Category Archives: Economics

The President’s Half-Truths & Expired Theories

On Wednesday, Harvard’s campus newspaper The Harvard Crimson ran an opinion piece by the President addressing the economy and student loan debt. Unfortunately, the op-ed was riddled with flawed logic, inaccurate statements, and deficient ideology that the American people shouldn’t endure.

First of all, it is worth noting that state-centric approach the President has taken to solve the woes of our time. Speaking to his jobs proposals that did not fair well on the hill, the President said “the best way to attack our economic challenges and put hundreds of thousands of people back to work is through bold action in Congress.” The idea, and the hubris needed to accept it, that the federal government wields sufficient power over the fourteen and a half trillion dollar U.S. economy and can, at will, micromanage it back to health is a bit disconcerting. Such ideas stem from overconfidence in government action and a flawed understanding of a market economy.

Hubris aside, the President bolsters the case for his jobs bill by repeating a faslehood tackled by the watchdog group FactCheck.org. He says:

[…] it’s been so disappointing to see Republicans in Congress block jobs bills from going forward—bills that independent economists say could create millions of jobs though the kinds of proposals supported by Democrats and Republicans in the past.

According to FactCheck.org, “the median estimate in a survey of 34 economists showed 288,000 jobs could be saved or created over two years under the president’s plan.”

Secondly in his piece, the President addressed student loan debt with this:

Living with that much debt forces you to make some tough choices. And when a big chunk of every paycheck goes towards student loans, it isn’t just painful for you—it’s painful to our economy and harmful to our recovery.

Here, the President is insinuating that the economy is suffering from a lack of spending in the private sector as graduated college students make down payments on the loans with money they would have otherwise spent. Unfortunately for Mr. Obama (and for his Keynesian cohorts), that is not the case. According to economic data, personal consumption is at much higher levels today than prior to the recession. And furthermore, consumption is not the engine of an economy, it is production that makes wealth. We should be removing all barriers for the producers of this economy to continue and expand production. With one of the highest corporate income taxes in the world, mounting regulation, and massive deficit spending, accompanied with a growing movement in the downtown regions of many U.S. cities which demand further sacrifice from producers, it is no wonder why the economy is stagnant.

Progressives, such as President Obama believe in a perverted understanding of liberty.  According to them, liberty was not just the freedom from oppression by others, it was the freedom to achieve the most in one’s life — that all peoples were entitled to explore themselves and grow to be the best they can be. From this shore, progressives justified extraordinary breaches of individual liberty including the establishment of the welfare state, extensive regulation of commerce, and atrocious distributions of wealth.

The President seeks to accomplish the same thing as he echos the cries of the Occupy Wall Street hippies for the wealthy to “pay their fair share” in taxes in order to help the country eliminate its deficit problems; as he designs to spend more money we do not have on stimulus projects that do not work.

The President should not get carte blanche to propagate half-truths and expired economic theories. The President can do us all a favor by doing two things: instruct the federal government to move out of the way of the producers of this country and let the marketplace restore itself, and reconcile his progressivism with Jeffersonian liberty in favor of the later.

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Time to End All Corporate Welfare

It’s of little surprise that House Speaker John Boehner rejected attempts to end oil subsidies, considering the entrenched ties the GOP and the oil industry share. Companies like Chevron, Exxon, and ConocoPhillips all donate large sums of money to overwhelmingly Republican candidates and PACs. Make no mistake, I believe campaign donations are a form of free speech, a right of which a company should not be excluded from. Further still, Republicans are not the only party tainted by special interests. Democrats themselves have invested interests in maintaining the favorable position of labor unions and green energy companies. My contention here is the perverse incentive that exists as a result of oil subsidies.

Consider this model: politicians use their political power to expropriate taxpayer money towards favored interests causing a cyclical phenomenon of continual handouts for continual electoral support. Not too hard to comprehend or deny, is it? But look further and find a inherently immoral and unconstitutional weave.

First of all, on what moral basis does the government have to donate our tax money to a specific industry or company? Aren’t businesses a competent of  the economy? Of a free market? Of capitalism? Shouldn’t those businesses succeed for fail based on the level of satisfaction they provide to their customers (as opposed to their preferred politician)?

Corporate welfare, then, undercuts you and I, the taxpayer and customer. For example, AT&T, the nations largest telecommunications provider, is in the process of eliminating its unlimited mobile data service plans. Call them indulgent, but many Americans (including myself) have become accustomed to not paying by the bite and will find little reason not to switch to one of AT&T’s competitors that does offer unlimited plans. In large enough quantities, customer drops in turn might persuade AT&T to upgrade or expand its infrastructure to compensate for larger bandwidths. But introduce federal subsidies into the equation and AT&T can compensate for this hypothetical precipitous drop in customers.

Subsidies distort market signals and rest on the premise that the government can invest capital better than the private market could. Government, however, lacks the same market signals that private capital markets benefit from. Private investors are much more capable in determining what products and services have the greatest return on investment.

Take a quick glance over the Constitution and you might have a hard time finding Congress’ ability to fund businesses or form public-private ventures with financial behemoths or automakers. Such moral hazards are a gift from the Supreme Court’s generous and far-reaching interpretations of the General Welfare clause (to which we tip our hats) which has allowed Congress to expropriate money that is rightfully supposed to go to little things like protecting our rights as Americans.

It’s high time we end corporate welfare; not just for oil companies, but for all companies; not just because of times of austerity, tough choices, or constitutional reawakening, but because morally, the government has little sanction to spend our money on favors.

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U.S.-Columbia (Not So) Free Trade Deal

This past Wednesday, April 6th 2011, President Obama announced the long-awaited initiation of a U.S.-Columbia free trade agreement (FTA). The agreement, which was expected to be reached back in 2006, had been held up originally by unfounded notions that free trade during a recession is a bad thing, but since the advent of a Democrat-controlled White House and Senate, the treaty has been stalled on grounds that Columbia must enact labor union protectionist policies.

According to the The Wall Street Journal:

Over the past couple of years, the biggest hurdle in Washington to a trade deal shifted from trade deficit fears to complaints by congressional Democrats over the frequent killings of labor leaders in Colombia by right-wing groups, some of which were alleged to have ties to the Colombian government.

The killing of innocent life is obviously abhorrent. As a philosophical Objectivist and political Libertarian, I see the initiation of force as a moral failing and a clear violation of an individual’s right to life. However, I also see intrusive economic policies with attached stipulations as a violation of an individual’s right to liberty and the pursuit of their own happiness. By presenting conditions upon which free individuals may trade with each other hardly seems like a province of state concern. However, that presupposes the government recognizes the individual as free, competent enough to trade, and not a warren of state policy.

The Democrat’s claims that the violence against labor union leaders in Colombia were the hurdles that blocked the FTA, are overblown. According to the National Center for Policy Analysis, “homicide rates are nearly three times higher in the United States (5.4 per 100,000) than among Colombian labor union members (1.9 per 100,000).” Furthermore, a study over at the Cato Institute concluded that “the overall murder rate in Colombia has declined dramatically in the past decade, and the murder rate against members of labor unions has declined even more rapidly. A union member in Colombia today is one-sixth as likely to be a victim of homicide as a fellow citizen who does not belong to a union.”

It should come to no surprise that the political left in this country will, in all instances possible, defend their historical voting blocks. The recent Wisconsin hoop-la over union powers and their degree of leverage over government had unearthed the entrenched relationship between the Democratic Party and domestic labor unions, but the Colombian FTA sheds a new light. It is now obvious that the Democrats see no reason why they should not dictate their own labor policies upon other sovereign nations. Claude Barfield recognized this fact over at the American Enterprise Institute:

[I]n many ways these provisions represent a callous trampling on Colombia’s sovereignty and the right to determine for itself specific priorities and obligations in the domestic labor market. Among the more egregious demands, Colombia has acquiesced to “criminalize” (with prison terms of up to five years) any acts that “undermine the right to organize and bargain collectively.” It must also pass a law dictating prison terms for anyone who “offers a collective pact to non-union workers that is superior to terms for union workers.” No definition of “undermine” or “superior terms,” of course, is set forth.

It has become more and more clear that this free trade agreement has very little to do with freedom. Sure, trade between our two countries will grow, but it seems that as a result, the Colombian people have become less free to organize themselves the way they wish to (or not organize for that matter).

This unfortunate display of economic foreign policy by the Democrats should make it clear that they are ill-equipped – ideologically – to represent the United States’ interests. It also illuminates the flagrant disregard for the individual rights of both Colombians and Americans. While I support free trade, I oppose intrusive expeditions of the state into the lives of free people, and I hope Colombians recognize what is being perpetrated upon them by their government and ours.

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A Separation of Economy & State

When Ayn Rand wrote “Capitalism: The Unknown Ideal” in 1967, she had no illusion that even then (and most certainly today) the American economy was not worthy of the term capitalism. That had not always been the case however. In the early years of America’s founding, interactions among free men were unfettered by government regulation to the scale it is today. But the failure of the United States to maintain its once pure and honest economic system is not the fault of capitalism itself. It is oft claimed by those on the left that capitalism’s inherent characteristics of competition and greed are paradoxically the ingredients for its destruction. This has been exemplified best by none other than Karl Marx himself, but also by lesser intellectuals like Michael Moore in his documentary, “Capitalism: A Love Story.”

It was with the recent economic recession that rocked Wall Street and financial institutions abroad which brought capitalism’s doubters to rear their ugly head. Attacks on high-payed CEOs and cloaked bankers of unmeasurable prestige were leveled, their pay criticized, their business practices judged immoral. What lacked fervor, however, was the conversation on just how the American government had twisted and droved its way into almost ever crevice that had begun to fall apart. What seemed to be ignored was the nature of the relationship between politicians and banks – a cronyism of colossal magnitude that fell like the house of cards it was.

We do not live in a capitalist system. We live in its mongrel, starved, and unshaven cousin. We do not enjoy the receptivity of free markets. We suffer from a foggy swamp of state direction.

To exhibit such dismay would be the work of a voluminous text. But take for example the sobering news reported by the Wall Street Journal that 1 in 4 Americans needs permission by the government to work, or that the ethanol industry is pushing for more federal subsidies with sured promises of campaign assistance, or even the deplorable admission that the Federal Reserve hid from the public the fact that it lent millions of taxpayer dollars to foreign banks during the peak of the financial crisis.

The United States government has interjected itself into sector after sector in the name of the “common good.” Subjective regulation, birthed in the closed doors of Washington D.C., is hailed as a necessary axiom to our complex economic system. Because if this, we live in a state of crony capitalism, a mixed economy of heavily regulated markets and unaccountable controls of our money. It would behoove us all to reconsider the term capitalism and its moral implications.

Capitalism rests the responsibility and consequences of trade on the private sector. It is a system where free men may exchange goods for valued currency or other goods at their own discretion. It is the only system that recognizes  the sovereignty of the individual and the rights he has been endowed with by his very nature. The moment government instills the use of force upon the individual in his array of choices presented to him by the market, it has transgressed on his right to pursue happiness. The moment government bans the production of a product in the name of “public safety” it has transgressed on the right to liberty. The moment the individual is no longer seen as sovereign in the eyes of the state, it has transgressed on his right to his own life.

What is the solution to these pressing problems? It is not to just deregulate, but to withdraw the state to its only moral purpose, to stop injustice so justice itself remains. We must reevaluate the meaning of government as the protector of our rights, not the purveyor of them. We must remember that government is powered by the engine of popular sovereignty, and that if it grows beyond the confines laid out for it, we have the right to change it.

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The Cause and Solution of Our Recession

The financial crisis and subsequent, still lingering, economic recession has fascinated me from its beginning. It is by far one of the most complex issues I have faced. Since I am a student of political science, I have found it necessary to understand economics – because the two subjects are symbiotic. After much reading, many observations, and quality conversation, I have drafted a mental interpretation of this economic event and find it necessary to transcribe my thoughts here.

In the effort of full disclosure, I approached this topic from a classical liberal perspective. Thus my policy prescriptions respect and adhere to principles such as free markets, individual rights, and private property. Consequently, if one adopts these basic principles one must then hold that the only moral social organization of society is capitalism. I make mention of this because it has become the case among political commentators and politicians where possible solutions conflict simply because the authors’ ultimate aims are diametrically different. One seeks to preserve the welfare state and a socialized economy, while the other seeks to relinquish government intervention and uphold the principles of capitalism. With that said, I come from the latter camp and would now like to seek your confidence in my logic.

The altruistic goal of increasing home ownership among the needy and undeserved has been a common policy within both dominant political parties for decades. Often, home ownership is wrapped nicely in the phrase “the American dream” somehow defining the two as mutually dependent. In 1995, President Bill Clinton, addressing his administrations push for home ownership, said:

This is a big deal. This is about more than money and sticks and boards and windows. This is about the way we live as a people and what kind of society we’re going to have.[…] It’s 100 specific actions that address the practical needs of people who are trying to build their own personal version of the American dream, to help moderate income families who pay high rents but haven’t been able to save enough for a downpayment, to help lower income working families who are ready to assume the responsibilities of home ownership but held back by mortgage costs that are just out of reach, to help families who have historically been excluded from home ownership.

In 2006, President Bush echoed the same ethic in his comments after signing the American Dream Downpayment Act:

One of the biggest hurdles to homeownership is getting money for a downpayment. This administration has recognized that, and so today I’m honored to be here to sign a law that will help many low-income buyers to overcome that hurdle and to achieve an important part of the American Dream.

But that law was not the first of its kind. The push to expand home ownership began in 1992 when Congress passed the Housing and Community Development Act of 1992. The law forced the two largest government-sponsored mortgage companies Fannie Mae and Freddie Mac to expand the percentage of mortgages issued to low- and moderate-income borrowers to 42%. Fannie and Freddie complied, and by 2005, that percentage was expanded by the government to 52%. Objective restructions were cast aside as well. The percentage of money needed for a downpayment became smaller and smaller. By 2005, 43% of first time homeowners were borrowing the entire cost of their home and 68% were putting down less than 10%. The government even order Fannie and Freddie to issue mortgages to even lower income brackets, accounting for 22% of total mortgages in 2005.

It was clear to the sober observer that the issuing of these mortgages amounted to a serious assumption of risk by Fannie Mae and Freddie Mac that had already controlled an astounding 42% share of residential mortgages in the United States by the year 2000. However, these government-sponsored enterprises (GSEs) by nature had the implicit backing of the U.S. treasury and immunity to strict accounting standards. Fannie and Freddie were not subject to the same Securities and Exchange Commission regulations, nor to state and local income taxes. They were not required to hold the same amount of capital as private firms either. It was a textbook illustration of a moral hazard. Imprudent behavior brought on by altruistic government intervention into the housing market was divorced from the prospects of failure because there existed a lender of last resort – the U.S. government.

To close the home ownership gap that existed between Caucasian and minorities, the Federal Reserve sought to stimulate demand by lowering interest rates to historic lows, which made lending money much cheaper. All the ingredients for the crisis were in order. Government meddling of market forces inflated growth in the housing market, historically low interest rates manipulated demand, and the extended period in which those interest rates remained all fed the creation of a housing bubble. When the Fed began to raise interest rates in 2006 to tighten the money supply, housing prices fell quickly and soon, many Americans found themselves “underwater” where the mortgages they had assumed were now worth much more than their actual home. As mortgage payments slowed, the value of such mortgages dropped precipitously and the balance sheets of lending institutions went into financial shock. As those institutions that created the housing bubble began to melted down, so too did Americans’ savings. The destruction of wealth led to a liquidity trap – in which consumers hoard money in the face of uncertainty – and caused a slowdown of the entire economy and today’s recession.

This narrative omits complex financial products trading such as credit default swaps which destabilized A.I.G., the largest insurance company in the United States. The omission is intentional as it does not lend context to the policy prescriptions that rise from my understanding of the crisis.

President Obama and his administration approached the economy from a Keynesian perspective named after the famous economist John Maynard Keynes. I’ve spoken at length about the shortcomings of Keynesian economics but will constrain my comments on the applicability to this recession. Keynesianism holds that in recessionary times, when demand has fallen so low within the private sectors as to fail to sustain growth, deficit spending by the government can and should be used to stimulate the economy in the short-term and pay off the debt acquired by the inevitable long-term growth. Keynesian theory thus promotes and defends public works projects and massive stimulus programs which are designed to inject sufficient liquidity into the market. This is precisely what Obama has advocated.

The problem with the Keynesian solution in our current case is that its goal is to increase aggregate demand when the nature of this recession is not an unexplained dip in demand, but a balance sheet shock in which capital was destroyed by imprudent (and sometimes fraudulent) lending practices. Increasing demand among a population in which savings has been destroyed and financial institutions lack sufficient capital to make additional loans is an off-base solution which seeks to treat the symptoms rather than cure the disease. Extending opportunities to the unemployed to spend money they do not have is a fools errand. Temporarily employing the unemployed with infrastructure projects is an equally fruitless response. What prudent family will spend their precious income when they know such income is only temporary?

The Keynesian approach to recessions is a close-minded one with a distasteful interpretation of the economy. It paints an insulting picture of  consumers as irrational mattress stuffers hoarding their money in the face of bad economic times, yet it also assumes them to be manipulable enough by government stimuli to spend at the first sight of additional cash. It thus paints a simplistic picture of a homogeneous economy made up of ‘stuff’ that simply needs money to move it around. These assumptions necessitate implicit trust in the ‘wisdom’ of government spending which not only runs counter to the American spirit of distrust in the state, but ignores the government’s disgraceful track record in spending taxpayer dollars wisely. Ultimately, what it fails to understand is that the economy is in fact a complex web of markets with producers seeking to produce what they believe consumers will buy, and those consumers are mere human beings which pursue purposeful economic behavior.

Multiple problems arise with government spending initiatives. Far too often special interest groups and lobbyists maliciously influence our easily corruptible politicians to acquire the funds they need for pet projects. Pork-barrel spending plagued the American Recovery and Reinvestment Act and sent millions of taxpayer dollars to ridiculous spending programs. Stimulus programs tend to also misdirect national resources away from sustainable economic projects that are in market demand, in deference for short-term projects which the government chooses is best (best sometimes aligned to political reasons). Yet, the government is without the price signals private companies use to make economic decisions. This leads astray economic activity to unsustainable lines of production. Stimulus funding does not even accomplish its designed function: increase aggregate demand. In order to spend a trillion dollars in stimulus, the government must first take that money from somewhere else. Whether it prints money, sells bonds, or increases taxes, it drains money out of the economy damaging long-term growth in favor of short-term production. In our current case, the government sold billions of dollars in government bonds which placed that money into the ‘wise’ hands of the government.

Attempting to create demand where there is none is not only a misguided diagnosis of the problem, but also confuses the market where there otherwise would have been more accurate demand signals from individuals and businesses that kept more of their own money and spent it as they saw fit.

Generally speaking, the economy was herded into an unsustainable structure of production by altruistic federal government intervention of the market economy. In a truly free capitalist economy, structures of production are naturally configured in a way that responds to consumer preferences. With that configuration tampered with, investment moved towards unsustainable structures of production (i.e. more homes than would have been in market demand). The resolution to this recession is to allow those structures of production to readjust through layoffs and business closures. Private investment is needed to reinvigorate production that is in market demand, not public investment in what Washington D.C. politicians decide is in political-demand. Propping up and bailing out failing institutions creates a moral hazard and preserves those unsustainable structures. The reallocation of labor takes time also, but will only be prolonged by the expansion of the welfare state and unemployment benefits.

This economic recession was certainly avoidable. It was born in the halls of Washington D.C. by politicians who thought they were pursuing an honest end: increased minority home ownership. In reality, they were sacrificing objectivity (reasonable lending standards) for subjectivity (skin color). The creditworthiness of low-income borrowers, the looming insolvency of baking institutions, and the growing rate of defaults mattered little. Armed with an ethic that was widely accepted but hardly understood, and with unapologetic access to taxpayer wallets, the federal government sewed the seeds of our current condition.

The solution rests within the free market – an economic state of condition that the United States has not enjoyed since the Great Depression. Only until the surrendering of power and control by the federal government over the free interactions of free people can prosperity return. It requires freedom of thought, trade, and personal responsibility which must come from the private sector. Central planning is not the course laid by free societies. Government got us into this, it cannot get us out.

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Rasmussen: 69% Say Tax Cuts Better Way to Create New Jobs

Rasmussen:

The new survey found that just 29% believe last year’s economic stimulus plan has helped the economy while 43% believe it hurt. Not surprisingly, there is little appetite for another round. By a 69% to 15% margin, voters believe tax cuts is a better way to create jobs rather than more government spending.

Not surprising, considering that a variety of economic indicators show that the economy is still stumbling along. Gross private investment (GPI) and consumer confidence is still way below trend. And it has everything to do with government meddling into the economy. The latest survey of small businesses point to the government as its chief obstacle to growth. Only 30% of businesses cited poor sales as their primary concern.

As long as Congress continues to increase the cost of normal operation, we will continue to see anemic growth that even Democrats shouldn’t have the balls to hang their hat on. Leave the market alone, and it will work itself out.

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Obama Begs Congress for Another Bailout

The Washington Post:

President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid “massive layoffs of teachers, police and firefighters” and to support the still-fragile economic recovery.

Anyone else just have to sigh at these pleas? As Tad DeHaven over at the Cato Blog rightfully put it, “the increasing dependency on the federal government has contributed to the states’ dereliction of duty when it comes to keeping their fiscal houses in order.” He argues that, “reviving fiscal federalism is critical to getting governments at all levels in the United States to clean up their fiscal messes.”

Sounds about right to me. Like I’ve mentioned before, by bailing out failing institutions, whether it be States, General Motors, or Merrill Lynch, we are subsidizing bad behavior. President Bush did it in the latter half of his presidency, and Obama has carried the torch. Now, he wishes to carry it even further.

November couldn’t come any sooner.

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Auto Bailout Still Unpopular

Rasmussen:

Fifty-three percent (53%) of Americans still think the federal government bailout of General Motors and Chrysler was a bad idea. But confidence that the money will be repaid is up. Seventy-two percent (72%) of Republicans and 53% of adults not affiliated with either of the major parties say the auto bailout was a bad idea. Democrats are much more closely divided: 43% think the bailout was a good idea, but 36% disagree.

Sixty percent (60%) of Democrats say it’s likely that all the taxpayer money invested in GM and Chrysler will be repaid. Most Republicans (55%) say that’s unlikely. Unaffiliated adults are almost evenly divided on the question.

Could it be that bailouts, as part of a greater Keynesian recessional recovery package, fail to stimulate growth and create a moral hazard by subsidizing bad behavior? It’s simple math folks.

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The Shortcomings of Keynesianism

Keynesianism’s premise is that the private sector does not allocate resources properly, and that government, through deficit spending and expansionary monetary policy, is the only vehicle to stimulate the economy. I wholly disagree with that premise. The opposite of Keynesianism would be neoliberalism – my economic philosophy: that the private sector can allocate resources much more efficiently through the influence of market forces, and it is the optimal role of government to take as little capital away from the market as reasonably possible.

As the Keynesian theory goes, recessions are caused when – for some reason or another – individuals stop buying goods (perhaps due to pessimistic views of the future). They begin to horde money. As consumptions decreases, as does employment. It is therefore the duty of the government to spend large sums of money to “prime the pump”, i.e., flood the market with money so as to increase consumption, and sustain employment.

This suffers from a variety of flaws in my opinion. First of all, people need to consume the basics to survive. Bread, milk, shoes, etc. If people must continue to spend, then they must continue to produce, which in turn leaves room for adjustment of the market. The fact that businesses and banks are unwilling to invest or lend, is due in part because they are still attempting to clean their books. By allowing businesses to adjust naturally (by lowering wages, reducing spending) it gives them time to rebuild savings, and return to productivity. Money pumped into the system prematurely by the government, only adds to uncertainty, increases the level of nonperforming assets held by banks, and prolongs the recovery.

But because fear of the future exists, people are more likely to be prudent with their money as opposed to spend it away. An increase in confidence is what’s needed in order for people to reignite the flow of capital. Stimulus packages, mounting debts, inevitable tax increases, bailing out of banks and car companies, and government involvement in Health Care, only adds to the uncertainty of the future.

Its important to look at the historically miserable record of Keynesianism, because it really tells of the story for us. The 1921-1923 economic recession, which began with a steeper decline than the Great Depression, got no help from the government, and saw a quick economic recovery for precisely that reason. The federal government actually reduced spending from $6.4 billion in fiscal year 1920 to roughly $3.3 billion in 1923. The pullback by the federal government left more capital in the private sector to fund real economic growth rather than government consumption.

However, in 1933, Roosevelt went on a spending binge, and while got industrial production to increase, by 1934, it took a U-turn back down, showing that a large jump in government stimulus can only temporarily improve the economy. Follow the logic here. Governments can only spend to the extent that they can borrow or tax from the private sector. In that sense, the economic growth that funded the spending had already occurred. To presume that productivity would multiply thanks to government stimulus is the equivalent of assuming that a thief could aid a convenience store by first stealing $20 from the store, then returning later in the day to spend it. Whether by increasing taxes, national debt, or printing the money (growing inflation), the government has to damage long-term wealth in order to provide short-term economic activity.

Tax cuts are far more superior in stimulating the economy than direct investment by the government. Allowing companies to keep more of their revenue is an incentive to create more wealth and thus promote economic growth. Allowing individuals to spend more of their own money as they see fit helps the market more accurately understand demand signals than when the government just spends trying to create demand out of nothing. For example, in the six months prior to the Bush tax cuts, GDP grew at an annual rate of just 1.7%, and lost 267,000 jobs. In the six quarters following the tax cuts, the growth rate was 4.1 percent and added 307,000 jobs, followed by 5 million more jobs in the next seven quarters. Tax revenues in 2006 were 18.4 percent of GDP, which was above the 20-year, 40-year, and 60-year historical aver­ages.

Keynesianism, with its kneeling so much on government, cannot possibly work to stimulate the economy in the long-run. Only the private market can fix itself, and if the government wants to help that natural process, it can refrain from taking away capital by spending less and lowering taxes.

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Private Property & Self-Determination

Private property is a rational necessity, not merely an accidental occurrence of human history. Owning property contributes to the ethical development of the individual. There is an undeniable link between private property and individual self assertion, mutual recognition of the rights of others, and the establishment of a proper sense of prudence and responsibility.

Institutions in society either benefit us, or don’t. Those that don’t, are immoral. Those that do, are moral. There may be differing opinions on the matter, but once those have been resolved, we must accept the morality of a beneficial institution.

The institution of private property is, without a doubt, a beneficial institution. The private ownership of the means of production has been the catalyst for economic progress throughout history. One needs only to look at the status of the individual in the 12th century, and compare it with that of the individual today. The profit motive, I would think, is undeniably the driving force of productivity in the developing world. When Andrew Carnegie bet his life and career on his mass production of steel, do you think his primary motive was to transform the New York skyline from a petty village to a towering metropolis? When the early oil pioneers in Pennsylvania invested fortunes to find oil, do you think their primary motive was to revolutionize the way Americans light and heat their homes? Or were both more interested in the great wealth they knew would come from their success?

We can easily imagine a world with and without property rights in which individuals do not have the right to use and dispose of things which they legitimately acquire, and those who do. When the former is the case, those nonowners are at the mercy of the state. Everyone would be the state’s tenant and employee. And while a similar condition exists in the world with property rights in a free market economy, the individual can choose who to work for, and who to live under. Now, think of a poor man with little admirable skills living in each. Which society would allow for greater self-determination if self-determination is the ability to make important decisions about one’s life?

I cannot think of a single example of a communitarian state that reached comparable and relative levels of development and prosperity.

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