I Think We Need a Bigger Truck (and Other Market Inefficiencies)

““If you ever crawl inside an old hollow log and go to sleep, and while you’re in there some guys come and seal up both ends and then put it on a truck and take it to another city, boy, I don’t know what to tell you” – Jack Handey

My Dad used to tell a joke about two fellows who hatched a plan to start up a small-time corn distribution operation (bear with me – jokes don’t always do well in print, and I’m telling it for reasons other-than-humor). They’d buy corn from the farmer, for 50 cents an ear, load it in the truck, drive across town, and sell it for 50 cents an ear. After a few weeks and some minor calculations they discovered that they weren’t making much money. At this point one turns to the other and says “I think we need a bigger truck.”

Chuckle. The point obviously is that they had not ascertained anything about the nature of profit. Not only were they not making any money on the trade, they were accruing expenses all the same. The “bigger truck” canard is an attempt to throw water on the notion that “volume” solves everything.

Today we take up the notion of inefficiencies in the marketplace – especially inefficiencies that take the form of freedom-denial. The first, which is reminiscent of the corn-truckers centers on a story from MSN about how working a job costs you money. The gist is this: If you lose your job you can collect unemployment at about half your prior pay. If you could find another job at your old salary, perhaps you’d take it. But how much less would you take? I would almost surely take much more than half your former salary to get you to work instead of taking the unemployment.

It’s more than just the notion of working for what you could otherwise have for free. No, the article lists five ways that the job costs you money:

  • Transportation ($6000 a year on average)
  • Child care (which can cost up to and over $10,000 annually – per kid)
  • Clothing (you can sit on the couch in your underwear … don’t try that at work)
  • Food (this is easier to address, but you will still generally eat more expensive food at work than you would at home)
  • Charities (there are lots of, umm, “opportunities” to give at work. From work-sponsored charitable drives to fundraisers for a co-worker’s children)

Now, I’m not pointing to these to indicate that the government should fix these issues too. I’m merely noting that you’d have to make well over 50% of your former salary to justify going back to work from an economic standpoint.

This is a clear inefficiency. If the unemployed didn’t draw a single red cent of benefits, then they’d go find a job for less. Market pressures would drive wages down to where they were consistent with productivity and unemployment would drop dramatically. But that would mean freedom, and we can’t allow that … somebody might get hurt.

I’m not implying that somebody is immoral for taking the benefits. Not at all. If somebody’s throwing cash, by all means stand in front of them. By the same token, if the government is going to consistently destroy economic efficiency with tax-and-redistribute policies, the least they can do is give some back to you when their policies eventually cause you to lose your job (consider I am Firmly Opposed to Face Punching).

With the exception of child care (if you set up a flexible spending account) and charities, the items in the list constitute after-tax dollars. That is, you have to work, pay taxes, and then procure these items.

While we’re on taxation, let me note that taxation represents a market inefficiency all to itself. Note, I’m not talking here about government spending – which is the real measure of tax burden. Rather, I’m considering taxation of production, or of certain types of production.

In a free market, people are “encouraged” by nothing other than efficiency to specialize in their strong suits. If you can make 6 cabinets a day, but only 3 widgets, while I can make 4 cabinets a day and 7 widgets, then we’ll split up and handle the markets needs for these products. You’ll build furniture and I’ll make widgets, and then we’ll trade the two.

Taxation puts the dampers on this. If trading your 4 cabinets on the market incurs a cost of 1 whole cabinet, then you really only get 75% of the benefit of your extra cabinetry production. The same is true with my widgets. You may find that it is cheaper to just build the widgets you need yourself, instead of building extra cabinets, paying the taxes, and trading with me (depending on the cabinet-to-widget exchange rate).

Taxation does not apply equally to production, only to bartered production. (Even then it does not apply equally – our system has been “progressive” in nature for some time.) If I build cabinets or a deck (or a computer for that matter … no giggles, please) by myself and for myself, I don’t have to pay taxes on my production. Only if I want to barter it with you.

This is a clear pressure on providers of various services that can plausibly be done by just about anybody, though not efficiently. Tree removal, appliance installation, carpet cleaning, house cleaning, child care, and a slew of other services all face a significant drag from both taxation and unemployment benefits.

(Side note, there have been a number of articles out recently about the growing costs of child care. One, that I can’t seem to place my finger on just now, claimed that it is actually driving women out of the work force.)

So, let’s end all taxation! OK, maybe it’s not that simple. There is certainly an economic benefit to some taxing and spending. I’m not talking about unemployment benefits, which I suspect serve absolutely no economic purpose whatsoever (they serve a political purpose). The basic structures of law enforcement are certainly useful from an economic standpoint though. I, with Frederic Bastiat, hold that collective defense of individual rights to life, liberty, and property is the proper role of government. This does cost some money, and I don’t at all mind taxing and spending for this purpose.

The rest though … well, it’s largely an economic waste. Some will make a moral argument for spending – an argument we work hard to dispute, based on morality and the Golden Rule.

So, why the diatribe on unemployment benefits and tax policies? President Obama is due to produce a proposal for a “jobs bill” later this week (or early next week). We wait with baited breath to see if any of his proposals revolve around letting productive people reap the benefits of their production, and leaving them free to choose what economic interactions they will …

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One Response to I Think We Need a Bigger Truck (and Other Market Inefficiencies)

  1. steve says:

    A real life example to go along with the first part of your post regarding working or sitting around in your underwear.
    A friend of mine who owns a franchise for a national “royal” ice cream chain is having trouble hiring enough people to operate the facility this fall. With high school and college students going back to school, he lost a number of the full time summer help and his pool of potential employees dropped. On at least two occasions now, a potential employee, during the interview process, has stated “I need to make blank dollars an hour (the value was about 20% over minimum wage if I recall what my friend told me) in order for me to come to work for you. I can make more money staying on unemployment.” So now my small business owning friend is in a pickle. Not enough employees or pay more than he can afford for the wage (the business is currently pretty efficient and is breaking even for him).

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