Monday, October 10, 2005

Laissez faire?

Writing about "Remedies for New Orleans" in today's WSJ, Edmund Phelps reiterates his enthusiasm for labor subsidies.

"One kind of remedy would be to universalize the earned income tax credit so it addresses all low-wage men and women equally. The other kind of remedy, one I and others have proposed, is an employment subsidy to employers, giving them an incentive to hire more low-wage people and thus bid up their pay in the process. I need to stress that a subsidy here is a sort of matching grant, paid out for doing something -- it is not a hand-out, not is it like the so-called subsidy to farmers for not planting. (Mr. Bush's enterprise zones are effectively schemes to subsidize capital, which is the wrong lever, yet no one shrinks in horror at those subsidies.)

"Federal subsidies of these two kinds may be justified on the same ground as federal infrastructure. The consequences when the working poor are consigned to a laissez-faire labor market -- impaired schools, drug use, crime -- impose external costs on the rest of society. A rights-based case for such a subsidy exists too. (There is no good case, though, for a handout, which undermines work and integration.)"

What is the great man thinking? First, do we know which "lever" gives us more bang for the buck? Second, what "laissez faire"? These days, governments in the U.S. compel the poorest to attend the worst schools. And drug policies are anything but laissez-faire and create crime-ridden underground industries.

As long as we espouse new policies while characterizing the status quo as anything resembling "laissez-faire", we are flying blind.