In Economics, Right and Left a Matter of Education
By Leslee Kluba
January 12, 2015
The Tribune Papers
John Stossel recently appeared on the Fox Business channel in an Uncle Sam suit, throwing money out of a wheelbarrow to illustrate the absurdity of ObamaCare’s risk corridors. It was as funny as his famous video wherein he smashed cars sarcastically claiming Cash for Clunkers was good for the economy.
Stossel’s book, No, They Can’t: Why Government Fails – But Individuals Succeed proved fun reading as well. Anybody acquainted with fiscally-conservative economics would find nothing new but the clear and clever writing style. Stossel breezes through concepts like the tragedy of the commons, the Laffer curve, Smith’s invisible hand, Bastiat’s broken windows fallacy, market distortions, unintended consequences, opportunity costs, etc. in a manner that might even convince some die-hard progressives.
Stossel, who left a life of accolades from the neoliberal media, claims, “Milton Friedman once called me ‘that rare creature, a TV commentator who understands economics, in all its subtlety.’ I loved that quote. But it’s one of the few things Milton got wrong.”
Stossel drives home the fact that the differences in economic philosophy, as embraced by the major political parties, are a matter of education. Youthful hipsters, looking for a quick fix without much thought will gravitate toward one party. Those who have been around, making a habit of studying histories, public policy, and economics, gravitate toward the other. So much for thinking globally.
Lots of folks, even those in high stations, don’t know what an economy is. In simple terms, it is the production, trade, and consumption of goods and services in a particular region. It is not, as Stossel notes, “a machine that needs jump starting. The economy is people who have objectives they want to achieve.”
Missing in many modern discussions of economics is the concept of trade. Stossel illustrates this with somebody buying a cup of coffee. Both the buyer and seller say thank you because both acquired something they value more than what they surrendered. If the price weren’t right, the transaction would not occur in a free market. Even anarchists agree coercion, fraud, and theft are aberrations to be dealt with when resorted to in a free market.
Yet, low-information economists like to argue against capitalism. They believe prices are arbitrary, that employers can pay those they hire whatever they demand. They are like the child who thinks money is available in infinite supply. free from the banks; and they continually fall for government’s deceptive claim of creating wealth by printing more money, borrowing, or taxing.
The world has no shortage of essays on why price controls on anything from wages to housing tend to further disadvantage the populations they’re supposedly designed to serve. Stossel told how the ADA made people with disabilities “walking lawsuits” waiting to happen in the eyes of potential employers.
Stossel himself used interns to do things his former employers couldn’t justify in their budgets. It gave college kids valuable, real-world experience. Then, the Labor Department decreed he could only have interns if their labors supplied “no immediate advantage.” The department, in fact, said it would be even better if Stossel’s work “may be impeded” by having them around.
The word “cause” in government has long been a double-entendre. Traditional causes, like helping needy families, as well as causes like padding the bottom line of the failing business of campaign supporters, or saving the habitat of rare salamanders, give government an excuse to grow, or in other words, transfer funds and resources out of the productive sector. But in government, job security is achieved by never solving problems, justifying never-shrinking budgets, and adding underlings.
Returning to the basic definition of an economy, the problem is obvious. Except in socialist states where it actually owns businesses, government produces nothing. It only forces the redistribution of resources. Arguments about optimal resource placement are obviously bogus, but when government moves things around, it necessarily introduces market distortions.
Undistorted pricing gives buyers, sellers, and potential buyers and sellers information about what people really want and need. Tampering with the data by fixing prices fogs the landscape leaving traders less satisfied than they could have been. It also introduces inefficiencies, as bureaucrats must be hired, managed, given digs, and equipped.
The 99 Percent were not upset with the free market; rather, they mislabeled crony capitalism. Stossel describes how government helps make business look ugly to the low-information crowd. “The more power we give government to control businesses, the more businesses seek to control government. Instead of obsessing about inventing better products, they obsess about getting cozy with politicians and regulators. They invest in people who are clever at manipulating rules.”
In free markets, everything is for sale but government. In market economies, ideas that don’t work or are unpopular for other reasons can’t find enough buyers to support their production. Through bailouts and “economic development incentives,” bad products get foisted on people as competition is undercut. Stossel says of the Chevy Volt, “Such boondoggles exist only because of fat government favors, uh, I mean subsidies. Wait, no, silly me. ‘Investments’ is the euphemism du jour.”
Stories of exchanges of campaign contributions in return for regulation and certification programs that discourage lateral-entry competition are abundant. Stossel describes Las Vegas’ limousine licensing as a “shakedown operation” for campaign funds. Monopolies can’t exist for long without the help of government favors, and technological innovation is impeded when connected corporatists get their friends in Washington to support their ideas beyond their natural life cycles.
It is not difficult for the cronies to get useful idiots to campaign on their behalf. If protester can make a big enough scene, the media will then pitch-in for the cause because hysteria makes good copy. The line the cronies fed the 99 Percent was that banks and other industries needed bailouts because the fat cats’ greed ran rampant with deregulation. In one of many “give me a break” moments, Stossel counters that President Bush, who caught the blame, “spent more money on regulation and hired more new regulators than any president before him.”
Thanks to lobbyists, who prefer to keep business afloat more through the force of government than an innovative research and development department, “Congress creates, on average, one new crime every week. Federal agencies create thousands more – so many, in fact, that the Congressional Research Service itself said that merely counting them would be impossible. State and local bureaucrats create their own sets of crimes on top of that.”
Outside of industry, the younger crowd likes to grow government by entrusting it with social problems. This sanitizes charity by leaving assistance in the hands of credentialed bureaucrats doing a job. Is it any wonder caseloads grow as the afflicted won’t look into the eyes of those who sacrifice as a vote of confidence in their potential?
But to paraphrase Mitt Romney, “Government is people, my friend.” It’s a bunch of people who are cute enough to win popularity contests. There is no reason to believe they are more immune to “chronic government problems, like waste, bribery, corruption, regional favoritism, bailouts for the politically connected, and so on.” But the beat goes on, and the beautiful ones stay relevant by making up more rules and “staffing up” an increasingly complex public sector.
Stossel quotes Jeanne Allen of the Center for Education Reform as saying attempts to make the nation’s monopoly on education more efficient and impactful, “have run ‘smack into federations, alliances, departments, councils, boards, commissions, panels, herds, flocks, and convoys that make up the education industrial complex, or the BLOB. . . . Not really a wall – they always talk about change – but more like quicksand, or a tar pit where ideas slowly sink.’”
Although he admits understanding less about military operations than economics, he faults the government for throwing money at nation building in Iraq. Four hundred tons of shrink-wrapped $100 bills were tossed about like footballs and distributed to anything that could make an application. One example of a grant recipient was a guy with a “security” dog that laid down when people approached.
Government leaders tell the people their doings are transparent, but published budgets have vague captions for line items with values that rhyme with “Ashevillian.” Stossel quips none of them are labeled, “Pilot Program for Oppressing Common People While Spending Huge Amounts on Holiday Parties and New Office Furniture.” It is very difficult to pinpoint waste, but everybody knows it’s there.
Government toys with members of the public too busy or too frightened by obfuscation and insults to do the math. A famous game is presenting analyses that only mention pros for a project and no cons against it. Another is speaking of “cuts” which, in government jargon, mean reductions in wish lists rather than last year’s appropriations. “The government’s budget,” he says, “has little to do with bookkeeping, cost-benefit analysis, reality, or even sanity.”
In light of all this, Stossel asks why we are trusting the federal government with healthcare. First of all, ObamaCare is insurance, not healthcare. Second of all, “One of America’s biggest healthcare problems is not that 48 million people lack insurance – it’s that 250 million Americans have too much of it.” He says providing coverage for sniffles and tummy aches is like having automobile insurance that pays for gasoline and oil changes. Among a host of other problems is loss of liberty.
The national debt is so large, it is only discussed in terms of abstractions, like which planet the dollar bills needed to pay it off, stacked end to end, would be nearest. Worse than the annual deficits are the compounding entitlements of Social Security and Medicare. They’re pyramid schemes made unsustainable by their initial actuarial assumptions, which are deemed a third-rail for anybody seeking re-election. Arguments that seniors are only taking out what they put in are false. On average, they’re getting back about three times what they contributed.
In recent years, America has been slipping in the Economic Freedom Index published by the Heritage Foundation and the Wall Street Journal. Bill Beach of the Heritage Foundation explained, “Our spending has been excessive. We have the highest corporate tax rate in the world. Government takeovers of industries, subsidizing industries, . . . these are the kinds of moves that happen in third-world countries.”
Claims that soaking the rich as government grows unchecked can fix the problem have long since been debunked. Stossel shows that since 1945 government revenues have remained pretty much between 17 and 20 percent of GDP, even though tax rates on America’s top producers have ranged between 40 and 90 percent.
Ideas that America’s most productive can be taxed to a pulp view people as pawns devoid of survival instinct. The rich always hire accountants to find loopholes or lobbyists to make them, or else they will just relocate. The Donald described tycoons as “international people. Whether they live here or live in a place like Switzerland doesn’t really matter to them.”
In order to avoid rioting or other internal chaos, the government pretty soon will have to take serious action. Leaders just need to put country before re-election and make the tough decisions about which programs will be cut.
Puerto Rico’s governor Luis Fortuno started by cutting his own salary. Then, he privatized what he could. To stimulate the economy, he cut corporate taxes from 35 to 25 percent and reduced personal income taxes. According to Stossel, “Fortuno’s cuts haven’t made him popular. He may save Puerto Rico’s economy, but most voters don’t yet understand that it’s a good thing when fewer people work for the state. It’s just not intuitive.”
A bigger hurdle is educating the public. Stossel notes, “Obama today is not all that out of step with the way most Americans think.” As proof, this edit made it to the final printing. Can you identify the changed word?
“Economics is complicated. That’s one more reason to be grateful for the Constitution: In its relative simplicity, its rules keep government within bounds, so that we need to engage in elaborate number crunching to try to prove that the bureaucrats’ pet programs will bring us to financial ruin.”
