A team of engineers and an unusually high tide freed the Ever Given, the container ship that blocked the Suez Canal for six days, on Monday. Obstructing the canal that facilitates 13% of world’s maritime trade not only educated Americans about the international dimensions of our economy, it also served as a metaphor for the artificial constraints, taxes, and regulations that block so many people from participating in our economy.
“Engineers raced throughout Monday to finish the job of dislodging the Ever Given after partially refloating the ship at dawn, taking advantage of an unusually high tide to make the job easier,” reports the Wall Street Journal. Apparently, it’s true: A rising tide lifts all boats. By that point, the jam had trapped more than 360 ships, representing an estimate $9.6 billion in trade. That is where our metaphor comes in.
In real life, the economy begins with the human person, and economic activity is human action. When a person finds his God-given talent, he searches for someone who will pay him to exercise it. When a person feels a need for an economic good or service provided by someone else’s talents, he will offer to pay for it. If the two parties – employee and employer, or buyer and seller – can agree on terms, a voluntary exchange takes place that enriches everyone.
Think of the economy as the Suez Canal and economic activity as the water. Without enough activity, individuals can get lodged into the shallows, but a torrent of exchange dynamically circulating through our economy can free those people to reach their chosen destination. Economic boom times, like the era just before COVID-19, allowed members of the most marginalized communities to achieve historic financial gains. A combination of tax cuts and deregulation kept the economy moving, reducing overall unemployment to a 50-year low of 3.5% and creating record low black and Hispanic unemployment rates.
But a number of factors can partially or completely block the economy for others. New policies formed by misguided “equity” ideology would actually backfire, costing some members of minority groups the jobs they have. As Warren Buffet said, “Only when the tide goes out do you discover who’s been swimming naked.”
Rather than facilitate this voluntary process of exchanging goods and services, the government often wants to direct its ebb and flow. Politicians set parameters and, like King Canute, bid the tides to obey. But unlike the Danish king’s legendary decree, politicians and bureaucrats can affect the overall economy. Each new tax, regulation, and round of currency inflation (rebranded as “quantitative easing” or Modern Monetary Theory) drains the canal a bit or constricts its passageways.
Take proposals to raise the minimum wage. If you want to hire someone – and that person would be willing to work on the terms you offer – that’s far from the end of the matter. The government wants to assure that you cannot pay someone less than a minimum amount, even if you’d both willingly settle for less. Similarly, politicians may require a certain level of fringe benefits for full-time employees. If the job-seeker’s productivity creates less wealth than his artificially raised compensation would cost, that person is not hired; if this is an existing employee, that person is fired. “There is no inherent reason why low-skilled or high-risk employees are any less employable than high-skilled, low-risk employees,” said economist Thomas Sowell. “Someone who is five times as valuable to an employer is no more or less employable than someone who is one-fifth as valuable, when the pay differences reflect their differences in benefits to the employer.” Large corporations favor a higher minimum wage, because it advantages them against smaller competitors – and sometimes, against one another. But those at the bottom of the socioeconomic ladder get lost in the paper shuffle.
Unfortunately, in our scenario, government policy blocks one person’s pathway to self-sufficiency until he can create enough wealth to merit hiring. The discouragement of being told he or she is “unemployable” may convince the applicant to drop out of the labor force permanently, like a rising number of Americans, possibly becoming a public charge. That wealth transfer, in turn, lowers the water level even more.
Higher taxes work the same way, bleeding the canal a little bit at a time. Economist Arthur Laffer sketched his famous Laffer Curve in 1978. He found that, above a certain rate, raising taxes actually brings tax collectors less revenue. This truth, which has been borne out throughout North America, means that higher taxes discourage economic activity, lodging the tax code sideways across the canal of commerce.
Government regulations can also narrow the turn radius. Federal regulations cost the U.S. economy a total of $1.9 trillion in 2020, according to the Competitive Enterprise Institute. However, the burden does not fall evenly. Ironically for our metaphor, the larger the “ship,” the better equipped it is to navigate the waters. Large corporations can afford to hire enough lawyers, accountants, and experts to assure regulatory compliance – as large shipping companies can invest in superior radar and steering equipment; small and medium-sized businesses have no such margin. Small wonder the most gargantuan corporations support the costliest federal regulations. All those people who were fired or never fired by firms of all sizes due to regulatory compliance find their forward motion blocked, not coincidently, but as the foreseeable outcome of interventionist economic policies.
Another barrier may come when government officials demand an occupational license for services that pose little threat – like braiding hair – locking out those who cannot afford the time or expense of the credentialing process.
Government is not the only force that can affect these waters. To earn their dues, labor unions negotiate for the maximum salary, benefits, and working conditions they can exact from employers on behalf of union members. When possible, they pass “closed shop” laws restricting employment to union members or compelling non-members to pay a portion of union dues. Union-negotiated labor agreements may demand pay or other benefits – such as paid time off, tuition reimbursement, or pensions – so excessive that employers cannot hire as many employees as they had intended. The people who would have otherwise had a job, but refused to join a union or lost the opportunity due to excessive compensation, can see that the ship stopping up their escape route bears the union label.
Thankfully, a team of engineers finally freed the Ever Given and removed the blockage holding back hundreds of ships, containing precious cargo – including a million barrels of oil and 8% of the world’s liquefied natural gas (LNG) daily. We, too, must clear the way of excessive taxes, never-needed regulations, and economic interventions that prevent millions of individuals locked out of reaching their potential and serving others. Every human person has an incalculable treasure to share with the world around them.