The Key 2 Liberty involves learning the principles of freedom for yourself and then sharing your knowledge with others.

Free Markets

Examples of government regulations that oppose free market principles

Unfortunately, a comprehensive list of the laws and regulations created by the government that oppose the principles of free markets would, without exaggeration, be tens of thousands if not hundreds of thousands of pages long and the average person simply does not have enough time to read that much information.  This section will list some of the most obvious deviations from the principles of a free market system that are found to exist in the Unites States.

Minimum wage laws

It may sound cruel to say that there should not be minimum wage laws at either the state or federal levels of government but one has to understand the cause and effect relationship such laws have on the free market system.  Minimum wage laws are simply deceitful mind games wealthy politicians and bureaucrats play with the poor.  They are used to win elections and to demonize those who disagree with them.  As mentioned in a prior section it is impossible for the government to change one part of the supply, demand, and price relationship of products or services in a free market without affecting another part of the free market system.

The primary excuse for instituting a minimum wage and then consequently having to raise it on a regular basis in order to keep up with inflation, which is caused by the monetary policy of the Federal Reserve System and is an entirely different topic of discussion altogether, is that wages for low skilled jobs are unfair and that owners of businesses take advantage of them by intentionally paying them low wages.  The politicians then rally the masses and pass minimum wage laws to make the system “fair” for the working class.

But what really happens after a minimum wage law is passed?  The low skilled workers get a temporary feeling of satisfaction that they have enabled themselves, through the marvelous process of “democracy”, to each get a larger piece of the pie of the profits of the companies they are employed by.  But when these individuals go to the grocery store to get steak instead of ground beef they find that the price of ground beef, steak and everything else has gone up in the same proportion as the amount of the last pay increase and are able only to buy the same kind and amount of goods as before.  What happened?  Of course minimum wage laws affect all low skilled workers the same.  The person working the fry station at the local fast food restaurant got a raise in pay so the fast food store had to raise the prices of their food to compensate for it.  At the same time the grocery bagger got a raise in pay which caused the grocery store to have to raise their prices.  And the same happened for every other company that uses low skilled jobs.  The net result was a few sly politicians were able to secure positions in the government and continue the practice of looting the people’s money by continuing to cover up the symptoms of inflation instead of solving the root problem which is creating money out of nothing and expecting it to be worth something.

Almost every type of business uses some amount of low skilled labor to create their products and provide their services.  When entry level people get pay increases companies are forced to give higher level positions pay increases also.  You can’t have entry level people making the same amount of money as higher skilled positions.  Human nature simply doesn’t work that way.  So when the entry level person at a construction outfit gets a pay raise as a result of a minimum wage law the construction outfit has to raise the pay of every other position; the journeyman, the crew foreman, the project manager, the estimator, and so on all the way up to the top.

Another disastrous consequence of minimum wage laws working in conjunction with “free trade” treaties is the loss of American jobs.  When the minimum wage is increased for American businesses, Americans need to keep in mind that other countries are not bound by our laws and as a result certain products will no longer be able to be made in the United States for the basic reason that the product will actually be able to be manufactured in a different country such as Mexico or China and shipped over tax free cheaper than an American company can produce the same product.

The argument that if minimum wage laws are not passed then companies will pay their employees unfair wages is totally fallacious.  In a properly operating free market economy, if we can ever get back to one, companies have to compete with each other for a shortage of labor.  When this happens the forces of supply and demand will naturally raise the pay level for low skilled jobs which in turn raise the pay level of higher positions.  Companies that have a higher demand for labor will have to coerce people to work for them by offering a higher wage.  The key is to get the government at all levels; local, state and federal to remove restrictions on businesses so that the economy can flourish and cause companies to have to compete for a shortage of labor.

Prevailing wage laws

Prevailing wage laws are laws that require companies that employ workers of certain professions, primarily construction related businesses such as plumbing, electrical and carpentry businesses, to pay their workers a wage that is typically much higher, sometimes even double, than what the free market would normally support.  Prevailing wage laws are similar to minimum wage laws in that the government thinks it knows best what certain types of industries should be paying their workers instead of letting the free market decide.  It’s just another example of the government picking the winners and losers of the economy.

In 1931 the Davis–Bacon Act became law and requires that all people who work on federal construction projects be paid the local prevailing wage which is loosely defined as the “normal” wages including benefits that are paid to certain types of workers for a certain geographical area.  The prevailing wage pay scale of the various types of workers such as electricians, plumbers, etc. is determined by regulatory agencies set up by law.  These agencies historically have had close relationships with labor unions that typically demand that workers be paid labor rates much higher than the free market would normally support.  Many states have passed similar laws at the state level to mandate prevailing wage laws for state funded projects and for county and city projects.

It may sound benevolent that the government wants to insure that all construction workers are paid “fair” wages for their work but it is important to acknowledge the secondary effects that are caused by the government dictating the wages of a private company’s employees and directly interfering with the free market system.  First of all, it is not the responsibility of the government, especially the federal government, to decide what people are to be paid that work in certain professions.  The role of the government, at least in a country that is based on the principles of freedom and liberty, is to protect our lives, liberty and private property.  When the government dictates the wages that certain types of companies must pay their workers those companies immediately lose the ability to reward their most productive workers.  When all of the employees of a company with similar skill or experience levels are paid the same regardless of their productivity and accuracy the level of ambition for the more productive workers to do the best possible job they can do will be greatly diminished.  Why would a person try harder than someone else if they are not going to be paid more for it?  For example, why would an electrician that has the knowledge and ability to correctly wire 15 light fixtures per day continue to work at that rate of production when someone who only wires 10 lights per day is getting paid the same amount?  After a while the electrician that is able to wire 15 lights per day starts slowing down to match his coworker’s 10 lights per day so that he feels he is getting paid “fairly”.  People that are paid a guaranteed rate of pay based on some scale determined by a government bureaucrat will normally only complete the amount of work that is absolutely required of them and no more.  There is no incentive to work harder or smarter when you have a guaranteed pay scale.  This is the opposite of what is experienced with a merit based pay system.

Under a merit based pay system people are paid depending on their abilities to perform the needed task.  People that produce more get paid more and as a result people working under a merit based system will naturally be inclined to work their hardest and compete with each other to do the best possible job they can do.  A work environment that pays people more for producing more will also motivate them to increase their skill level so they can become more productive and thus more valuable to their employer.  An employer using a merit based pay system will naturally tend to pay those who produce the most decent wages in order to retain them so they will not be tempted to look for employment at another company that may be willing to pay them more.

So in general prevailing wage laws raise the cost of construction projects directly due to the higher cost of labor and indirectly by creating a work environment that does not encourage the most productive employees to work and therefore produce at their maximum potential.  Since most construction projects that are required to pay prevailing wage rates for the workers are government projects this means every government building or structure at the federal level and depending on the state every government building or structure at the state, county and city levels will cost the taxpayers more money.  Even worse these projects are normally funded by loans that will continually burden the taxpayers in the future when the interest payments on the loans become due over the years and must be paid with further tax dollars.  Prevailing wage laws directly interfere with the free market and should be abolished at all levels; federal, state, county and city.