Archive for September, 2011

The Government Isn’t Magic

Limited Options

The government is necessary. I will never claim otherwise. Conservatives will never claim otherwise. President Obama argued irresponsibly when he said in his jobs speech to Congress a few weeks ago that conservatives want to “dismantle government, refund everybody’s money, and let everyone write their own rules, and tell everyone they’re on their own.”[1] This is the argument of just about nobody.

More to the purposes of this blog, he’s also arguing for government intervention based on false premises. One belief in particular comes to mind. His entire argument calling for a new stimulus is based on a belief that the government can, if people don’t have jobs, simply create jobs for them. It sometimes seems this is supposed to happen by magic. Economicus reparo. Poof. Don’t look behind that curtain.

To understand conservative solutions, you must understand that this premise is flawed. Conservatives understand that the government can never truly create jobs in and of itself. All work the government creates is offset by a reduction in the ability of the private sector to create.

Think about the economic actions that are actually available to the government. The government can regulate; that is, make laws saying that activity X is illegal and activity Y is only allowed to happen according to format Z. And the government can make programs that distribute money or confer various benefits, sure–all funded by taxes, the government’s only source of income. It all, with few exceptions, comes down to those two things: regulation and taxpayer-funded programs.

Here’s the rub: both of these options are inhibitory actions. Both of these options make business more expensive. And if business is more expensive, then less business will occur. This is just shy of being a law on par with gravity. If something is made more expensive, less people will do the something. Slapping a heavy tax on each pack of cigarettes leads to lower cigarette sales. When gas prices doubled, people took less long car trips.

Look at the two options, taxation and regulation, in the context of starting businesses or hiring new employees:

Taxation- Any new government program means a new tax. Nothing is free. Increased taxes–whether they are taken directly from the businesses, or indirectly by taking it from you and me–either way, it means businesses have less money to expand, hire, or in some cases, exist.

Regulation- Increased regulations means the businesses have to pay more money to remain compliant, or to pay experts to find ways to get around the regulations, or sometimes, to pay lobbyists or outright bribe officials so that they don’t have to be compliant. Ultimately, the same thing results–the business has less money to expand, hire, or exist.

Obviously, starting a business or hiring a new employee costs money. Take more money away, businesses will start and/or hire less. So that’s:

  1. More regulations, less money available to hire… less private hiring.
  2. More government programs, more taxes to pay for the programs, less money available to hire… less private hiring.

Regulations make it harder to do business–sure, that’s readily apparent. But let’s look more closely at the other point. Even government programs which (claim to) hire people to build bridges and roads lead, at the end of the day, to less hiring overall–because that hiring is paid for by taking away money that other companies would use to hire, and build, and expand. We might all agree that we want the new bridge or road and it’s worth it, but we must never neglect the fact that it’s paid for out of the same pocket that businesses reach into when they want to pay their employees. Government programs which hire people and support businesses and individuals do so by reducing the ability of the private economy to hire people and support businesses and individuals. You can have a great campaign line about the government stepping in and hiring if businesses won’t do it themselves, but it won’t actually have an effect on employment. Taking money out of the economy to put it in to the economy is a wash at best. And that’s only if the government is 100% efficient (ha, ha).

This is why George W. Bush’s stimulus of sending everyone a refund check for a few hundred dollars had no real noticeable effect on the economy. This is why Barack Obama’s 800 billion dollar stimulus had no effect on unemployment. This is why the proposed new 400 billion dollar stimulus will, if passed, also have no effect. The government cannot create, it can only get in the way–attempts to intervene generally make things worse.

Before I overcomplicate the explanation, here’s the overall logic again.

If the government’s only options for interacting with the economy all make business more expensive,

And the more expensive business becomes, the less business will occur,

Then the more the government wades into the economy, the less business will occur.

Simple enough, right?

Now let’s put this all in context before you all get up in arms about Crazy Marc the Right-Wing Anarchist.

For one thing, I mentioned that there may be other things the government can do outside of the tax-and-regulate model. The list of exceptions is small, but there are a few government services that attempt a fee-for-service model, or quasi-governmental agencies that don’t claim full public status, but are still run by political appointees and are often largely publicly funded. Some are more effective than others. For example, there are agencies such as the US Postal Service, and Fannie Mae/Freddie Mac. These exceptions, while a tiny fraction of the government’s real activity, illustrate a point coming in a further post about the effectiveness of government-run versus privately-run services. For now, I will leave it to you to decide if you think Fannie and Freddie, and the USPS, are stunning examples of government efficiency and productivity. Or not.

Then there are some things that virtually everyone can agree it’s necessary for the government to do. Certain things can only be effectively handled by a central government, simply because private solutions wouldn’t work. It’s a good thing that (be it local, state, or federal) roads are planned and constructed by the government. It works. I don’t want to see a private police force or fire departments. Certainly, national defense can only be effectively run by a central government. And, arguably, these things are real goods and services being produced—the government, in these cases, is not simply a parasite, but a productive part of the overall economy. Without getting into the government’s competence or lack thereof, if there are no other options for these necessary things, then we should have the necessary taxes to do these necessary things.

However, what I’m talking about here relates to the government’s interaction with businesses and the economy. And I even grant that when it comes to business, there are necessary regulations. Various business practices are rightfully illegal. Society is better off if things like usury and false advertising are not allowed. This is good and necessary, and you will never hear me say otherwise.

Here’s the but (you knew it was coming).

Let’s say the economy is a car. That was everyone’s favorite metaphor a few months ago, I can certainly beat it to death a little more. At its most basic, the car in this particular example is just an engine, wheels, and a seat. The engine of the economy is every business in the country, producing and selling goods and services. They want to. They NEED to, they live and die by selling something for a profit. The more profit, the better for them.

So this car, unlike a real car, wants to go pedal-to-the-metal, all the time, of its own accord. This car will always be trying to go as fast as it can. This is its natural state. If you sit back and do nothing, it will race forward as fast as possible, driven by the high-octane fuel that is the human desire to make a better life for ourselves. It’s a car with the accelerator strapped down.

The government can’t do much of anything to goose the car and make it go faster, if its natural state is to go as fast as it can. The government can, however, get in the way through various means. Remember when I talked about perfectly reasonable business regulations? Now the car has seatbelts, airbags, brake lights, anti-lock brakes. These are things, if left to our own devices, we might choose not to put in our cars—but we can all reasonably agree that we’re all better off if everyone has these things. And this is good government; we’re better off with certain reasonable regulations than without them. These are not things that keep the car from driving.

Where we get into trouble is when the government goes too far. There are regulations and taxes that, rather than giving us a smooth ride, are more akin to filling the trunk with lead. Confiscatory taxes—for example, taking fully half or more of someone’s income—remove incentive to be further productive. This is like attaching a parachute to the back of the car. You can get so much, but then the parachute inflates, and you’re not going any faster than that. Regulations that, say, prevent domestic oil exploration simply let the air out of the tires.

So now the car is objectively safer—now we can’t go faster than a walking pace. But we’ve also eliminated the usefulness of the vehicle, since we were already going that fast simply by walking. It’s gone too far. If the government can only slow the economy down–though we all agree that some restrictions are healthy–problems still arise when necessary restrictions give way to destructive ones.

On the surface, the disagreement lies between people saying, “We need more regulations,” or, “All regulations are bad.” I don’t think that’s really what conservatives argue, but regardless, we should all be able to agree that the right question is, “Which regulations are necessary?” Conservatives, rather than wanting to “dismantle the government,” simply want to keep the necessary regulations and toss the unnecessary ones that are only slowing us down. We don’t want the government to try to magically create jobs, because we know that it can’t. There is no magic spell for this.

Instead, we want to allow the private economy to provide jobs, because it’s the only way it ever really happens. Unlike the attacks against the GOP and Tea Party assert, the goal of conservatives is to actually look at reality and create a situation where everyone can find a job and take care of themselves. And that’s something we should all strive for.

[1]  http://www.politico.com/news/stories/0911/63043.html

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What Is Wealth?

Or, That Goofy Zero-Sum Game Argument

It’s important to understand that money isn’t the same thing as wealth. Money can be one form of wealth, but when we get down to it, it’s ultimately just a stand-in so we don’t have to trade chickens anymore. Wealth is any stuff, or the ability to get stuff, or do stuff. Thinking that “wealth” just means money and nothing else is like thinking that “TV” just means game shows and nothing else. Jeopardy is great, but if that’s all you think is on, you misunderstand the nature of TV and will have a hard time having any sort of meaningful discussion about it.

Here’s an example of what I mean about misunderstanding the nature of wealth. Liberal economics says that government spending always makes the economy better, because there’s more money moving around, so the GDP is bigger, which is how they define the economy. But GDP just looks at money. Remember- if wealth is all goods and services, then an improved economy would be producing more goods and/or services. Simply moving more money around, without increasing productivity, is meaningless. If I pay you 50 million dollars to sit on your couch for an hour, then you pay me 50 million dollars back to do the same, the GDP gets 100 million dollars bigger. But nothing actually happened. This is the fallacy of government stimulus. You can make the numbers look good without actually changing the real economic situation.

(side note: GDP can be useful. I know. Productivity causes money to move around. GDP, in theory, measures how much of that happens. But it does so indirectly and incompletely, and can be made invalid, as in this example. But it has its proper uses, so please don’t use this against me when I cite GDP as a useful metric a year from now.)

There’s a term that gets tossed around a lot at this point. Game theory involves the concept of the “zero-sum game,” or a circumstance in which one player’s gains are, by design, another player’s losses. To put it a different way, in order for one person or team to win, someone else must lose—that is, in a zero-sum system.

Liberals often argue for higher taxes or restricting businesses based on the idea that our economy is such a system—there is only one pie, and we have to split it up, so if one person has a lot of pie, that means someone else is getting screwed. Poor people are poor because there’s only so much money to go around, and the rich took too much of it. President Obama’s near-daily attack on those rascally millionaires and billionaires and their private jets comes to mind, not to mention his belief that it’s good to “spread the wealth around.” As I’m writing this line, I just heard Ed Schultz on his radio show claim that we need to raise taxes on the wealthy because–paraphrasing–the Bush tax cuts killed job creation and just led to the wealthy taking more money. In other words, the more money rich people got, the less there was for the rest of us. And I regularly get yelled at about the terrible, awful, no-good very bad “income gap,” often in the context of the Reagan years–based on the logic that, since the rich got richer during that time, the poor must have suffered.

But our economy is not a zero-sum system. Think about it: if I have $100 in my pocket, it doesn’t mean there’s someone out there that’s $100 poorer because of me. That $100 is in constant motion, as people make more stuff, and people get richer every time it moves–because, remember, what’s happening isn’t simply money moving from point A to point B, the money is just a convenient way to pay for productivity. If I give you that $100 and you build me a bookshelf that didn’t exist before, we both gain—you make profit on your sale, I get a bookshelf that I couldn’t make myself because I don’t have the tools or experience. This breaks the definition of a zero-sum system, because we both gain, nobody loses.

Look at the example again. We’re not on the couch this time. If I pay you 50 million dollars to build a giant golden statue of Zeus in my backyard, then you pay me 50 million dollars back to buy 300,000 tons of vitamin C, the GDP is the same as if we had been sitting on the couch trading money. But this time, we both have $50mil more worth of stuff. What matters is the productivity.

What this ultimately means is that people acquiring large amounts of money does not mean they are making other people poor. People acquiring large amounts of money is GOOD for the economy–it generally means they are being productive, which is making themselves and others more wealthy.

Let’s separate that one out, because it’s a big deal. As a general rule, people acquiring large amounts of money and wealth is good for the economy, and everybody in the economy benefits from it.

If all this is true, what about that income gap? Did Reaganomics help the rich at the expense of the poor? In fact, according to Census Bureau data, the opposite took place. From 1981-1989, Americans in every quintile saw their real (inflation-adjusted) income rise, and the number of Americans making less than $10,000 a year shrank by 3.4 million–whereas Americans in the lower-earning quintiles did lose ground in the 8 years before and after Reagan.[1] How about the current economic crisis? If the rich are losing, someone else must be gaining, right? And the rich have certainly been hit by the recession. The actual number of American millionaires fell from 9.2 million to 6.7 million between 2007 and 2008.[2] How have the poor fared? Have they picked up all that money?

Of course not. It’s all too easy to score political points by telling people that they are getting screwed and then saying to them, “If you vote for me, I’ll make things right!” But that’s simply not how things work. Punishing the rich doesn’t help the poor. Historically, it hurts the poor as much or more than the rich.

Here’s the thing. People usually (of course there are exceptions, but on the whole) get rich by being extremely productive. When that happens, not only is there more stuff for us all, but productivity doesn’t just create stuff, it creates jobs. No jobs created when we’re on the couch. But when we’re being productive? Someone’s gotta mine all that gold, drive the trucks to get it to my house, melt it down, engineer the statue, feed all those workers, provide the gas for the trucks, power for the tools, and so on, and on, and on. See the difference?

Let’s see where that leaves us:

  1. Money is not the same thing as wealth. Wealth is all kinds of stuff.
  2. Acquiring wealth usually happens through production, which is good for everyone.
  3. The economy is very much NOT a zero-sum system–and therefore, it’s not a contradiction to say that we can all–rich, poor, and middle–get richer together.

Finally, why don’t we take this opportunity to look at one of our common practical goals in light of these ideas? I hope we can all agree that we want to help the poor build better lives. According to this understanding of wealth, productivity, and business, just about the most effective way to help the poor will be to increase the productivity of the economy. This increases total available wealth, makes the wealth more affordable, and creates more jobs so that more people can access the wealth. More employment, cheaper goods, more vertical mobility. Bam!

The question then becomes, how?  What do we do to make this happen?  Should the government stimulate production?  More to the point, can the government stimulate production?

My first of many thoughts on that extremely big issue, coming soon.

[1] Niskanen, William A. and Stephen Moore (1996, October 22). Supply-Side Tax Cuts and the Truth about the Reagan Economic Record. Retrieved September 15, 2011, from The Cato Institute Web site: http://www.cato.org/pub_display.php?pub_id=1120

[2] The Economist (2009, April 2). Easier for a camel. Retrieved September 15, 2001, from The Economist Newspaper Limited website: http://www.economist.com/node/13356686?story_id=13356686

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Why Business Is Good For You

or, You Should Hug a CEO Today

One of the foundations of a conservative political ideology, possibly the most critical, is the understanding that businesses create everything that we have and enjoy.  The food in your fridge, the fridge itself, the kitchen it sits in, the lumber and paint and everything that built the structure.  All created for the profit of some business.  The car you drive, the music you listen to, the medicine you take, the website you’re reading right now and the computer you’re reading it on.  The hand-stitched, organic-cotton toe socks you bought from the neat hipster shop directly from the person that made it.  The mass transit you ride.  The public education you enjoy.  The money you donate to charity.  All of it comes from businesses.

“Mass transit?  Public education?  Charity?  What?”  Yes, every last bit.  It’s obvious when you buy something like an iPod, that yes, this was built by Apple, a for-profit business.  And yeah, of course cars, appliances, construction, music, these are all for-profit enterprises.  Less pleasing to some is the fact that even such necessities as farming and distributing food are run for profit, but we all know deep down that they are.  And the handmade artsy stuff you buy directly from the handmaker, okay, they are technically a business of one.  That hippie is one of those CEOs liberals like to complain about.  Fine.

But government programs?  Cops and teachers?

Emphatically yes.  Provided to us and paid for 100% by for-profit businesses.

Not only are all the buses and trains and school buildings built by businesses, but every dollar that the government spends on programs is taken directly or indirectly from, or because of, some business’s profit.  No business; no productivity.  No productivity; no profit, no payroll.  No profit or payroll; no taxes.  No taxes… no government programs.  Condense that, and: no businesses, no government programs.  It really is that simple.  Every service the government provides is, ultimately, provided by businesses.

This is clear enough in the case of corporate income taxes.  But I’m talking about everything.  Income taxes work the same way.  Your income occurs because you are being productive for a business.  Even if you’re making and selling your own stuff out of your own home–now you’re a small business owner.  Your income still occurs solely through the mechanism of business.  And if you’re an employee, income taxes mean that your company has to pay you that much more to justify your work.  If taxes drag a company’s employees below a livable wage for the area the company is based in, employees will no longer be interested in taking a job there.  They have to pay you more to make up for it.  One way or another, that tax is coming out of the company’s balance sheet.

Property and sales taxes too–the money you use to pay them found its way into your pocket through business (even if it was redirected through the government first).  No matter how you look at it, business is the ultimate source of every dollar that goes to teachers’ salaries or Social Security or NASA or AIDS programs in Africa or WIC or the paycheck of someone tapping on a calculator at the federal building downtown or whatever else the government decides to do.  Every dollar you give to charity was paid to you, or to someone, by a business, in exchange for productivity.  Whatever it is, businesses provided it.

To visualize the overall concept: the economy is, basically, money in motion—and businesses provide the locomotive force.  Businesses and profit are like the gas in the car.  You can have a really, really snazzy car, but without gas, it’s not going to get you anywhere.

Look at it this way.  If Ford makes 10,000 Mustangs and puts them on the market, obviously they are providing stuff to the economy right there in step 1.  That’s good, we like Mustangs, we’re better off if they exist rather than not.  Look at the rest, though.  The government (making up numbers) taxes their profits and takes a million dollars.  The cars sell, providing a million dollars to the government in sales tax.  Ford pays their employees, and the government taxes their income for another million dollars.  The employees own homes thanks to their work at Ford, and pay property taxes for another million dollars.  So now the government has four million dollars.  The government then spends that four million dollars on Medicaid.  In reality, Ford’s productivity directly and indirectly provided that Medicaid insurance, not the government.  The government was just the middleman.  If Ford wasn’t there doing business, none of this money would be coming in for the government program.  If you take away Ford’s ability to do business or to make a profit, guess what—the government benefits go away too.

One more analogy.  Say Fran owes Irene $100.  Paul has lunch with Fran, and says, “Hey, I’m going to see Irene later, I can take her the money you owe,” which he does.  Nobody would say that Paul paid Irene $100.  Fran did.  It was Fran’s money, Paul just carried it.  In the same way, when the government writes Fran a Social Security check, it’s not the government’s money.  The government is just carrying it from the businesses and people it was taxed from, all made possible solely thanks to the productivity of businesses.  We might all get together and agree that Social Security is a good thing and this is how we want our society to conduct itself, but we must never lose sight of the fact that it’s only thanks to business that any of it can happen.  If we do, we end up despising Fran for being greedy and giving Paul a trophy for his selfless generosity, even though Fran really paid Irene.

So, what’s so magical about businesses, that everything else in society depends on them?  They are productive.  They’re not just hoarding money, they’re using it to build stuff or do stuff for people.  That’s it.  The more stuff they make or do, the more stuff per person there is in the world, the richer everyone is.  Principles of supply and demand say that the more stuff there is, the cheaper it is for anyone to get the stuff–that means, the more and better stuff businesses produce, the more your dollar is worth.  So when a business is rolling in money and making tons of stuff, you as a consumer are reaping the benefits as well.  So to repeat that point (it’s important): the more businesses produce, the richer everyone in the world is.

Before I start getting hate mail, let me include two caveats.

First, sometimes businesses do things that are bad for their employees, for their customers, for the world in general.  Sometimes businesses can do things that are truly evil.  This is often done via a complicit government, and whenever this happens, it needs to be stopped.

And second, of course the government provides goods and services too.  Productivity isn’t restricted to private industry.  There are some things that only a central government can provide effectively, and that’s well and good–in some cases, absolutely necessary for our society to run.  This is a complicated topic deserving of its own discussion.  However, certain facts should be apparent.  Given that the government is by definition a monopoly, and–by popular consensus–only marginally competent and often corrupt, it’s always going to run things less efficiently than a competitive market will.  That being the case, the government’s role is to do the things it has to do, as efficiently as it can manage, and then to do as little else as possible.

Now, with those two issues in mind, the basic framework remains.  Everything in our society, whether it’s obvious or not, whether it masquerades as free or not, no matter who or where you get it from, exists directly or indirectly because of for-profit business.  And the more businesses produce, the more productive and efficient the overall economy is, the more our money is worth.  Therefore, when businesses succeed, we all become richer.

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Welcome

My wife and I were talking about political conversation a couple of weeks ago.  She observed that political conversations, regardless of where they begin, often end up in the same place—a re-hashing of the same ideas, or, repetitive laments on how the opposition is ruining things.

If this is generally true for political conversations, it’s especially true for political arguments.  Debates are sparked by current events, about which people can, and sometimes they even do, have real conversations in which they listen and respond to others.  Soon, however, that spark ignites a flame of ideology.  Often, people then end up running quickly from the cool, rational debate into fiery shouting matches.

So this all got me to thinking about the fact that, as far as I can tell, many people never bother to actually understand most others’ positions.  I might be generous in assuming that people even care why other people believe what they do, but that’s another matter.  I was recently accused of being a “blind fool” for my conservative beliefs.  Modesty aside, I think I’m more informed than most, and I have rational reasons for everything I believe.  I’m not saying I’m never a fool (nobody’s right all the time), but I’m certainly not the type to simply agree with those around me without thinking or reason.  If I were, I never would have held on to my political ideals through four years at a state college and three years in Los Angeles.  I held on to them because, after listening to both sides of the argument, the conservative solutions generally made more sense to me.

In my experience, both conservatives and liberals can be patriotic, selfless, thoughtful, and logical.  Both camps—despite what each says about the other—want what’s best for us all, including (and specifically), a better life for the poor.  And I mean it when I say both can think logically and rationally, though some individuals on either side may demonstrate this skill better than others.  The problem, and where people close their ears and start locking antlers, is that we start with vastly different premises.  Most of us can agree that 2 + 2 = 4, certainly, but if I’m adding 3 and 6 when you think I’m adding 2 and 5, and vice versa, we each reasonably think that the other is an idiot for coming to a different conclusion.  And we almost never talk about the premises.  They’re the source of the disagreement, and they get woefully overlooked.  People don’t talk about the deep, theoretical differences.  We liken each other to Hitler and Stalin and make commercials saying the other party wants to KILL YOUR GRANDMA!  Righteous anger is so satisfying.

But this doesn’t get us anywhere.  This, in fact, sucks.

Hence, this blog.  I want you to know my reasoning, starting from first principles.  My conservative manifesto, if you will.  I want to help people understand why conservative solutions really make the most sense.  It’s my hope that even those who disagree with me will at least, seeing my reasoning, understand it and know that it exists; and know that, though we disagree on the means, we all want a better world for everyone.

Well, deep down, it’s my hope that those who disagree with me will read this and say, “Holy crap, I’ve been wrong all these years, I’m actually a conservative,” but I’ll take what I can get.

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