Ask RC: What’s the most important economic lesson Americans need to learn?
There are any number of appropriate ways to answer this question. I have for years now affirmed that the most foundational economic truth is that God owns everything. We need to learn that, down to our toes. I have also affirmed that the first law of economics is that consuming more than we produce leads to poverty, consuming less than we produce leads to prosperity. Grasping these truths would go rather a long way in fixing what ails us, economically speaking.
Having barely survived another election season, however, and mourning the end of Twinkies, I’m tempted instead to start with this lesson- governments cannot create any wealth, though they can and usually do destroy wealth. On both sides of the aisle we had voters demanding and candidates promising more jobs, better health care, rising home values. Government, however, is a parasitic institution rather than a productive one. That is, the government doesn’t actually produce anything. Everything that it has it first must take from someone else. If it “invests” in infrastructure, it does so with money taken from others who would invest where there was market demand. Federal loans (or guarantees which amount to the same thing) to green companies happen because people investing their own money don’t think it a wise investment. Turns out people were right, the government wrong, again. The key point, however, is that they had to take money from you and me first.
Please remember this when the left complains of corporate greed supplanting human need. What these folks mean is, “I know better what to do with the wealth of stockholders than they know. I should have control over the wealth of others.” Every dollar directed by the state is a dollar that once belonged to someone else, who would make market decisions, rather than political ones.
Which brings us to the other side of the coin. The state cannot create wealth, but they certainly can destroy it. The notion that businesses can just pass tax burdens on to consumers is patently false. Suppose for a moment that Michelle Obama successfully lobbies for a Twinkie Tax of $10 a Twinkie. How many Twinkies will Hostess be able to sell? Demand for a given product or service goes down when prices go up, even if prices go up because of an increased tax burden. Lowering demand is generally bad for business.
Governments also destroy wealth by inflating the money supply. This is a tax on savings. My $1 can buy a loaf of bread in an economy with x paper dollars. Double the number of paper dollars to 2x and dollars to donuts my dollar will now buy only half a loaf. The government, without taxing me, without breaking into the bank, has stolen half a loaf of bread from me. Inflation isn’t businesses being greedy, but governments being devious and destructive.
Finally governments can destroy wealth by regulating businesses. Requiring companies to provide health insurance to its employees, or pay them a wage above some arbitrary standard may seem like a good idea. Until we realize that wages are actually determined by supply and demand. If it costs me $10 an hour, because of government mandates, to hire someone for a job that I value at $9 an hour simply means no one gets hired to do the job. Multiply that principle across the board at a given business and it will go out of business.
God gave the state the power of the sword, to punish evildoers. That’s what they are to do. When they step outside their calling hardship comes, every time. Economies create wealth. Governments punish evildoers.
Ask R.C. November 20, 2012