It’s Simple! Leave the Economy Alone!

John Stossel said pretty much the same thing

…a true free market doesn’t require much. It’s not like an orchestra in need of a conductor. What it needs is property rights, so no one can take your stuff. Then people trade property to their mutual advantage. Resources move around without the need for a central, coercive government telling people which resources should go where — or telling them that they must get permission to do what they think is advantageous.

So what is a true free market economy? It’s billions of  people all around the world making voluntary decisions about what to , what to sell and, what to produce. There is no group of people anywhere in the world or any computer that can predict what decisions those billions of people are going to make at any given point in time. But, that doesn’t stop governments from trying to do just that.

Think about our own federal government. We have 435 Congressmen, 100 Senators, a president and, God knows how many bureaucrats all making laws and regulations every day that affect the economy and generally in a bad way. For example, the government decides to subsidize electric cars. The factory that will produce the cars start making orders for materials and supplies needed. Some business in India sees an increase in demand for the product it produces. The owner decides to invest in more equipment also hires more people. The Indian management may have no idea what the end use is for this product they are producing.  But back in the states the demand for electric cars is very low. Orders from the Indian factory drop rapidly. The Indian management has to layoff people and idle equipment.  The demand single that the Indian company thought they saw  was false and they malinvested their capital. This type of thing happens all the time when governments interfere in the market place.

Stossel correctly assesses what government can and can not do about jobs.

Creating jobs is not difficult for government. What is difficult is creating jobs that produce wealth.

The private sector does that.

He is right. The Soviet Union had full employment but they weren’t producing much in the way of wealth.

Walter E. Williams also chimes in on this subject.

…I’d be worthless as an adviser to either the White House or Congress because if they asked me what they should do to get the economy going, I’d answer, “Do nothing!” Let’s look at it. Between 1787 and 1930, our nation suffered both mild and severe economic downturns. There was no intervention to stimulate the economy, but the economy always recovered.

[...]

You say, “Williams, the White House and Congress should do something.” The track record of doing nothing is pretty good compared with doing something. None of our economic downturns in the century and a half prior to 1930 lasted as long as the Great Depression.

There is no way to improve upon the free market system, PERIOD!

Innovation and technology have made it so that all the goods and services we need can be produced by fewer and fewer people. That, of course, leads to high unemployment. Ironically the only solution to creating jobs for these people is more innovation and entrepreneurship. New wealth and new products that people will want o buy to improve their lives is the only answer. But, innovation and entrepreneurship flourish best in a free market economy. Will we ever go back to a free market economy? Dr. Williams doesn’t think so:

It would be political suicide for a politician to follow my counsel — and for good reason. Americans have been miseducated into thinking that Roosevelt’s New Deal saved our economy. That miseducation extends to most academics, including economists, at our universities, who are arrogant enough to believe that it’s possible for a few people in Washington to have the information and knowledge necessary to manage the economic lives of 313 million people. Good economists recognize our limitations, making us not nice people to be around.

It doesn’t sound very promising, does it?

Well, that’s what I’m thinking. What are your thoughts?

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29 thoughts on “It’s Simple! Leave the Economy Alone!

  1. Those who take risks regarding capital receive the rewards. The majority who risk their capital fail. The spoils go to them who are succesful, and with it, jobs for those who choose not to take risks. Many feel this process is unfair. I am not clear why.

  2. Politicians must justify their existence to voters. It’s a vicious cycle. The voters expect “free” stuff from government and the politicians will always bribe users for their votes. So no, I’m not optimistic that the government will ever do “nothing.”

  3. I read those same articles yesterday, Jim. I love both of those guys (Stossel and Williams).

    I want to tear my hair out every time I hear President Obama talk about “investment.” The government doesn’t invest in anything. Occasionally, something they SPEND on turns out to be good. Honestly, the best example I can think of is the number of products and tech breakthroughs that came out of NASA. But that’s very different than most of their spending. At NASA (or in the military) there was a mission and money and the private sector stepped into the gap to create the products NASA needed to fulfill the mission. When it “invests” in education and such things, government is cutting the private sector out, solidifying it’s position as provider. I wouldn’t mind a big government “investment” in education if it came with a sweeping reform that included vouchers for school choice which led to competition for those dollars. But, it goes to the same old, same old bureaucrats and union cronies who have failed miserably. When gov’t “invests” in green energy, it is directing the market, not asking the market to meet a need. The money goes to cronies and the allocation is based on centralized planning, where the politicians and bureaucrats have already picked the winning technologies (solar and wind… definitely not nuclear–heaven forbid!). The allocation of that money misdirects the private sector. The guy in his basement working on cold fusion, or some version of a perpetual motion generator (I’m speculating… don’t go correcting me with the second law of thermodynamics!) can’t get funding because potential investors see which way the wind is blowing and their money isn’t going to compete with the already-made decision in Washington of what the next great thing will be; let alone that money taxed away to fund the government investment makes less money available in the private sector for risky investments in the guy in his basement.

    It is the misallocation of resources that government spending causes that is the problem. The unseen seems to be less important than what is seen, but it is the unseen that makes the biggest impact on the economy (the broken window fallacy). How many dollars that could have been used productively have been thrown away on green energy (look to Germany, where they finally have seen that they’re wasting their money, or even to China, where even they have seen that it is wasteful and they have even fewer restraints with their totalitarian regime). All of that money “invested” by government in something that is ultimately unproductive could have gone to productive purposes if left in the private sector where people make choices, and the vast majority of those choices are based on what actually works in the real world.

    In my book (The Tamarack Conspiracy), I have one of my characters try to explain the difference between the private sector and central planners using a computer network metaphor: The government has a central mainframe that is only as good as the information input, the programmers, and its limited processing capacity, where the private sector is made up of millions of networked computers, each processing the data important in its area, but networked to others that process data important in their areas. Which is going to be more efficient and have more power, ultimately? The network is recognized as a very powerful tool. Networking is the evolution of computing (and many other things), yet so many smart young hipsters (the left, specifically) can’t see that the government is a monolithic, inefficient mainframe, and the private sector is a wiz-bang, constantly evolving, high speed network. Of course the private sector is better at allocating resources and increasing wealth… national prosperity that effects everyone.

  4. We need temporary politicians under hard term limits. Until we remove the incentive for career politicians, they won’t stop manipulating and “giving” away the house to their constituents. A true free market will never happen in this country without them.

  5. I had another thought after I left my computer. Did you ever notice that the liberals want us to believe in the UNSEEN results of their “investment” in education, ecology, etc., but they seem completely unable to grasp the concept of the unseen economic consequences of taxation and misallocation of capital (via government spending)? We are supposed to buy into government spending because it is so productive for future generations (proven by no statistics whatsoever, only rosy scenarios painted with words by linguistically facile politicians). But they absolutely don’t understand how taking money away from someone who would otherwise put it into savings, spend it, or best of all, invest it might have a positive economic return.

    Yet another head scratcher provided by leftists who believe their utopian rhetoric instead of economic truths.

  6. Dr. Williams is right, sadly. And so is INFIDEL above….politicians have to make promises to get votes. Tell Americans he’s stripping benefits, asking us to tighten our belts, and he loses. It’ll be interesting to see Romney jump around this point….for the next seven months. ugh.

    1. “….politicians have to make promises to get votes.”

      I have always believed that, Z. But, I am wondering if it is really true. What if politicians told the people the truth in clear easy to understand language that our debt will crush ue if we don’t deal with it. They could point to Greece and Spain and Europe in general. Would Americans reallu deny the trith? Fat chance that ant politician would ever try telling the truth, right?

  7. Like I’ve said before, read Confession of a Monopolist by Fred Howe. It’s really entertaining and explains the explosion of laws and regulations. “Make society work for you” is the cardinal rule. This is done by buying political machines, municipal, state, etc, and putting in your regs to benefit you and shut down your competition. Wash, rinse, repeat. Tell the people that it’s for their good, fund an endowed chair at a university and put your tool in it to give “expert opinion” to what you want to do. It doesn’t hurt to buy up the textbook companies too. In only a few iterations, you’ll have brainwashed masses believing the tripe, as you hostile-take over the competition, one merger at a time. Eventually, the state and corporations will merge into one super Leviathan. Public-private partnerships anyone?

  8. It saddens me but it looks like extreme political polarization surrounding economic policy will remain at least through the November elections and probably longer. :(

    1. The polarization is the natural outcome of the desperation people are feeling. We have buried ourselves in debt and Americans like the Europeans are not wanting to face up to the truth that we can not afford this government.

  9. Government intervention (especially bailouts and stimulus) always requires that money be taken from people who earn it and then distributed to those who should not get it. As Margaret Thatcher said, the problem with socialism is that you run out of other people’s money.

      1. Yes I know. Under Sarkozy, France lowered its corporate tax rate. Sweden has privatized since an economic crunch in the 1990s (though still heavily socialist by our standards), and even Britain is in the process of lowering taxes. Only the Southern European countries seem hell bent on Socialism (Greece, Italy, Portugal, Spain) and they are paying heavily, and a lot of Americans are not paying attention to what is happening in Greece (a lot of violence there, could very well go into civil war within the next few years).

  10. “It would be political suicide for a politician to follow my counsel — and for good reason.”

    That says it all and spells the doom we face doesn’t it. It’s not just in America either, its everywhere in the west, we all insist that it’s the governments job to do everything and we won’t vote for a politician who is going to tell us that he’s simply going to get out of the way and let us figure out our own economic future.

    Perhaps if they lie to us about all the things they’ll do and then do nothing, otherwise it’ll only happen when we’re broke, finished and have no other choice.

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