TheMacroView Episode 44: The Friction Fallacy

The Macro View

In Modern Mainstream Economics, academics and the well-read politician may refer to a concept which they call friction or frictional costs. In doing so what they are referring to is the cost of living for the unemployed that is seeking a job. Examples they may cite as frictional costs include the cost of traveling around the city or town in an effort to find employment, moving from one city to another for better opportunities and/or a lower cost of living, and general living expenses incurred on a daily basis. What they often fail to realize, however, is that much of these so-called frictional costs are caused by government hampering the market with rules and regulations, with wage laws and distortive capital guarantees. In the unhampered market economy unemployment is voluntary – always – for the generally decent person without a long rap sheet of physical violence or property crimes. As Mises put it in his renowned treatise Human Action: A job seeker who does not want to wait will always get a job in the unhampered market economy in which there is always unused capacity of natural resources and very often also unused capacity of produced factors of production. It is only necessary for him either to reduce the amount of pay he is asking for or to alter his occupation or his place of work. In the unhampered market there is always employment to be found.