Today’s Worries And Tomorrow’s Wealth

How much government do you want? Invariably, you live with the answer that the past has chosen.

Our current decade has introduced me to a political stance I’ve come to think of as “fair-weather libertarianism.” In the previous decade, manufacturers were busy, and many cried that government should get out of their way. But during the recent period just after 2000, when business was much worse for a time, some of these same voices called for government to protect the interests of U.S. manufacturers.

Such protections are sometimes called “barriers.” Tariffs and other restrictions are referred to as “trade barriers,” for example. In truth, the word deserves even broader use than this. All government involvement represents a barrier of some sort. Regulation creates a barrier to entering an industry, for instance, because compliance raises the cost of doing business. Government support even represents a barrier of sorts, because the activity supported becomes artificially more lucrative, thus hindering resources from finding their way to other activities that would be profitable on their own.

Congress recently issued a report that identifies an unseen consequence of this involvement. Called “Productivity: The Path To Prosperity,” the report (www.house.gov/jec/studiesindex.html) identifies a problem and a solution. The problem: The slowing growth of our labor force could prevent the nation from increasing its wealth in the future. The solution: Through strong productivity gains, the increased wealth might be generated by a smaller number of workers.

“Productivity” measures the average economic output per worker. When productivity grows, it grows because of new technologies, new ideas, reorganization, reallocation and other changes that can’t be predicted until they come. In the U.S., productivity has grown at an average rate of 3.52 percent per year during the past 10 years. That’s high compared to the 20 years before that, when the average annual growth rate was 1.46 percent. Thanks to the more recent, higher rate, the average worker today is producing 40 percent more output than the same hypothetical worker did in 1996.

How can we continue to enjoy such a high rate of productivity increase? Other industrial nations offer a clue as to what not to do. Their rates of productivity growth are significantly lower because of their greater burdens of government regulations, incentives and protections for businesses and labor groups.

To be sure, government exists for a reason, and some government involvement is a societal good. Just laws protect the innocent from harm. However, every attempt to protect the economic interests of a certain industry or group also tends to preserve the status quo of that industry or group, keeping away the positive changes.

We write our rules in response to our worries of today. The hold on tomorrow that we create in this way is worth considering, too. In allowing too much regulation and intervention to accumulate, there is a danger of building a barrier we would never have wished for—an impediment that stands in the way of realizing wealth in the future.