THE LIBERTARIAN ENTERPRISE
Number 569, May 9, 2010
"That damned birth certificate"
Attribute to The Libertarian Enterprise
There's a lot of discussion about economic recovery these days.
In the mainstream media, it's all about how the recession, they never actually call it a depression regardless of how it drags on, has ended. We've turned a corner. There are green shoots. New growth. Good times are here again.
If you listen to the Austrians on the other hand, the discussion is considerably less cheerful, at least so far as the state solutions are concerned. The consensus seems to be that there will likely be no recovery. While there may be some periods of short term growth or stability, this will only be an illusion driven by state intervention which will never result in any ultimate progress.
The problem surpasses whatever small symptoms the state attempts to draw our attention to. It isn't bad home loans, or under performing financial sectors, or irresponsible executives which are really the problem here. It is something far more pervasive. And destructive.
The government is stealing from us. All governments really. From everyone. That's what government is.
And the economy suffers the very predictable results of being subject to a large, parasitic entity which exists to constantly drain productive capital. It coughs. It struggles. It limps along. And eventually it will die.
The statists attempt to delay this process of course. They lay blame. They arouse suspicion. They cook the books. And they present us with "solutions."
Unfortunately, or not I suppose depending on your perspective, the state solutions are all the same. They amount to nothing more than capital diversion, whichever of two forms it may take. Either they print money and pass it out to some, but not all, sectors of the economy, or they tax and spend. Both processes are essentially the same. They take money from productive entities and redistribute it to non-productive entities.
Firstly, you must understand that all government attempts at "stimulating" the economy work to subsidize failure at the expense of the successful. If your business is doing well, you will never receive government bailout money. You will only receive the checks if you are failing. And that money can only come from those who are succeeding. Even worse, once the failing entities have government subsidization, they drive the good business models out of the marketplace. Successful businesses can no longer receive credit to acquire capital goods because the lenders perceive less risk in businesses the government has already declared their intention to protect from default. Eventually you end up with a marketplace completely dominated by failure.
Secondly you have to understand how these two mechanisms work. Printing and distributing paper money doesn't increase the amount of capital resources in the economy. It only creates smaller and smaller units of representation for that capital, which are then passed along to those closest to the printers, in this case those corporate entities who have political connections. They then exchange those paper notes at full value for capital goods before the results of their printing are felt across the marketplace, which increases demand for goods and results in price increases felt by those who spend the money later at its new lower value. Printing does not create wealth. It can't. If it could there would be no poor countries, they could simply print themselves rich. Printing only redistributes wealth from the productive to the connected.
Taxation has the same basic result. You can't generate tax money from a company without productive capacity, and you won't spend it to bailout a company which is healthy. So over time, those companies which do well will be increasingly robbed to support those companies which can not.
Imagine the economy as a bucket half full of water. The goal is to fill the bucket completely. In order to do so, the government dips into it and removes a cup of water, and then pours it back in again. They repeat this process over and over again, and can't figure out why no matter how many cups they pour in, the bucket never gets full.
Only the problem is even worse, because as I've said before, for every dollar they spend on stimulating economic growth, they must pay for tax collectors, and reams of forms, and offices which must be heated and cooled, and name plates and parking spaces and pencil sharpeners. It's like they dip into that bucket, drink half the cup, and pour the other half back. So now, the bucket doesn't even stay half full. Instead it gradually loses water.
So they bring in someone like Paul Krugman to help them "understand" the nature of the problem and explain it to the rest of us. And he dips that cup in and takes a nice long draw. The water is cool and delicious. And after a moment, he turns to the state and explains that the problem is only that their cup isn't big enough. What they need to do, he explains between sips, is use a bigger cup, and draw from the bucket more frequently.
And that's exactly what they do. And no matter how many times they pour half a cup back into the bucket, and no matter how big the cup gets, the water in the bucket just keeps getting lower and lower.
And eventually it's going to run dry. There's no stopping it. When the engines run out of fuel, we might not know exactly when the plane will hit the ground but we know for a certainty it can't stay in the sky.
They know this. They have their own economists, and charts. They can see the writing on the wall. They know that the golden goose is running out of eggs. But they've got other irons in the fire.
They've got the whole world extending credit to our government, either out of fear that if our economy collapses theirs will as well, or because they've been fooled into thinking we're a good investment, and all along those in charge are planning to disappear with the money like a thief in the night. They won't make good on their promises to their own citizens, they certainly won't make good on the promises they made to other nations or banks. They aren't borrowing all that money with any intention of paying it back, they're just trying to get as much as they can before anyone else catches on.
It won't last. At some point they'll default on all those loans. It's a mathematical certainty. And things will get really, really bad between now and then and whatever follows.
So while they soak up money from abroad they engage in sleight of hand here at home to keep people distracted. They shift the burden of the state around in the hopes that they can keep most people from noticing until it's too late, which I suppose they've accomplished.
The worst part of capital diversion though is that instead of creating wealth, which real growth does, it simply takes the problems of one industry and makes them the problems of another, only far greater in so doing. Those people who advocate for it have no real interest in lessening suffering. Instead, they are perfectly happy to extend and even expand suffering, so long as that suffering is heaped upon the backs of others and they are protected from it. The reality is that these people are perfectly willing to steal and rape and murder so long as they profit.
And this is where I derive an ought from an is.
Because that is exactly what they are advocating. And they ought to be ashamed.