Thursday, August 5, 2010

A Question for Gary Becker

In a post at the Becker-Posner blog (here), Gary Becker makes the following argument (based on zero data, as Ryan Avent points out here):
The real threat to a robust recovery on the labor side has come from employer and entrepreneurial fears that once the economic environment improves, a Democratic Congress and administration will pass pro-union and other pro-worker legislation that will raise the cost of doing business and cut profits. In this way the obvious pro-union-pro-worker bias of the present government has contributed to a slower recovery, especially in labor markets. This helps explain the depressingly slow decline in unemployment rates and in the number of workers who have given up looking for jobs.
Aside from the fact that Becker's argument is fact-free, I have a question which assumes, with Becker, that "entrepreneurial fears" are retarding the recovery. Unless all (or nearly all) entrepreneurs have a similar fear, and pretty much the same level of fear, then why wouldn't Becker expect other, less risk-averse entrepreneurs to seek out and exploit the profit opportunities bypassed by their more fearful brethren?

Assuming some positive probability exists that there will not be a Demo-controlled Congress, or that any such Congress would not enact pro-Union legislation, or that any such legislation would not have such dire consequences as the entrepreneurs feared, then this scenario boils down to an expected value calculation based on perceived risks. It seems doubtful (to me at least) that all, or even most, entrepreneurs would evaluate the expected costs similarly (especially to the extent they have differential labor costs) or respond to them identically. Under what economic theory of Becker's have entrepreneurs all become skittish wusses?

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