control would probably rise but, as investors re-enter the field, competition from new and refurbished housing would drive rents lower.
There is nothing wrong with feeling compassion for the poor. Human charity, so long as it isn’t coerced, is admirable. Problems develop, however, when compassion is misdirected into policies that actually worsen the plight of the poor. If this compassion is genuine, then those who feel it must abandon these policies and recognize that the best remedy for poverty lies not in a larger and more powerful government bureaucracy, but in an expansion of the free market and the opportunities it provides for everyone.