Squeezing small businesses and increasing unemployment

http://reason.com/blog/2010/04/24/murray-rothbard-on-the-ingenio

Tim Cavanaugh at Reason posts a reminder from Murray Rothbard regarding government interventions which hurt workers and small businesses. The article is about the folly of the VAT tax, but the principle involved applies to most government intervention in free enterprise.

I once had a boss who at one time was VP of Overseas Operations at Ford Motor Co. He was fond of saying, " A company's overhead walks in the front door on two feet -- everything else is marginal." So, governent is complicit in high unemployment to the extent it adds costs to a company's operatng expenses.

I witnessed this in the healthcare field when I was in a management position. A company can't always raise the price of services to cover added operating costs, but it can cut certain services and fire workers, and it will when forced to do so. I was forced to fire people I didn't want to fire. The over-powering regulations eventually put half of the specialty hospitals like ours out of business -- this pushed these services to the state where inefficiencies abounded and the services were then paid for by tax payers.

Politicians hardly ever understand how businesses work, so the simplistic idea that they can place this regulation and that regulation on businesses, or this tax or that tax, and simply control the companies or raise revenue is misguided. For every regulation and tax, there's a reaction in the companies which feel the effects. Small businesses are always hurt more because they don't have the ability of large companies to absorb the extra operating expense.

What happens when government adds to the operating costs of businesses is that it puts the companies in a bind, and, often, good people have to make tough decisions, which usually entail firing or laying off workers -- then the companies are vilified for being heartless and greedy.

The main point Rothbard intended, and the main point I'm making, is that the focus of blame should go where it belongs -- government intervention and taxation. When we consider the extraordinary waste and corruption in government, it makes it worse to consider that some measure of unemployment can be directly tied to this waste and corruption. As government becomes more bloated and interventionist, the extra costs are paid for in an indirect way by taking paychecks away from American families. I beleive this connection is understood by more and more people now that unemployment is stubbornly high.