Abolishing Natural Laws

Like a bad penny, articles on BPO and its backlash keeps turning up again and again. The best I have seen so far was a New York Times article by Hal Varian of UC Berkeley called What Goes Abroad Usually Comes Back, With Benefits. (Thanks to Reuben for the link.)

A friend, Karen, at the Johns Hopkins University wrote to say that she is afraid that the US will pass some stupid legislation that will hurt all concerned. Will it happen? I don’t know for sure. Perhaps it is election-year posturing and each candidate is trying to out-do the other in their expression of concern for the poor out-of-work white-collar worker. Once the elections are over, better sense will prevail and it will all be so much water under the bridge.

But maybe the issue will not go away. Perhaps legislation willbe passed which will restrict the free trade of services offered remotely. Legislation can impede markets and it generally hurts the economy. Sufficient amounts of restrictions add up to impoverish a nation, one such case in point being India. India is poor due to poor legislation of the type I call the “head in the sand” legislation. Legislation which tries to avoid facing inconvenient truths has a long and cherished history all over the world. One US state (I forget which) even went to the farcical extent of legislating the value of pi to be exactly 3 and did away with all the inconvenience of handling an irrational
number.

Markets were invented by humans because it affords some advantages to parties that participate in them. The prime engine that drives markets is human nature with its drive for profits. One cannot legislate a change in human nature any more than one can legislate a more convenient value for pi. It is of course possible to make some activity which is otherwise socially beneficial illegal because of special circumstances. But people will find a work-around in time. In a world of networks of networks, it is difficult to keep barriers up for too long.

The bottom line: legislate all you can but the Samuelson-Stolper factor price equalization theorem cannot be overturned by fiat.