IT is generally conceded that the first law of economics is the law of supply and demand, while cynics maintain that the first law of politics is to ignore the first law of economics.
Although most political parties endorse that economic law, history shows that they generally avoid using it, preferring to legislate a result instead.
Items as diverse as potatoes and taxis have had their operations subject to complex legislation designed to – wait for it – balance supply and demand.
The supply of both commodities was restricted in the past by mandating a licence to supply them, with government selling extra licences when it believed demand wasn’t being met.
Like all such moves, the licences develop a life of their own, with operators desiring to either enter the industry or increase their stake in it, paying enough dollars to persuade an existing licence holder to sell.
In other words, the benefits that were supposed to flow to the holders of a licence have either been diminished or lost because of the costs associated with obtaining and servicing the necessary capital to buy said licence.
An economist would tell you the supply of potatoes and taxis could rise and fall without government interference, simply by allowing a free market to operate.
I was in New Zealand many years ago when the government deregulated its taxi industry, so that anyone with a driver’s licence and a licensed car could ply for hire unhindered.
The market, or more precisely the consumers, soon sorted them out, for they refused to hire any sub-standard car and/or sub-standard driver, so within a short time the cities had an adequate supply of late model cars with uniformed drivers gaining virtually all of the business.
Our hapless Prime Minister is in trouble again over a report into penalty rates, with its recommendations not only complying with Liberal policy but in line with the first law of economics as well.
It should have been a no brainer, but super cautious Malcolm Turnbull was too scared to make a decision, concentrating on the effect that reducing penalty rates would have on those lucky enough to receive them.
He doesn’t seem aware of the benefits that the payers of penalty rates would receive and the jobs that the unemployed could gain as a result of reduced penalty rates, being spooked by threats from the unions and the ALP.
Most people probably prefer to retain their weekends for rest and recreation, but there are others who like to relax on weekdays when most are at work.
A free market would first determine whether normal rates of pay would attract sufficient workers, and if not, then wages would have to increase to the point where enough workers agree to work nights and weekends.
Legislation ensures minimum rates of pay to protect all workers, so the task of market forces is only to determine how much extra money was needed to meet the demand for these workers.
Legislation enacted by a previous federal Labor government requires four yearly reports into modern awards, yet even with a positive result that complies with Liberal policy, Mr Turnbull and friends lack the “ticker” to endorse it.
An economist is taught that intervention by government in the marketplace should be restricted to occurrences of market failure, with legislation then being required to guarantee consumers the fair results that the marketplace generally delivers.
Increasingly, what economists see as the last option, politicians see as the first.
