If each individual has the opportunity to exploit his or her own comparative advantage which means that they have the opportunity to do what they do best relative to other people. That means that there should be no artificial restrictions on the division of labor, on what can be traded and sold, and so forth. That's the most general condition.

Cato Institute Chairman Emeritus and Senior Economist, William Niskanen

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For people who keep their jobs, they have higher wages, but they typically end up with lower benefits because the employers try to economize on having been required to pay higher wages by cutting the non-wage compensation of the people who stay employed. For the people who either can't stay employed or are not employed with a higher minimum wage - those are usually lower-level workers or new workers, new people in the labor force - in their case the unemployment rate is up. I can't find anything good to say about the higher minimum wage. It's an illusion to believe that we can significantly raise average wages by putting a minimum on them. But that's been the rational behind the minimum wage raise for a long period of time and it's just wrong.

Cato Institute Chairman Emeritus and Senior Economist, William Niskanen

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I think the primary role is to enforce property rights and contracts. In order to have a meaningful market and property, you have to have clear, enforceable property rights and contracts are necessary to have any kind of market so that's the primary role. In addition, the government should be responsible for trying to minimize the amount of coercive activity in the economy and the amount to which those in any particular outside economy can have a coercive influence here. The latter basically means that you have to have an effective, honest, strict, forward police force, law enforcement and defense establishment. I think you have to limit the power of government because the incentives of the people within the government are very likely to try to expand their role. Members of the government are basically compensated as a function of the size the organization they run, rather than its net returns, so their incentives differ in this way to the private sector.

Cato Institute Chairman Emeritus and Senior Economist, William Niskanen

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Private unions don't play much of a role anymore. The percentage of the private labor force that is unionized has dropped precipitously since 1950, but the dominant effect of the unions right now is in the public sector and that has led to an appreciable increase in the relative compensation of public employees vs. private employees and increases the amount of expenses for government. There are still some powerful unions in the private sector but in many cases those powerful unions have driven their companies almost out of business. I used to be the chief economist for Ford Motor Company and I saw it almost destroy the American automobile industry, but their influence has been weakened by deregulating some of the older firms in transportation and other industries and utilities back in the 1970s which disciplined them. In the private sector, unions ended up killing themselves and in the public sector they have increased expenses for government and consequently taxes.

Cato Institute Chairman Emeritus and Senior Economist, William Niskanen

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The flat rate consumption tax would have the least distortive effect per dollar of revenue raised. The problem with something like that is that it leads to making government look less costly and so the historical experience, particularly in Europe, is that the absolute size of government is very much a function of what their flat rate is and I think if we move toward a flat rate consumption tax (VAT) that we would need to have an independent process to approve an increase in the size of government that requires a larger approval, maybe two thirds of the vote in Congress or approval by number of states. Given the nature of our current tax system in the United States, cutting tax rates increases the amount of money that people want to spend (and the relative size of government) because it reduces the visible taxes on the current generation of voters.

Cato Institute Chairman Emeritus and Senior Economist, William Niskanen

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In many cases they are operating on different facts. The facts may be be part of a larger story but in many cases people pay attention only to those they like rather than all of the facts which bear on the issue. In some cases it's just misunderstanding and in others the kinds of facts they use depend on policy positions they've already decided. That's often the case with elected officials in that they feel that taking a policy position in favor of some particular industry or segment of the economy will increase their probability of being reelected and so pay attention to only those facts that help them. For example, we increased the price of sugar by restricting sugar imports and the consequence was that some of our candy manufacturers moved to Canada. So which of those facts you pay attention to depends upon whether you're catering to the Florida sugar growers or to those who used to make candy in Tennessee.

Cato Institute Chairman Emeritus and Senior Economist, William Niskanen

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