Given how radically Left-Wing the Obama administration is, it’s worth examining why socialist economics fails every time it’s tried. Otherwise we’ll be staring at 8%… er… 10%… er… 15% unemployment and very little economic growth before we know it.
If resources were endless, there would be no need for economics – everyone would have everything they want. Economics is all about directing scarce resources to where they are most valued.
As an example, if more people are spending money for silicon when it’s in a computer instead of fake boobs, then the production of silicon will tend to move toward providing it to computer chip manufacturers because there is more revenue and potential profit that way. This is the price mechanism at work. It did not require some bureaucrat to engineer this – a business owner can see where sales are coming from and is able to gear his production to what is most demanded. The business owner does not need to know (nor can he know) why computer companies seem to just love buying silicon. He only knows that they are buying it in much larger quantities than Dr. Hollywood.
This is the beauty of a free market. The price mechanism is entirely too complex for even a team of MIT economists to engineer, yet it orders the chaos of a free market better than anything else we know. It communicates in innumerable transactions the aggregate desires of all actors in an economy. And it requires no one to know the unknowable – that is, to know what everyone else wants to buy. They just need to know what is being bought from them and produce it (or switch careers if it isn’t selling).
When the government takes from some and gives to others, it substitutes the demand of one set of people for the demands of another (and of the bureaucrats and lawmakers in Washington). That means demand is taken from one set of people, the people who produced it, and given to another set, those who did not produce it. There is no economic growth here. This is just shifting buying power in the economy. And who determines who loses and who wins? Government. If the goal is to level or equalize outcomes, and it will be an equality of misery, this is the direction to head. Even with the most benevolent dictator, there would be no ware to justly distribute goods and services. That knowledge is distributed amongst millions of individuals – it simply can’t be known by a few in power.
However, don’t fool yourself into thinking redistribution of wealth is about prosperity or economic growth to those in government. It’s about power (and it’s sold to the electorate by making envy a virtue – i.e. “why should John Doe have more than me? I’m as good as he is!”). It has more to do with controlling society than benefiting the most people… but I digress.
Government spending does not spur economic growth on the whole. Sure, it can favor certain industries – namely subsidized industries or industries favored by those receiving money from the government. But it is not a “rising tide” – it only lifts some ships (and only as long as the subsidies aren’t stopped, which will happen if those in power change their arbitrary minds or the source of money runs out).
No matter how you look at the economic issues, the government’s involvement never helps holistically . It merely benefits those that can gain access to government largess – and only as long as there are people who can be robbed through taxes or through the “invisible” tax of inflation. Those who can gain access are typically either power brokers or constituent groups which can be bought for votes. This situation would be unsustainable.
The best way to improve people’s lives is to let free people be free – and interact with each other as individuals free of government intrusion. It’s the socialist fallacy that economic activity can be planned by elites that has caused such tragedy around the world. Let us hope, pardon the pun, that we do not continue to head down that road.
Some background for the die-hards
Fundamental to understanding how economies grow is to understand the sharp contrast between supply-side and demand-side economics. I would have hoped our schools would teach this, but unfortunately education is less about learning and more about indoctrination nowadays.
Supply-side economics is generally considered to have been first articulated by Jean-Baptiste Say, a french economist. Say’s Law states (roughly) “supply creates it’s own demand”. What he meant by this was, in order to consume something it first must have been produced. Or, perhaps a more personal way of phrasing it, “in order to be able to buy something, you have to be paid for producting something first.” And thus demand grows after production grows. So for a supply-sider like myself (or any true Conservative) the key to raising an economy is to spur production – larger incomes, more jobs, and economic growth will follow. This is the reason a Conservative agenda includes dramatic tax decreases for businesses and individuals, lesser regulation with more defined authority, and less government spending (so that investments in production are made where they are really desired – not where some bureaucrat thinks they should be – and are thus sustainable).
Demand-side economics was probably most expounded on by John Maynard Keynes, a british economist. Keynes believed that economies could reach any number of “equilibrium states” (whereas classical economists believe they tended toward full employment, excepting any unemployment by choice or condition). He believed it was possible to “get stuck” in a state with large levels of unemployment. If this happened, it required the government to spend money, and thus spur demand, in order to “kick” the economy out of it’s current state and move it to an equilibrium closer to full employment.
Unfortunately, there is no evidence that this works. The Great Depression was a combination of Keynesian economics and taxation – and it crippled the U.S. economy for a decade. Don’t take my word for, here is Henry Morgenthau, Treasure Secretary under FDR:
“We are spending more money than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get jobs. We have never made good on our promises. I say after eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot.”
You may or may not agree with Morgenthau’s policies, but he has the facts correct: enormous spending, same unemployment, huge debt.
The other way Government can spend money is to print it. This causes inflation, which devalues the currency. It amounts to an “invisible tax”. The initial spending will certainly skew economic activity for a time, but it cannot be sustained. Eventually the flow of dollars will come full circle and there will be yet another crash as it is realized there was no additional value in those dollars – there are just more dollars for the same goods and services. Essentially it fools a lot of people for a short period of time. The end result is a dilution of savings.
