Dumb Ways (for an Economy) to Die
Dear Laissez Faire Today Reader,
In a similar way, there are many dumb ways to kill an economy. Over the last five years, the federal government seems to have set the record for attempting as many as possible in record time. Then we look at growth rates and wonder why they are so anemic, why our kids can't get jobs, why sector after sector seems to be crumbling, and why so many people are looking abroad for opportunity.
In today's issue I thought we'd look at the dumb ways for an economy to die.
Stimulate Failing Sectors. The crash of 2008 exposed gigantic investment errors goaded on by previous bad Fed policy. The market tried so hard to make things right. But the Fed, the Treasury, and every living government official fought the entire way, with TARP, QE, ZIRP, Operation Twist, bankruptcy protections, debt creation, and many trillions of dollars in squandered wealth. And for what? To save the housing, banking, and financial sectors from the consequences of their errors. But the errors haven't gone away. The sectors haven't been stimulated. The net effect has been to ratchet down wealth creation, and so it will be until the stimulators stop diverting wealth and start facing up to reality.
Protect Against Imports and Exports. "Economic patriotism" is one of the most dangerous phrases in the English language. It means using the taxes called tariffs and quotas to prop up economically inefficient industries in our borders and failing to allow consumers to get the best deal whenever they can find it. Obama brags: "We've brought twice as many cases against unfair trading practices than the previous administration and we've won every single one that's been decided." The archetype case concerns China. You are paying more for lower-quality tires due to this intervention, at an estimated cost to consumers of $1.1 billion. The goal of energy independence is a bad one because it diverts production from efficient to inefficient technologies. Protectionism (and we have it for thousands of goods such as sugar, cheese, and ball bearings) is for losers. The belligerence against China is harmful. The sanctions against Iran and a dozen other countries are stupid The U.S. economy needs to embrace the global economy, or else it will die alone.
Regulate Everything. In the name of health, safety, the environment, and intellectual property enforcement, nothing that exists has been left outside regulatory management. Each day, an average of 68 new regulations appear, giving bureaucrats the opportunity for endless meddling and harassment, and shutting down entrepreneurial ideas. Every machine in your home has been forcibly degraded, from your toilets to your washing machines to your soap. We can't kill bugs in or out of our homes. Lawn equipment is wonky now, thanks to the regulatory tsunami. IP enforcement through patents and copyrights has slowed the pace of development of media, software, and industrial machinery. Enterprise lives in a cage and still somehow manages to stay alive. But what are we missing as a result? That's the great unknown.
Kill Cars and the Gas That Runs Them. American cars used to be cool, even amazing. Now the new cars all look alike, like in the old East Germany. The central plan has done this through "Corporate Average Fuel Economy" standards that have forced cars to take a certain shape unless they can be redefined as light trucks. Then there are the extremely weird regulations on pedestrian impact. As a result, the vehicles on the road look boxy and boring or seem big enough to transport the high school band. This is why the only good-looking cars in the new models are hybrids: Only the mix of electricity and gas gets around the regs. And speaking of gasoline, 40% of America's corn crop is burned up in our tanks (thanks to ethanol regs since 2008), and then it leaves residue that degrades engine quality. And we wonder why the American car industry is being creamed.
Save the Banks. Few remember that then-Treasury Secretary Hank Paulson's first plan as the financial system melted down was to have the Treasury buy $700 billion in bad assets from the banks. That would not have been enough. Banking is a leveraged business. What the system really needed was capital injections. Thus, the birth of TARP and so many other programs. It was all designed so that we could go to our ATM machines and have money come out. The problem is that the whole system is unsound. If the banks had been allowed to fail, a banking system would reemerge that is sounder and less likely to create the booms and busts that continuously rock the U.S. economy. Instead, the banks live on, getting bigger and more unstable all the time. The latest estimates guess that TARP will cost taxpayers $65 billion. That's nothing compared with the coming costs of sustaining this dinosaur industry that is so easily replaceable in the digital age.
Raise the Minimum Wage. It's tough enough for young people and unskilled workers to find gainful employment. Legislators have had make it impossible for some by pricing this labor out of the market. Gas stations used to have attendants, typically young men. They would pump your gas, check your oil, and fill your tires. With labor price control, technology had to replace labor (except in attendant-mandatory states like New Jersey). Grocery stores are going the same way. The unemployment rate for workers under 25 years old is 16%, more than double the overall rate. It's no wonder the minimum wage has been hiked three times since 2006 by a whopping 41%. On top of the federal requirements, some states like Nevada and California have higher rates. Indexed to inflation, the minimum wage is 50 cents higher in Nevada, and in San Francisco, the minimum jumps to $10.55 this New Year's Day. Youth unemployment in California has grown 35% since 2000. Unemployment among yo ung people in Nevada is 27%. The young should blame their rulers for this calamity.
Soak the Rich. The war on the rich is completely out of hand, so much so that no one dares state what everyone once knew: The rich are our benefactors. They give most of the donations to philanthropy. They start the new businesses. They provide the capital. They most often have the good ideas. Their consumption habits provide a testing ground for innovations before they reach the rest of us. Yes, there are some sectors of the rich who become that way at others' expense, but that is still the exception, rather than the rule. But don't the rich need to be looted to pay for the debt Congress has run up? Doing so would fund the government for about 10 seconds. No, the real driving motivation behind the campaign against the rich is plain old envy. Envy is a bad habit of heart, one that will kill prosperity dead if it is unleashed in public policy.
Start a War. It was bad enough that the Bush-era wars have been sustained, maintained, and even entrenched in the Obama era. The war hawks seem to be on the lookout for other countries that the U.S. military can muscle and invade, with Iran topping the list. The U.S. military is outrageous bloated. The U.S. spends 800% more than Russia, the next-highest spender on the planet. The military budget is 15 times that of Japan, 47 times that of Israel, and 73 times that of Iran, according to many reports. It has doubled over the last 10 years. To maintain that kind of bloat, you have to whip up the population in periodic frenzies about witches abroad that need to be burned. From an economic point of view, this is catastrophic, throwing good money after bad and killing people in the process. Yes there are winners: the military-industrial complex. But the profitability of DynCorp, ManTech, Textron, Honeywell, and Northrop Grumman is not authentically based on consume r demand; these companies are private in name only.
Confiscate Private Property. The war on drugs has turned into a war on private property and private citizens. In most states, if you are stopped by law enforcement, your car may be searched, and any item suspected to be involved in the drug trade may be confiscated. Cash is the primary item local law enforcement agencies are looking for. Carrying a large amount of cash in your car, instead of having it in the bank is thought to be suspicious. These asset seizures are all an attempt to pay for the prison industrial state that has nearly 2.5 million people behind bars. It's impossible for taxes to foot the bill for all this policing. Now cops on the beat have turned into pirates seeking booty on the streets. Investigating murders and rapes doesn't pay the bills anymore. And stopping the inflow of drugs is the last thing on their minds. They just want the money.
Socialize Health Care. There is nothing more dastardly than ruining the ability for people to get medical care. It is a life-and-death matter. To destroy the market mechanism of property and prices is to destroy economic rationality, with the result being poverty, chaos, sickness and death. Ludwig von Mises wrote in 1922 that to socialize health care was the equivalent of placing this vital service in the hands of the army or prisons, centers of disease and disaster, not health and well-being. Americans complain about health care in this country and agitate for socialized care, when, in fact, 29% of American adults get their health care from Uncle Sam. Three-quarters of those over 65 years old depend on the government for medical care. Medical care is a scarce good. It must either be allocated by force or voluntarily at a cost of either time, money, or both. The price system in health care has been destroyed by government force, making health care unobtainabl e for millions.
Kick Out the Immigrants. Immigrants have been demonized for decades. The Irish used to be lazy drunks. Now it's Latinos. A strange brew of political bedfellows -- the nativist right and environmental left -- seek to shut the borders. But the facts prove that immigrants make us much better off. Immigrants are more likely to save and start businesses. They don't steal jobs from Americans; they create new jobs and do work natives don't want to do. The beauty of (especially) illegal immigrants is that they respond to the business cycle by arriving when work needs to be done and being flexible enough to go where the jobs are. In my own home state, the immigrants are sustaining much of the economy. By the way, the cost to keep immigrants out is billions of dollars and doesn't begin to pay the "supposed" costs that immigrants impose.
Abolish Interest Rates. Since 2008, the Fed has decided to go after natural law itself by using its power to impose a policy of zero interest rates. Problem: You can't earn money by saving anymore. That's seriously awful, since saving is the basis of investment and growth. Another problem: Banks can't earn money by normal lending anymore. That's just extremely strange. Banks, instead, are learning to live on the income stream that comes from keeping their deposits at the Fed, playing the derivatives market, and selling inflated debt securities. This is one step short of nationalization, but it is far from normal banking. Then there are the private-sector lending institutions that are completely ignoring the yield curve and getting normal market returns. But this private sector is seriously hindered by regulations and the money monopoly. The result: a broken banking system that has no conventional way to fix itself.
Look at this list of dumb ways to kill an economy. It is a stunning tribute to the private sector and the power of enterprise that we manage to grow and still somewhat prosperous, regardless of this relentless beating.
And we wonder what's happened. We wonder why capital is fleeing, why people are leaving, why wealth is not being created, why growth is anemic. This is not a reality built into some kind of civilizational way or some inexplicable great stagnation. It is all a direct result of a conscious decision to wreck the machinery of freedom. It's dumb.