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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  1. #1 by Tomas on September 29, 2011 - 12:06 am

    The US Patent & Trademark Office is fully fee-funded. No tax dollars at work there.

  2. #2 by Tomas on September 29, 2011 - 12:16 am

    “he’s also arguing for government intervention based on false premises.”

    Sort of like invading Iraq?

  3. #3 by basicconservative on September 29, 2011 - 9:30 am

    Like I said, there are some exceptions. But they are just that, exceptions. Add up all those offices, local, state, federal, and the fees account for less than 10% of total income, and that’s if you exclude all the borrowing–it’s really closer to 6%. (http://www.usgovernmentrevenue.com/)

    As for Iraq, I’d argue, but that’s a far distant topic from the economy…

  4. #4 by Tomas on September 29, 2011 - 10:42 am

    I was referring to the “false premises” part.

    • #5 by basicconservative on September 29, 2011 - 11:31 am

      Still unrelated. Are you arguing that since a different President did something you think was wrong on foreign policy 10 years ago, we should let this President be wrong on the economy today?

  5. #6 by Tomas on September 29, 2011 - 7:55 pm

    No, only that it happens with presidents from both sides. Hopefully the criticism will equally follow suit.

    • #7 by basicconservative on September 30, 2011 - 9:22 am

      Yet still unrelated to what economic solutions are best to get us out of today’s economic mess. Of course presidents from both sides get things wrong, but I question your memory if you don’t think Bush was criticized for Iraq–good God, they made movies about assassinating him!

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