Parade
magazine reported last week that it costs a dime to make a nickel (actually,
9.5 cents). This shows you how governments consume more resources than they
produce.
Whenever the
value of something is below the cost of production there is a net loss to
society. Think about how the government is spending $787 billion in bailout
money with no accountability, keeping in mind that government consumes
wealth -- it doesn't produce wealth. Could this be why the stock market is
down 50 percent and jobs are rapidly disappearing?
When Congress
thinks it makes sense to pay a dime for a nickel you can see why it thinks
coercing banks to make loans to people without money, bailing out banks, and
then requiring banks to write down home loans below cost -- might make
sense.
When Congress
thinks it makes sense to pay a dime a for nickel you can see why it thinks
spending millions of dollars on windmills and solar panels that cost far
more than the energy they produce -- might make sense.
When Congress
pays a dime for a nickel you can see why it thinks coercing bankrupt car
manufacturers into building hybrids costing more than buyers are willing to
pay and building mass transit systems that cost more than can be repaid
through fares -- might make sense.
Some people
call this socialism. Margaret Thatcher pointed out the principle problem in
paying for socialism is that eventually you run out of other people's money.
The $787
billion stimulus bill that President Obama signed will cost more than a
trillion dollars with interest. Congress had less than 24 hours to read it.
Think about this for a minute: more than a trillion tax dollars being spent
and virtually nobody read the bill. Do you think the members of Congress
would have been more careful if they were spending their own money, instead
of yours?
There are
more than 1,000 pages in the American Recovery & Reinvestment Act, filled
with bounty for cities, states, counties, corporations, unions, and others
too numerous to name who are lined up for "their" share of the fishes and
the loaves. How many of these trillion dollars do you think are actually
going to end up in the hands of people who produce wealth and create jobs?
Ever since
John Maynard Keynes theorized that recessions can be overcome by massive
government spending, politicians have felt they have legitimacy to spend
other people's money. Keynes argued in his General Theory of Employment,
Interest and Money that when government spends money each dollar is worth
two and a half dollars because of the "magical" multiplier effect. And
politicians who will pay a dime for a nickel don't need much persuading.
Politicians
love spending money. It's in their genes. Also, it doesn't hurt that
government spending can be translated into votes. After all, the billions
being spent is income to somebody and recipients can be counted on to vote
for whoever promises them the most.
The biggest
hurdle to overcome in Keynes's theory, however, is that for every dollar the
government spends it must first tax a dollar -- or borrow a dollar from the
private sector -- and hence for each visible job the government creates an
unseen job is lost. Many economists today, contrary to Keynes, conclude that
when you pay a dime for a nickel, government spending results in a negative
multiplier. After "S&H" (shipping and handling) is deducted, there is
actually less money to stimulate the economy.
Congress is
claiming it wants to put money into the hands of consumers. Virtually
everyone who passed the 10th grade understands the most effective way to do
this is immediately stop withholding taxes from paychecks and the very next
payday there will be more money to spend. The same applies to business. Cut
taxes: a direct approach.
Aha, but
here's the rub. Congress thinks it knows that not everyone will spend the
money. Congress believes it knows out of the 138 million taxpayers who will
and who will not spend money in the manner Congress wants. So, it makes
sense for government to first collect taxes, deduct an S&H charge, and send
what is left to be spent by "politically correct" consumers/voters.
Yet
government doesn't have the ability to survey the billions of decisions made
daily by consumers and act upon them in a timely manner. The changing
factors that have to be taken into consideration between supply and demand
are so numerous that it becomes impossible to take them all into account.
This is what the price system does in a free market economy and which no
other system can possibly accomplish. As Nobel laureate F.A. Hayek pointed
out in The Road to Serfdom, " the price system enables entrepreneurs, by
watching the movement of comparatively few prices, as an engineer watches
the hands of a few dials, to adjust their activities to those of [the
market]."
In his book
"America's Great Depression," Murray Rothbard describes six ways to
perpetuate a depression:
(1) Prevent
or delay liquidation. Lend money to shaky businesses, have banks lend more.
(2) Inflate
further. Additional credit expansion creates more malinvestments.
(3) Keep
wages up. When prices are falling this insures mass unemployment.
(4) Keep
prices up. Keeping prices above free market levels creates unsalable
surpluses.
(5) Stimulate
consumption, discourage savings. All government spending is consumption.
Higher taxes discourage savings, investments and the means for private job
creation.
(6) Subsidize
unemployment. Extending unemployment benefits delays the shift of workers to
the fields where jobs are available.
Rothbard
elaborates on how these measures delay recovery and extend depressions, the
policies adopted in the United States between 1929 and 1933 and yet they are
the time honored favorites of governments. See any similarities with today's
policies?
__________________________________________________________________
Schnaubelt, president of Citizens for
Private Property Rights, has been a commercial real estate broker
for 39
years and was a San Diego City Councilman from 1977-81.
This article appeared in
the San Diego Daily Transcript on Mar. 3, 2009
____________________________________________________________________________
Fred Schnaubelt