Correcting Bad Economics

I was recently added to a political discussion group and while the topics covered are interesting, the premise of the group is faulty and based on some skewed version of history and economic theory. In this article, we will pull apart the mission statement and note the major inaccuracies, since they are prevalent in many other debates.

“In the aftermath of a global recession, as we have seen a massive failure of deregulated subprime-mortgage securities poison the global economy, we seem to be stuck with the same old economic debates.”

This opening sentence shows us where the author is coming from; He is essentially under the belief that deregulation is what caused the mortgage meltdown. Such is not the case, and anyone that makes the argument that the US has been deregulated in any substantial way has not been paying attention. As I pointed out in an earlier article,  the amount of regulations has gone up for 16 out of the last 30 years with the only significant (and sustained) drop happening during Reagan.

The main cause for the subprime-mortgage “poison” was the government instituting regulations. While the beginnings of the problem can be traced to the 1940’s, it wasn’t until the 1977 Community Reinvestment Act, a vague and crudely-worded piece of legislation, that the issue snowballed. Essentially, banks were forced to lend to people that couldn’t pay the loans back (in the interest of “fairness”). The loans were, naturally, high-risk, so the banks bundled them up into a “security” and sold them to other institutions. Those companies realized it as a bad deal and sold them to other institutions, and so on until the last company holding the bag got shafted. This never would have happened without government intervention in the marketplace. (I am aware of counter arguments made by somewhat reputable sources regarding the 1977 CRA, specifically that a problem caused by such an old law is a “silly’ notion. I contend that those authors lack the ability to see a causal relationship to actions and seek to gloss over the evidence in order to fit their ideological viewpoint).

As for “same old economic debates,” these debates have been happening since the dawn of civilization. Some believe that humans are fit to make their own economic decisions, while others seem to believe we need a government to make those decisions for us. It is an argument pitting liberty against government control. With the historical record clearly showing the greatest leaps in humankind having happened in direct proportion to the amount of economic and political freedom citizens possess, you’d think this debate would have been over centuries ago.

“The U.S. has never been purely socialist, not purely capitalist, except in the era of the banker and industrial robber barons of the late 1800’s.”

This is a cop-out, and is historically accurate to the point that the late 1800’s did see a rise in economic freedom, but it began to unravel with the McKinley administration (who enjoyed Republican control of Congress) and ended with Teddy Roosevelt and his “trust-busting” policies.

The use of the term “robber barons” is enlightening. While the term is applicable in the train industry, where railroad executives worked with the government to pass legislation (which is not capitalism), it is not applicable when applied to the likes of John Rockefeller and Standard Oil, the usual scapegoat who was able to grab a huge market share by eliminating waste and inefficiency in the fuel refining process, which allowed him to sell his fuel cheaper (which was better for consumers) and reap huge profits (which was better for him and his workers).

Yes, there were a lot of swindlers, but all of these regulations only hurt the honest businessman. It’s like the gun arguments involving gun-free zones; a criminal intent on murdering people is not going to stop because a certain area is “gun-free.” They have already made the decision to commit murder. A regulation banning his weapon of choice from a certain area is not going to stop him. In fact, the evidence points that it only encourages them.

“We have people advocating the same old trickle down deregulatory approach which has greatly helped the top 1%.”

Here, we see the beginnings of the class warfare argument, which is a stance rooted in envy, greed, and seeks to influence the worst parts of human nature. Steve Jobs is in the top 1%, so the argument goes that he should have to pay more in taxes and be regulated more. The flip side to the argument that the class-warfare warriors never seem to understand is how much more productive individuals and society as a whole is by the fact that Steve Jobs exists and is allowed to make his products. He and his team work hard and provide superior products to people who want them, and he should be allowed to keep the money he earns selling those products. Any so-called societal obligation has already been paid in full by the very nature that he made people more productive and grew the economic pie, of which everyone at all levels is able to enjoy.

“As for liberals or left-wing people like myself, I advocate government programs for the poor and disenfranchised as I know full well the ills of bureaucracy, inefficiency, waste, fraud, etc of our government.”

This is the revealing statement, where the author lets his views be known. The problem is that it contradicts itself. How can one advocate for government programs while simultaneously acknowledging the problems associated with them?

The fact of the matter is that those very government programs the author, and those associated with his belief structure, do not work for the simple fact that politicians and bureaucrats make decisions based on a political return, not an economic return. They have no fiscal discipline, and are not subject to the rules of the marketplace, so their job security is based on whether or not they can hand out more goodies and not on job performance. Never mind that those goodies are laced with poison and paid for on the backs of others.

Never in the history of mankind has centralized planning or class-warfare worked. Besides the faulty economic basis for such theories, i.e. class-warfare was only valid when the rich were the ones writing the laws and jailing the people who did not pay up, it ended when capitalism (meritocracy and free markets) came into effect.

“We cannot return to full-fledged Keynesianism and wax nostalgic over a past far better than the present, but we need to examine what clearly works well under the rubric of “social democracies” whose middle and poor classes benefit and progress from governments’ support of education, green technology, and universal health care. We have to consider the government’s role in providing the jobs and sustainable economies of the future as contrasted from the current oligopoly of fossil fuel companies, drug companies, big banks, the media conglomerates, all these being functional fascisms dictating the world economy.”

Again, with the class-warfare argument. He seeks to segregate people into groups and wants to equalize outcomes, which is impossible. The best that we can do, the path that we are morally obligated to seek, is one that frees people to go as high as they want while placing no burdens on their fellow man. The notion of all men being created equal escapes those like the author, who sees people as incompetent and in need of a benevolent force to take care of them.

Before the “common era,” that benevolent force was sold to mankind as a god-in-the-flesh whose divine power was mandated by heaven. His argument is little different and constitutes a societal regression, which is ironic since the people who use those arguments consider themselves “progressive.”

The latter part of that quote is important. The only role government has in a free society in providing sustainable economies is twofold, and is centered around the notion of keeping us free. The first is to protect us from force, which takes form in the defense of our borders (outside threats) and the defense of our selves and property (home-grown threats) with military and law enforcement. Secondly, the government should provide a court system so, in the case someone brings undue force against his neighbor, he can take them to court and have the matter judged by an independent arbiter.

The purpose of government is not to jump into the economy and start picking favorites, controlling people, and passing arbitrary regulations that make everyday living even harder. Such policies, which the author advocates, creates the very “functional fascism” he is railing against.

“The market for regular citizens cannot possible be free with the concentrations of power into ever fewer hands.”

Yet he would put control of that market in the hands of regulatory agencies controlled by 535 members of Congress, a president, and 15 cabinet members? One cannot make the argument that such a plan gives us more power when you consider that Congress is only at a 6% approval, hasn’t passed 20% in recent memory, and yet they still get reelected time and time again.

“Getting power back to the people cannot happen under the persistent stagnation of stereotyped economic polemics.”

Polemics (attacks) on leftist economic policies are warranted because those policies have never worked in the history of mankind despite 10,000 years of experimentation with centralized control. Whether you call the fascist, socialist, socialist-light, communist, tribalist, progressive, or liberal, they all fail horribly and only after sucking away the talent and motivation of a people. Such policies need to be attacked, discredited, and buried because real people’s lives are at stake.

What he said is true regarding polemics against capitalism. Capitalism is incredibly misunderstood even though it is essentially the easiest to understand: You are free to make your own economic decisions. It is because of this misunderstanding that I added the first picture in this article.

“We need to find common ground, try to understand the merits of theories we are predisposed to oppose before we can shift the paradigm. Shifting the paradigm is necessary to move forward and extricate ourselves from the transnational corporate tyranny impeding personal freedom and potential for growth.”

The “transnational corporate tyranny” is a straw man argument, though any sort of tyranny caused by corporations could not exist were it not for the regulations and amount of government control he advocates. No company can force you to buy a product, only government. No company can form a cartel without the assistance of government (i.e. the railroad industry in the 1800’s). In a free market, absent of the massive amount of regulations in place today, such companies cannot exist because a dozen competitors would rise up to take their market share.

In this argument between freedom and control, there can be no middle ground. You cannot say you are for freedom while advocating a new set of Jim Crow laws that put people into various groups and treat them differently under the law. 80% of millionaires in this country are self-made, first-generation, and they get that way through dedication, frugality, and hard work. They produce products people are willing to buy, and do so by hiring people willing to do the work. Enacting laws that essentially steal their money to fund corrupt programs does more harm to society than anything else. Such is the folly of “liberals and left-wing people.”

(Crossposted at Federalism Online)