In this world any kind of motion involves some amount of friction. In designing a mechanical system engineers always strive to eliminate as much friction as they can in order to increase the system's operating efficiency. That's why lubricants were invented and why airplanes and automobiles have evolved toward a smooth, sleek design. As friction is reduced the energy required to get the same amount of work done is reduced. That is, it costs less to get the same amount of work done or more work can be done for the same cost.
If we apply a mechanical system analogy to our economy, government is friction. Whether some functions of government are necessary for the operation of our economy or not, it is still friction. It's necessary that a car push through air but it still adds to the friction involved in operating the car. It could be argued that some government functions actually help the economy to run more smoothly. That is, reduce friction. But those are minimal at best and even they involve substantial cost.
So, if government imposes friction on the economy, how can borrowing and taxing to expand government stimulate the economy? Yes, some roads and bridges are getting repaired, but is during a recession the right time to be doing that? If you have lost your job and are already in debt are you going to borrow more money to paint and put a new roof on your house? No, you're more likely to cut back on expenditures and spend most of your time looking for a new job. If your roof has a few leaks you will just deal with it until you can afford to repair it.
But our government, in the face of declining revenue from income and other taxes, is planning to increase the existing tax rates, levy new taxes and borrow more money so that it can keep expanding at an unprecedented rate. What if a local supermarket in an area hit hard by the recession followed a similar policy? Could it raise its food prices across the board to compensate for the fewer purchases and maintain its customary gross revenue level? No, because it would result in still fewer purchases. A supermarket is more likely to reduce its prices during a recession.
As the machinery of our economy struggles to keep operating and maintain its normal level of output, the government is adding more friction.
I think that one of our problems today is that we have too many experts. Perhaps I should say too many people who either think they are experts or are just generally perceived to be experts.
A few decades ago experts were those people who stood at the top of their field. In order to get there they had to build their reputations over many years of hard work. In order to stay there they had to maintain a spotless record. Today it seems that people can be anointed as experts. About half the people giving their expert opinion on television look like they should still be under a parent-imposed curfew.
For many years now we have been advised by experts that we should slather our bodies with sun-screen when we expect to be exposed to direct sunlight for more than a few minutes. Now a few experts are saying that the risks to our health from the sun-screen may be greater than the risks from exposure to the sun. We were advised by experts that we should avoid cooking with animal fats. Now experts are starting to backtrack from that advice. And don't forget the experts' switch from global cooling to global warming -- and how the global warming alarm is now cooling. I could go on and on.
The Obama Administration has been hiring experts right left and left. They are all fully primed with expert opinions about how we should conduct our lives. I hear that one of them is going to help us reduce our body fat. I wonder what kind of cooking oil he will recommend. One of them decides what big businesses can pay their executives. I wonder if his mandates will apply to Hollywood and Obama's friends, Warren and Bill. One of them is to determine when a large business is taking on too much debt or engaging in other risky behavior and might be facing collapse and bankruptcy. I wonder if he will take a look at the government through that lense.
I'm waiting for an expert to tell us we should avoid experts. Oh, wait! That's what I'm doing. Does that make me an expert? Is that a paradox?
Possessing a lot of money doesn't necessarily make you wealthy. Money is just a certificate that you can exchange for goods and services -- if they're available. If no goods and services are available your money is worthless. The acquisition of goods and services builds wealth. You can build wealth by creating the goods and services yourself, trading goods and services you possess for other goods and services or by purchasing them with money, but only the first method applies if no goods or services are available for trade or purchase.
If you don't agree, or think I'm splitting hairs, consider this: The federal government decides to end poverty by printing and giving a million dollars to each man, woman and child in the country. A family of five now has five million dollars to spend. And collectively there are over 300 trillion additional dollars in circulation and the goods and services available to be purchased haven't increased at all.
How will it play out? Out-of-control inflation, of course. Most people are smart enough to know they will need to spend the money quickly before prices skyrocket. Bidding wars for houses, cars, boats and other goods and services will ensue. A $100,000 house will soon be selling for 10 million or some other astronomical figure. The dollar will also collapse on the international market. Soon the people are back where they started or worse. Some of the poor may now be in houses they can't afford to operate and maintain.
When the government tries to stimulate the economy by spending smaller amounts of money the result is the same but on a smaller scale. Government spending can not boost the economy over the long term. It doesn't matter if the money comes from tax payers or it is just printed.
The value of money is determined by the amount of goods and services that the money is chasing. I suppose you could make a hat or a window curtain out of money but most people prefer to exchange it for a better or more attractive hat or window curtain.
Oh, there is one happy ending -- for the government. It taxed the 300+ trillion dollars at existing rates. It payed off the national debt and has a surplus of tens of trillions of dollars in the treasury. Its creditors are very unhappy though.
After reading a Walter Williams column on the effect of the minimum wage law on American Samoa, I started thinking about my experience as a cotton picker when I was about 14 years old (I mean manually picking cotton; I was never a machine.). At that time there was no minimum wage law that applied to farm labor and, apparently, no child labor laws. Farmers paid based on level of production rather than by the hour for most farm labor.
The farmer I picked for was paying three cents per pound of cotton picked. I managed to pick about 100 pounds per day so I earned about three dollars per day. Another boy the same age as me could pick about 200 pounds per day so he earned twice as much as I did. It never occurred to me that this was unfair. He was bigger and stronger than me and could put more cotton in his sack before having to carry it to the truck to be weighed and emptied. He also took shorter rest breaks.
What do you suppose would have happened if a minimum wage law required the farmer to pay each of his pickers six dollars per day regardless of their production? I would not have been hired and I wouldn't have made enough money that summer to buy a bicycle and clothes for school. And the other boy might not have picked 200 pounds per day. It would raise other issues like the length of a day and the length of work-breaks during the day.
What if the farmer was a socialist and announced that he was going to add up all of each day's production, divide it by the number of pickers and pay each picker for that amount? That is, pay each picker the same regardless of their individual production. First, the 200-pound-per-day boy and the other top producers would go find another farmer to pick for. Second, animosity would grow amongst the remaining pickers over the level of each picker's production and overall production would decline dramatically. Third, the socialist farmer would be forced out of business because of his inability to get his crop to market.
It appears that Arizonans are turning the tables on San Diego. After San Diego imposed a ban on doing business with or official travel to Arizona, citizens of Arizona are canceling their San Diego travel plans. This, of course, is causing some concern in the San Diego tourism industry. A response from San Diego school board President Shelia Jackson, who is sorry people don’t want to come to her city, but still supports her vote to boycott Arizona:
“It’s sad that people would cancel their plans to come here in reaction to that, but I still think we did the right thing,” Jackson told the Union-Tribune. “Certainly, we know how important tourism is to San Diego, and it wasn’t my intent to impact the tourism trade.”
Of course it wasn't her intent to negatively impact her city. Her intent was to impact Arizona. Like most politicians, her problem is that she didn't bother to look past the end of her nose before taking this action. Politicians rarely spend any time or effort considering the possibility of unintended consequences.
The present leaders of our country seem to want to turn us into an entitlement society. They feel that everyone is entitled to food, shelter, clothing, medical care, education, etc. They don't see any connection between the availability of these goods and services and the amount of individual effort expended in producing or acquiring them. It's almost as if they think all these things will magically appear.
I know that the problem with an entitlement society is that it lessens the incentive to produce. This is true for individuals and for companies. Individuals will work less when all their basic needs are guaranteed. Companies will fail when profit is outlawed and price controls are imposed. The government will have to take over production of all goods and services and force people to work. Black markets will develop. Utopia? I don't think so.
Some people think an entitlement society, or socialism, is a good thing and others think it is a bad thing. So how do we determine who is right? We need a test case. And I propose that we use Afghanistan for that test case. We are already in the process of nation building over there so it would be relatively easy to turn it into a testbed for an entitlement society. And we can't do much harm to the Afghans if the experiment doesn't work because they're already living in poverty.
I'm not proposing that we give them goods or money -- just limited services. That is, we would just send them a bunch of progressives to establish their government and run it as a closed system; no further free help from the outside. If outside goods and services are needed they will have to be purchased with inside goods and services. This entitlement society experiment will have to succeed or fail on its own.
This new government would likely decree right away that:
- Every village have a modern, full-service hospital that will provide free medical-care
- Every village have modern schools for both boys and girls
- Every city have a top-notch tuition-free university
- Transportation and communications systems be modernized
- Every home have access to electrical power
- Every family have a nice modern home
- Everyone have sufficient food and clothing
Then we could watch it unfold (it would be required that the world news media be allowed to observe and report). Right away the government would begin to realize that the hard part is the implementation. Something can't be supplied that isn't produced. If nobody works nothing will be produced. So how can they convince the people to work hard to build or produce all this when they have just been told that they are entitled to it, and when they probably aren't convinced they need or want it? The options are persuasion or force.
The government could persuade by offering workers titles and privileges that set them apart from the non-workers, but this conflicts with the progressives' belief that everyone should be equal. The government could persuade by giving the workers money in proportion to the amount of work they do, but that smacks of capitalism which progressives dislike. Some workers might be persuaded based on what they see as the merits of this new entitlement society, but probably not enough. That leaves force.
In order to make this work the government will eventually have to assign duties to everyone and take steps to ensure that the duties are performed. When it does it has, in essence, put in place a system that requires people to work for what they get. But not a very good one. When people are forced to work they aren't going to produce as much as those working voluntarily for money.
As I said above, I know that such an experiment will fail. But I also know that the progressives would still refuse to admit that it was due to bad policy. They would likely claim that the Afghans would be far worse off without their leadership.
Being entitled to something that doesn't exist is meaningless. If something is to exist someone has to produce it. If something is produced someone has to work. If work is done someone has to be forced or compensated. What do you prefer? Slave labor or capitalism?
I own a 20 acre tract of farmland that qualifies for various US Department of Agriculture programs. (Yes, I sometimes get paid to grow nothing. Does that make me a welfare recipient? Is growing nothing the same as doing nothing?) Each year they send some papers for me to sign, accompanied by a document that explains the form I'm signing and the rules governing participation in their programs. A definition from the document:
Socially Disadvantaged Farmer or Rancher means, as determined in accordance with subparagraph 3P of this Appendix, a member of a group that, as declared and approved by the Deputy Administrator, is considered for these purposes to be a group whose members have been subject generally to racial, ethnic, or gender prejudice because of their identity as members of a group without regard to their individual qualities. The groups have been identified to include: (1) American Indians and Alaskan Natives; (2) Asian-Americans; (3) Black or African-Americans; (4) Hispanic-Americans; (5) Women. Other groups will not be included as a group to which this definition applies unless so declared by the Deputy Administrator. Persons submitting the contract should not check the box for socially disadvantaged farmer or rancher unless they certify that they are members of one of the five specific groups named above.
Note the phrases "have been subject generally to" and "without regard to their individual qualities." In other words, if you belong to one of the listed groups, you can be rich and famous and still be considered by the USDA to be socially disadvantaged. Barack Obama and Hillary Clinton are both socially disadvantaged in the eyes of the USDA.
Why should the benefits of being classified as socially disadvantaged accrue only to those subject to racial, ethnic, or gender prejudice? Why not regional prejudice? The "intellectual elite" in the northern states are clearly prejudiced against the common folk of the south. They think that if we gather to speak out against the move toward bigger government we'll all turn into raging lunatics. They're saying it every night on TV.
A ton of people, me included, are prejudiced against trial lawyers. So why shouldn't they be considered socially disadvantaged.
This and all other government righting-wrongs programs are completely absurd. In fact it's absurd that the federal government has a Department of Agriculture.
Consider these items from Jeffrey Kacirk's Forgotten English calendar:
Villages in some parts of the country formerly possessed buildings known as "beggar barns." These barns usually belonged to the farm which was situated nearest the church, and wayfaring beggars were always given gratis a night's lodging and a meal in them. It was a popular belief that such homeless wanderers had a legal right to sleep in the church porch, and it was purely a sense of public decency which substituted the beggar barn. --Frederick Hackwood's Good Old Times, 1910
In the Middle Ages, many European communities subscribed to the notion that they had a moral obligation to assist wayfarers. During that time, many wanderers abused such hospitality, seeing that their vagacion (an early form of "vacation," referring to the "occupation" of a tramp and closely related to "vagrant") could be practiced indefinitely. Although over time popular sentiment turned against them, these increasingly resourceful men, women, and children continued sleeping in unlocked barns and gathering meals from orchard, field, and coop.
The English parliament enacted a number of unsuccessful laws to discourage unlimited freeloading, including one in 1572 known as the Act for the Punishment of Vagabonds.
So, over 400 years ago the English government knew it needed to take action to discourage freeloading, even though the excessive freeloading resulted largely from voluntary charitable acts of the citizenry. But now the government of the United States is daily taking actions that will encourage freeloading and force the citizenry to support it. (I should note that the modern English government lost its way long before the US government.)
If I were an intellectual, perhaps I could understand why supposedly smart people want to keep experimenting with socialism. They seem to be thinking that we should abandon capitalism and free markets because they aren't working perfectly. But clearly no other system has ever worked as well. I always come back to the conclusion that it's not about working well or even better, it's about power. The proponents of a bigger, more controlling government are simply using it to become members of the ruling class. They don't necessarily believe in it but they know there are plenty of "useful idiots" out there who do.
I know it's a little late to be suggesting this since Obamacare is already law. But what we should have done before screwing up one-sixth of the US economy is run an experiment: Let the government set up an agency to manage the design, manufacture, distribution and retailing of all footwear. After about ten years we could have a go at Obamacare using the footwear agency's model, if we find that the government agency has managed to satisfy everyone's wants and needs for footwear without increasing its cost.
The availability of footwear might not be as important as the availability of health-care, but it is something that nearly everyone uses. In fact, I'd bet there are more people in this country who do without health-care than do without footwear. And, as with health-care, there are people who do without some of their footwear needs because they can't afford it.
To be a fair experiment the approach taken to satisfy the footwear wants and needs of the people should be left completely up to the President, his Director of Footwear, the Footwear Commission and the DoF's staff. If, after considering her mandate and consulting her FC, the DoF decides that the existing free market system is the best means to satisfy the footwear demands, so be it. This outcome would be very telling. But we all know it's not likely to happen.
The first thing the DoF is most likely to do is address the affordability issue. And part of that issue is the matter of footwear envy. There are many people who would want the best footwear available even when they can't afford it and many of those would feel they have a right to the best footwear available. The DoF will find that there are several ways to deal with these issues:
- Produce only plain, inexpensive, utilitarian footwear so that everyone can afford it and everyone will be wearing the same footwear. Petition Congress to ban the import and wearing of foreign-made footwear.
- Levy a tax on the wealthy so everyone can have the footwear they want.
- Tell the poor that they will have to make do with the footwear they can afford, and deal with their envy of the more wealthy, because the Footwear Agency is subsidizing the low-cost footwear with the profits from the fancy expensive footwear.
The DoF will likely take the first approach above because Congress might be reluctant to pass a shoe tax and because she wouldn't want to face all the rowdy protesters offended by her talking tough to the poor. This will lead to demands from people for nicer footwear. To address those demands and keep the footwear affordable for the poor the DoF will impose price controls on the materials, equipment and services needed for footwear production. This will then lead to the need for price controls on everything that affects the production or availability of the footwear materials, equipment and services. And so on down the line.
The price controls will lead to footwear shortages, footwear rationing and a black-market for footwear. The DoF will establish an enforcement division to counter the black-market which is severely diminishing its revenue stream. She might call it the "war on illegal shoes."
Even if the DoF chooses to start with the existing free market system the temptation to meddle will be too much for her to resist. With her mandate and the inevitable demands from various "progressive" causes she will impose regulations beyond those already in place. The unintended consequences from these new regulations will call for additional regulations, and so on. To prevent footwear companies from collapsing from the weight of all these regulations she will have to bail them out financially, taking effective control of the companies. Then we're back to the scenario described above.
After ten years of the Footwear Agency Congress could have then tried to implement Obamacare. But no, we have already plunged into government run health-care without giving it a second thought.
When I hear "progressives" lauding the governments' takeover of the health insurance industry they always cite the tear-jerker aspects of the program, such as the supposed guarantee that no child will be denied coverage because of pre-existing conditions. Aside from the absurdity of requiring an insurer to cover a loss that has already occurred, this claim is disingenuous. While a child may not be denied coverage because of a pre-existing condition, plenty of children will be denied medical care for other reasons, such as further treatment being deemed futile or due to a shortage of doctors or facilities.
Supporters of the health care acts don't want to talk about how the program will be implemented and operated -- how more people will be provided better health care at a lower cost. It's obvious to me that health care rationing will be the answer. No provider of a service or commodity can (for very long) separate the supply of the service or commodity from the cost of the service or commodity. This is true of our previous health insurance and medical care systems and it is true of the new systems. The difference, though, is that our previous systems were self-rationing and the rationing of the services provided by the new systems will be controlled by some government bureaucracy.
Supporters don't want to talk about how the government is going to force people to acquire health insurance when they don't feel they need it. They especially don't want to talk about the fact that enforcement of this requirement, and the collection of the fine for non-compliance, has been assigned to the IRS. The IRS won't be able to collect fines from people they don't know exist. There are millions of people who have never filed a tax return. For people who do file returns, will there now be a proof-of-health-insurance form that must be submitted with the tax return? Will the IRS have access to our health insurance policy for verification purposes? Of course they will.
Supporters don't want to talk about how private health insurers will be quickly replaced by government provided health insurance. The government mandates will necessitate price increases. The price increases will drive people out of the market. The government will step in to cover these people at a lower price subsidized by the tax payers. As tax payers realize they are paying a higher price for health insurance and subsidizing others, they too will drop out and join the government program. And the snowball will continue down the hill getting larger and larger until we have a single-payer system for medical care.
Once the single-payer system is in place, private providers of medical care will quickly be replaced by government provided medical care. Government rationing and price controls will either drive private medical professionals out of business or force them to reduce the quality of their service. The government will recruit and train replacements who will work in government run hospitals and clinics.
If these acts are not repealed or significantly altered within the next two years we will have a medical care system like that of Britain and Canada within about ten years. Where can we go for quality health care?
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- Government is Friction
- We Have Too Many Experts
- Money is Not Wealth
- The Minimum Wage and Cotton Pickers
- Arizonans React to San Diego Boycott
- Let's Use Afghanistan as an Entitlement Testbed
- Socially Disadvantaged Farmer or Rancher
- Even Charity is Not Always a Good Thing
- Why Not Give Universal Footwear a Try?
- Supporters of New Health Care Acts Disingenuous
- anhinga on The Minimum Wage and Cotton Pickers
- Carson on The Minimum Wage and Cotton Pickers
- anhinga on The Minimum Wage and Cotton Pickers
- Carson on Arizonans React to San Diego Boycott
- anhinga on Arizonans React to San Diego Boycott
- anhinga, 31 July 2010
- Carson, 19 June 2010
- Liquid Egg Product, 18 June 2010
- Carson, 02 May 2010
- Liquid Egg Product, 01 May 2010
- Anhinga
- Carnival of Climate Change
- Ekawaaz
- Flashpoint
- Florida Cracker
- I Can Plainly See
- Ironic Surrealism
- Liquid Egg Product
- Ms Understood
- The Hatemongers Quarterly
- Truth, Lies and Character