Ken's Law of Economic Regulation

From the Alien Landscape Weblog:

You cannot regulate only one side of an economic exchange. Any law or regulation stated in terms of limiting the actions of one side can be restated in terms of limiting the actions of the other side without changing its meaning or effect.

A (voluntary) economic exchange happens when both sides prefer the terms to all of their available alternatives. Thus, any regulation that forbids certain terms will act to limit the options of both sides.

A few examples will illustrate this law:

Suppose you have a law that states "employers must pay time-and-a-half for all hours over 40 worked in a week". That can be restated as "employees must charge time-and-a-half for all hours over 40 worked in a week". A law that says "Employers must not pay less than $4.75 per hour" is equivalent to one that says "Employees must not charge less than $4.75 per hour". A law that says "Employers must provide health benefits to all employees working at least 40 hours per week" means the same thing as "Employees must demand health benefits whenever they work at least 40 hours per week", or equivalently "Employees must not work 40 or more hours per week for the same employer unless that employer agrees to grant health benefits".

As you can see, employment regulation intended to "protect" the worker removes several of his options and forbids him from making several classes of exchanges that he might otherwise profit from.

Consumer regulation is subject to the same law. If you have a law that states "All new cars sold in the United States must have airbags", you might as well be regulating consumers with a law that states "All consumers buying new cars must also buy an airbag". A law that states "Drug companies may not sell drugs that haven't been approved by the FDA" is the same as one that states "Consumers may not buy drugs that haven't been approved by the FDA". Again, "consumer protection" acts to the detriment of the consumer by limiting his options.

This argument is quite profound and is too often overlooked. In addition to the above examples, another is that a law forbidding companies from paying employees at $3/hour in Thailand should be restated as a law forbidding Thai workers to charge $3/hour for their labor. Similarly, when I tried to point out an application of Ken's Law to the minimum wage, some people responded somewhat angrily. They argued that people 'need' a certain amount of money to 'subsist', that coercion is justified because of democratic sanction, that there is no 'perfect information', etc. All of these arguments have different degrees of validity, but they are all irrelevant to the point I was making: As a consequence of Ken's Law of Economic Regulation, minimum wage laws forcibly prevent a subset of workers from working.

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