ECONOMIC BAILOUT OVERWHELMINGLY DEFEATED BY ECONOMIC REGULATION
Attorney Jonathan Emord
December 28, 2009
The Obama Administration and Democratic leaders in Congress keep hinting at greater federal spending to help jump start the economy. As existing spending programs dump some $13 trillion into isolated segments of the economy, the nation’s leaders are greatly expanding food, energy, environmental, and health care regulation. Apparently neither the President nor the Democratic leadership in Congress understands these measures to be contradictory, but most people in business see the contradiction all too clearly.
The spending, even in the enormous amounts this administration has doled out, invariably fails because it is aimed at politically favored industries and follows from a command-control model whose architects erroneously presume to know the direction of the market when, in truth, that direction is unpredictable. The spending fails to reach those who would put it to the best and highest uses precisely because largely unpredictable swings in consumer demand determine from moment to moment those best and highest uses. For example, before Bill Gates came along no government planner would likely have guessed that federal dollars doled out to budding young college kids with a knack for computer programming would yield a high rate of return, yet Gates’ contribution to the personal computing revolution altered fundamentally the nature of supply and demand for those skills. Were the current leaders in power in the early 1980s as the recession during the Reagan Administration came about, they would have likely dumped dollars in the wrong market sectors, as they do now. As former planners in the Soviet Union discovered their chagrin time and time again, bureaucrats do not understand and cannot predict the actions of a free market. Past performance is a mediocre predictor of future markets because consumer demand is dynamic and ever changing, not static and predictable.
What bureaucrats can control that has an extraordinary impact on the market is the extent of federal regulation that imposes barriers to entry to or taxes free markets. An across the board roll back in federal regulation and a demand that no regulation be implemented that causes an adverse economic impact would create opportunities for market entry and profit that would otherwise be foreclosed. That kind of action can permit the future titans of the market to come to the fore and can permit a transformation of the market, like the Gates’ transformation, that can catapult the economy out of recession. By contrast, when the President and Congress press the federal agencies to regulate aggressively, they achieve the opposite effect. They freeze out of the market potential new entrants who cannot afford the costs of proving compliance, and they make the cost of remaining in business prohibitive for many. This, in turn, sacrifices innovation and invites further economic collapse and unemployment.
The Obama Administration’s remedy for the economy is a bit like that of a confused physician who offers hemlock to end the suffering of a desperately ill patient. That remedy will stop the suffering but only at the expense of the patient’s life. Extreme expansion in government spending and regulation will eventually end what ails the free market but only because it will eliminate the free market altogether. What remains after a free market is no mystery, it is government everywhere, more regulation down to the minutest level, where all are servants of the state and where economic mediocrity is the rule and every incentive to invent, produce, and accumulate capital is obliterated. That is the modern equivalent of slavery, replacing a million competing titans of industry with one gargantuan combination of market control and law—the totalitarian state.
America achieved the greatest standard of living in the world, a position from which it has since fallen, not because of the genius of government planning (there is no such genius) but because of the freedom allowed for creation and invention. The way to economic recovery lies not in the next economic stimulus plan President Obama has to offer the American people but in the individual genius of inventors and the market choices of three hundred million consumers when offered new means to improve their lives at an affordable cost. So long as invention is not discouraged through direct taxation or the indirect taxation that is regulation, invention will flourish. So long as invention flourishes and can reach markets affordably, there is hope for economic recovery and improvement in the American standard of living.
The Obama Administration and the Democratic leaders of Congress subscribe to a simple and erroneous conception of the world. They perceive the market as an unintelligent, hedonistic beast that if left to roam wild will destroy the innocent but if bound and variously gagged can be made to perform circus tricks at the whim or caprice of a ruling class of politicians. In reality, the market is as diverse as currents of water streaming down a mountainside and proceeding into a larger body of water. Each jump and twist and turn is largely unpredictable, except that we know that the vast majority of movement is in the direction of providing a service or product to a person in need of same, thus enhancing the quality of that person’s existence. I would rather have my food and lodging courtesy of people competing to provide the best of both than courtesy of a government planner who stands in no better position economically if I live in a hut than if I live in a mansion but can achieve cost containment better if my house is a hut.
Some fail to realize that politicians are among the least qualified to assess market forces and predict market outcomes. Removed from the market, insulated by pay that does not vary based on performance or returns, and dominated by their own self-interest in reelection and accumulation of power, politicians’ choices are skewed even when they by chance happen upon a glimpse of market reality. Those best able to judge the market are those who participate in it for their own survival, who must depend on accurate prediction of consumer demand to survive. The winners among the market participants will determine the market’s future and no amount of government planning or expenditure will achieve a comparable effect.
Economic recovery, if it occurs, will be despite the enormous impediments created by runaway government spending and overregulation, not because of it. If President Obama’s primary mission is to restore the American economy to greatness, he has done more to defeat his own mission than any other president in American history. American greatness is defined by freedom, not by government control. That lesson springs from every failed attempt at government planning from the Great Depression to the Great Society to the greatest expansion of federal government involvement in the economy in world history, the present administration.
Recovery from the former two came not because of government but in spite of it, due in large measure to the creative genius of the American people who enjoyed freedom to invent and market. The problem with the current expansion in government involvement is that it comes with a heavy dose of regulation that strips Americans of the freedom to invent and raises significant barriers to market entry. Thus, we do not suffer from the age-old expansion of government but from a new, more ominous genre that threatens the survival of the free market economy itself.
© 2009 Jonathan W. Emord - All Rights Reserved