A change in the price of any one or a few consumer goods has much less impact on the well-being of an individual than does a change in the price of what that individual is paid for what he produces or for the labour services he sells. As a consumer I’d obviously prefer that the price of my favourite hamburgers or music downloads not rise by 20 percent, but such price hikes won’t harm me very much. In contrast, as a producer I’d suffer substantially if my income fell by 20 percent. I’m much more likely to complain bitterly about—and to resist—a fall in my income than I am to complain about and resist a rise in the prices of the things I buy as a consumer.
Politicians in democratic countries naturally respond to these concerns. People’s intense focus on their interests as producers, and their relative inattention to their interests as consumers, leads them to press for government policies that promote and protect their interests as producers. If government policies that protect people’s interests as producers are limited to keeping them and their factories, tools, inventories, and other properties safe from violence, theft, fraud, and breach of contract, then there is no danger. Indeed, such protection of producers—along with assurances against their being taxed and regulated excessively—is essential for economic prosperity. Trouble arises, however, when government seeks to protect producers (including workers) from market forces—when government aims to shield producers from having to compete for consumer patronage. Such protection promotes not free-market capitalism, but crony capitalism.
For government to ensure that some producers—say, wheat farmers— suffer no declines in their economic well-being requires that it restrict the freedoms of consumers, of other producers, or of taxpayers. Special privileges granted to wheat farmers must come in the form of special burdens imposed on others.
Consumers who exercise their freedom to buy fewer loaves of wheat bread (say, because they have grown to prefer rye bread) will cause the incomes of wheat farmers to fall, and may even cause some wheat farmers to go bankrupt. To protect wheat farmers from this consequence of consumer sovereignty obliges government to take steps to artificially prop up the demand for wheat. To artificially prop up the demand for wheat requires, in turn, policies such as punitive taxes on rye farmers (to discourage them from producing so much rye), restrictions on the importation from foreign countries of rye, or even requirements that consumers continue to buy at least as much wheat bread today as they bought yesterday.
Whatever particular policies government uses to protect wheat farmers from the consequences of consumers’ voluntary choices, this protection must come at the expense of others. Other people—either as consumers, as producers, or as taxpayers—are also made a bit less free by government’s effort to protect wheat farmers from the downside of economic change.
If government protects only wheat farmers from competition—if government exempts only wheat farmers from having to follow the same rules of a market economy that are obeyed by everyone else—the resulting damage to the economy (especially in large advanced countries such as Canada and the United States) will be minimal. Wheat farmers will indeed each be noticeably better off as a result, while almost everyone else—as individual consumers or taxpayers—will suffer so little as a consequence that the pain might well go unnoticed.
Politicians will receive applause and votes and much other political support from wheat farmers without suffering a corresponding loss of popularity, votes, and political support from non-wheat-farmers. Politicians will then find it easy and attractive to gain even more political support by granting similar protection to some other producer groups—say, to steel workers or to airline pilots.
As government exempts more and more producers from the rules of the market—that is, as government relieves more and more producers from the necessity of having to compete, without special privileges, for consumers’ patronage, and to enjoy the benefits of their successes and suffer the consequences of their failures—the total costs of such protection rise and, hence, become increasingly noticeable. The slowdown in economic growth for ordinary men and women becomes conspicuous. People grow more concerned about their economic futures.