These musings gathered after reading many good economic blogs recently.

The newspapers are filled with articles describing how gasoline price increases are causing a financial burden on American families. They describe how households are substituting away from luxurious but thirsty SUVs and into thrifty but uncomfortable compact cars as households exhibit the substitution effect of a price increase. They bemoan how the American family is responding to the financial pain from their lower effective income by spending less money on food, clothing, entertainment, etc. as households exhibit the income effect of a price increase. The pundits state that economically burdensome gasoline price increases must therefore be rolled back because any perceived “market failure” automatically justifies market intervention, so they call for various actions effectively resulting in our government imposing a price ceiling. (Apparently, they forgot that it was government price ceilings that caused the gas shortages and long waiting lines at gas stations during the 70s “oil crisis.”)

Yet, the same newspapers are filled with articles describing how the latest increase in the minimum wage will produce an economically painless benefit that will help poor households headed by undereducated and inexperienced workers. They never consider that employers will respond to the imposed increase in labor costs by substituting away from unskilled and inexperienced laborers and into more automated production processes as businesses exhibit the substitution effect of a price increase. They also ignore how employers will respond to the financial pain of effectively lower profits by offering less of the customer service that was previously provided via unskilled laborers and investing less in future business expansion that would otherwise provide for more future jobs as businesses exhibit the income effect of a price increase. The pundits still conclude that financially burdensome low wages for unskilled workers must be propped up because any perceived “market failure” automatically justifies market intervention, so they applaud our government imposing a price floor. (Apparently, they forgot that it was government subsidies to raise the price of corn used for ethanol that made corn used for food to be more scarce and more costly in the U.S., as well as in many developing countries.)

Then I remember having once read a James Buchanan quote coining the phrase “Bifurcated Man” to describe the paradoxical paradigm often adopted by many Political Science models used to compare government versus private market allocations: Individuals making resource allocation decisions in the marketplace were assumed to reflect only selfish interests and ignore the public good. Yet, when these same individuals would make the such choices in the political realm of a democratic republic, they were assumed to suddenly sprout the “wings of angels” as they drew closed the curtains of the voting booth, denying themselves as they make decisions only promoting the public good. Both assumptions were used to justify calls for a greater level of government involvement in our economy.

However, I think I have discovered Bifurcated Man paradigm, version 2.0, which must be a paradox upgrade in vogue with today’s media pundits: When individuals organize themselves as family households, their rational responses to the severe and unfair economic realities of life can be perfectly described by basic economic principles, and the significant magnitude of harm done to the public good can be readily observed. However, when these very same individuals organize themselves as businesses, their responses to the economic realities of life can only be characterized as irrational, rendering basic economic principles impotent in describing their behavior. Yet the significant magnitude of harm done to the public good can still be readily observed. Both assumptions are then used to justify a greater level of government involvement in our economy.

So in the end, it seems that whatever the problem is, more government is always the proper solution... always.

Cue gravelly voiced actor Sam Elliot: “Rationalization—it’s what’s for dinner.”