View 683 Tuesday July 12, 2011
The July Computing at Chaos Manor is posted. Go have a look. And BYTE is back.
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The President of the United States has spoken. It is time to compromise by giving in to what he wants. To the various Republican suggestions regarding the debt limit, he says:
"That is not an acceptable approach," he said at a press conference before talks resumed. "So we might as well do it now. Pull off the bandaid. Eat our peas. Now is the time to do it. If not now, when?" He added: "This is the United States of America. We don’t manage our affairs in three month increments."
He made it pretty clear that the only thing he will accept is an increase in government revenue. More taxes. Close Loopholes like deductions for mortgages and state taxes. Pay more to Washington. Eat your peas.
Otherwise, he says, the government may not have enough money to pay Veterans pensions, or make Social Security payments. We can now all join in chorus. Can we eat our peas? Yes we can! Raise the debt limit. Borrow more money so that we can pay Social Security and Veterans pensions, service the national debt – and, by the way, hire even more Bunny Inspectors and Department of Education SWAT teams, and more TSA agents to teach us how to be pliant subjects. Incidentally, al Qaeda is thinking about trying to recruit someone to smuggle explosives onto an airplane in a body implant, and therefore TSA needs more money and will soon have more exhaustive searches. It’ s the only way to insure safety. Yes we can!
There’s a famous story about a time when, back in the days of the Soviet planned economy, someone got to Stalin at a social function, and when Stalin asked how things were going, he told the Great Father that all was well except that it was hard to get copper tubing. Stalin told an underling “Let there be copper tubing!” And Lo! There was copper tubing. There were shortages of other forms of copper, but there was copper tubing in plenty.
That’s a fairly extreme example, but it’s a common enough story with command economies. A planned economy misallocates resources. If your society is wealthy enough you may not notice because there’s enough surplus to cater to the whims of the powerful and influential, but when resources are scarce the choices are more difficult.
A random example: when Los Angeles had lots of money, it had a big program to bash down the curbs at every street corner and replace them with wheelchair friendly ramps. As a result, about half the curbs in Studio City were given ramps – then the money ran out, and all that work stopped. Now I have in twenty years of walking in Studio City seen perhaps three people in wheelchairs using any of the ramps. Before Phillip Rhodes died his wife used to wheel him around the neighborhood, but they used driveways as often as those ramps to cross the street, and in fact they mostly stayed on their block which is quite large. Mostly, though, those ramps are used by nannies pushing kids in strollers. Now this is very nice for the nannies, but the fact remains that most people around here would rather that money had gone into funding pensions, or perhaps had been saved for times like these when revenues are down.
I suspect that’s pretty universal: there are a lot of things we did in those days that seem very like luxuries. The problem is that we’re still doing a lot of them. Few of those will be eliminated in the coming crunch, of course. Politicians always cut the budgets for the roads and the police before touching entitlements or the bureaucracy. In good times or in bad, das Buros steht immer, as Metternich observed.
Command economies distort the allocation of resources. Sometimes the effects are dire. An example: Senators Dodd and Kennedy (they of waitress sandwich fame), and Barney Frank decided that it would be a very good thing for more people in the United States to own their homes. They saw to it that there would be plenty of money for sub-prime mortgages. Fannie Mae would buy sub prime loans from the banks. Fannie Mae could then use those sub prime mortgages as security to borrow more money so they could buy more sub prime mortgages. The result was a frenzy of increasingly bad loans, to the point that no banker in his right mind would have made such a loan, only why not? The loan was guaranteed, wasn’t it? The result of all this was a housing boom – when there is more money chasing a particular good, the price of the good goes up, attracting people to make more of that good – and the boom became a bubble, the bubble inflated, and we now have official 9% unemployment. The command economy at work. No one willed the collapse, but the misallocation of all those resources made it likely.
My point is that a command economy solution is impossible. We have spent nearly a trillion dollars in bailouts and “stimulus” packages. The “stimulus” funds were supposed to go for “shovel ready” projects. They didn’t. The President even made a joke about it. The truth is that even when we’re supposed to be investing in national infrastructure and spreading money about as a recovery tool, it doesn’t work very well. See the New York Times for more.
Command economies don’t work, even when heavily financed from the outside. The German Economic Miracle wasn’t brought about by the Marshal Plan. It happened when General Lucius Clay, our proconsul in occupied Germany, allowed the suspension of the myriad rules and regulations and mechanism of the command economy that we had been preserving.
Freedom produces prosperity. It takes more than just freedom, of course. It takes rule of law. But freedom and rule of law tend to work: note what happened to the barren rocks of Hong Kong as opposed to the far greater resources of nearby Canton Province. In China they had disorder, then Communism, a Great Leap Forward and a Cultural Revolution, and a stifled economy. In Hong Kong they had British Colonial Rule, few physical resources, but stability, rule of law, and economic freedom. When Red China took over Hong Kong they wisely kept much of the economic freedom; they learned from that; and now China has a growing economy. Not political freedom, and there is still a great deal of misallocation through the command economy, but there is also a great relaxation of regulation, and even something like property rights.
In the United States we move in the opposite direction. More regulations, and less stability: anyone who makes money must fear, because the pressure is always to tax the rich, punish the successful; to take money wherever it can be found on the grounds that it must have been got by unfair means. But fairly obtained or not, if you have money, and the government needs money, the temptation is for the government to find ways to take it. The notion of property right is weakened. That destroys the free economy. If you can be certain that you will reap the fruits of investment, you don’t want to invest, you want to hide your money. Hidden money creates few jobs. And the beat goes on. That spiral is well known, and the US is on it. The government needs money. There are people who have money. We need to raise revenues because, well, because the alternative is to cut spending, and we can’t do that. Maintaining spending is far more important than economic freedom. The Rich don’t have any right to make us balance the budget on the backs of the poor. This is rule of law! We make the law that the rich must pay. And there goes the notion of property which is essential to economic freedom.
Economic freedom and rule of law produce prosperity. If the government wants to help, let it get out of the way. Economic freedom would result in lower cost energy – unless regulation strangles that. If we want strict regulation of energy production, then government will have to be involved. This is a very difficult thing to do: government usually mucks things up. It can provide energy at prices that are not ruinous – TVA is evidence of that – but it is never easy. Government is subject to the Iron Law, far more than competitive enterprises, and that always misallocates resources. But if you add low cost energy to economic freedom you have a sure fire formula for economic miracles.
Alas, in this era of hope and change, all the government energy investments go to “green” energy, which isn’t efficient and produces no jobs not subsidized. We burn food – and still subsidize the gasohol projects. And it will continue. When a nation gets wealthy it turns against property rights. What right have you to that property when there are so many who have none? What right have you to a house when so many are homeless? We command that something be done. Let there be houses owned by those who don’t have great credit. Let there be Affordable Housing. And so it was.
Through economic freedom Germany eventually became wealthy enough that they could adopt many of the trappings of a command economy, some of which they inherited in the absorption of East Germany. They cut back on economic freedom. Now they are expected to bail out Greece. Perhaps we can persuade Europe to bail us out with a reverse Marshal Plan?
Probably not. Instead, the Deficit Dance continues. The Department of Education keeps its SWAT team. The Department of Agriculture continues to hire and pay inspectors to be sure that stage magicians have federal licenses to use pet rabbits. But if we don’t borrow more money we won’t be able to pay Social Security.
And they never catch wise.
Or do they? Apparently McConnell has a glimmer. Eat your own darn peas.
