Wednesday, December 30, 2009

What government cannot do

As Americans expand their belief in the unlimited powers of government, it is important for thinking Americans to reflect on what government cannot do. Lew Rockwell has written an excellent article discussing the unwinnable "war on drugs", aka Pot Prohibition, which has been ongoing for nearly a century and particularly active in the last half-century. The opening paragraphs of the article are like a verbal punch to the face of statism:

Ludwig von Mises said that the great accomplishment of economists was to draw attention to the extreme limits on the power of government. His point was not merely that government should be limited, but that it is limited by the very structure of reality. It cannot make all people rich by its own initiative. It cannot provide universal housing, literacy, and health. It cannot raise wages across the board. It cannot ban products. Those who seek to accomplish economic ends such as these are choosing the wrong means. That is because there is something more powerful than government: namely economic law.

And what is economic law? It is a force that operates within the structure of all societies everywhere that governs the production and allocation of material resources and time according to strict bounds of what is possible. Some things are just not possible. It just so happens that this includes most of the demands that are made by the public and pressure groups on the government. This was the great discovery of the modern science of economics. This was not known by the ancients. It was not known by the fathers of the early church. It was the discovery of the medieval schoolmen, and the insight was gradually elaborated upon and systematized over the centuries, culminating in the classical and Austrian traditions of thought.
So, here are some things government cannot do:

1) Government cannot create wealth, it has no money of its own

So many people say, "The government should pay for ___________" as if the government has some capital reserves upon which it can draw to pay for things people need. But the government has no money that it did not take from some or all of us.

2) Government cannot abolish or even reduce scarcity

Many people say, "the government should provide universal healthcare" or "the government should provide universal education" so that all may have access. But government subsidy of an industry, whether healthcare or education or whatever, does not alleviate the root problem which is that there are only so many doctors and teachers and, ultimately, there are only so many people (to produce any good or service) and only so much time and only so many natural resources. The government cannot, for wishing, alter this reality one iota.

The only real way to alleviate scarcity is production and/or conservation. The incentive to produce comes from the potential for profits (wages are a kind of individualized profit, or wages less the cost of living, to be more exact) and the incentive to conserve comes from the desire to maximize the satisfaction of wants attainable with a given amount of resources (in other words, buying or self-producing just the things you need to meet your needs and desires in the most efficient way). The use or threat of force (government) nowhere factors into this equation.

3) Government cannot improve social mores

Many people say, "the government should ban ___________" where the blank is filled with some morally repugnant behavior, such as prostitution, sodomy, pornography, bestiality or whatever. But the government is naught but force or the threat of force - so a government ban on immoral behavior does not make people more moral. At best, it causes those who comply with the intent of such laws to become hypocrites because the only reason they do not act out their morally repugnant behaviors is to avoid the State's use of force against them. But most people simply use more cunning when engaging in socially sanctioned behaviors.

4) Government cannot prevent or reduce the incidence of bankruptcies

It is thought by many that the government can, through regulation or bailouts, prevent bankruptcies or at least reduce the incidence of bankruptcies. But bankruptcy is the result either of mismanagement or mistaken investment or both. That is, bankruptcy is caused by things which the government cannot change by threatening force. People will mismanage investments no matter what consequences may lie ahead because mismanagement is a human trait. People will make mistaken investments no matter how heavily the government regulates markets or how severely the government punishes "speculators".

5) Government cannot "stimulate" or otherwise invigorate the economy

The threat of force does not spur productivity. Compare the productivity of an independent contractor versus a member of a chain gang. No matter how much the guards abuse the members of the chain gang, they will never maintain productivity even close to that of an independent contractor. Government is naught but force or the threat of force.

You might say "but government spending can spur the economy!" Nonsense. Every dollar the government spends was taken from someone. That someone would have spent the dollar too (sooner or later, nobody burns their money). The only difference iswhat the dollar is spent on. The government buys JDAMs and blows up mosques in Iraq and Afghanistan but the Americans whose dollars were seized to buy those JDAMs might have purchased construction materials to build a church or car parts to fix a car. You tell me which application is genuine economic productivity.

The Keynesians argue that the government spends the dollar sooner than the individual from whom the dollar was taken (thus putting the dollar "back into the economy" instead of being "hoarded"). This might be true (we can't really know), but it still does not stimulate the economy, here's why. Let's look at all the possibilities:

a) The government spends the dollar no sooner than the individual from whom the dollar was taken. This represents a net loss to social wealth since the government's expenditure of the dollar came no sooner than the individual who originally held the dollar but now it has been spent on government interests instead of the interests of society, impoverishing society.

b) The government spends the dollar sooner than the individual from whom the dollar was taken. The question to be asked, then, is why was the individual refraining from spending his or her dollar? There are just three alternatives regarding the use of every dollar: consumption spending, investment (saving + lending), or "hoarding" (pure saving). The individual saves only dollars he has chosen not to use for consumer spending, that is, only when an individual's consumption demands have been fully met does he allocate money to saving. Saved money can be used in one of two ways. It can be lent out (put at risk) or "hoarded". Only when an individual's risk tolerance has been exceeded does he hoard money since invested money pays interest (return on risk) but hoarded money does not.

Individuals who have "hoarded" their money, that is, chosen not to consume or invest for the time being, are the target of Keynesian "stimulus". But the seizure and disbursement of "hoarded" money does nothing to address the root problem which is the individual's decreased risk tolerance and/or increased expectation of investment risk. When a lot of people just "stop spending" all at once, that tells us that there is a common denominator. Many people are reducing their risk tolerance and/or increasing their expectations of investment risk all at the same time and this is why consumer spending and investment both decrease. The application or threat of force does nothing to alleviate the problem. In fact, it is really the root cause of the problem. That is, the popular expectation of increased future State redistribution (increased investment risk) and concomitant economic problems (resulting in reduced risk tolerance) is what drives the economic depression. This was the driving force of the Great Depression and it is the driving force of this economic collapse.

This is just a selection of a few things the government cannot do. In fact, there is only one thing the government can do: wage war. Everything else, the government cannot do, its promises are empty rhetoric. Machiavelli in his book The Prince said:

The Prince ought to have no other aim or thought, nor select anything else for his study, than war and its rules and discipline; for this is the sole art that belongs to him who rules, and it is of such force that it not only upholds those who are born princes, but it often enables men to rise from a private station to that rank. And, on the contrary, it is seen that when princes have thought more of ease than of arms they have lost their states. And the first cause of your losing it is to neglect this art; and what enables you to acquire a state is to be master of the art. Francesco Sforza, through being martial, from a private person became Duke of Milan; and the sons, through avoiding the hardships and troubles of arms, from dukes became private persons. For among other evils which being unarmed brings you, it causes you to be despised, and this is one of those ignominies against which a prince ought to guard himself, as is shown later on.
This is no less true today than it was 500 years ago.

No comments: