"Currently, the main demand placed
upon politicians is to create jobs for us. But, since it is companies --
not the government -- that create jobs, such a task is impossible.
Government can expand and draw more workers into its ranks, or it can
directly finance the creation of specific jobs in a specific marketplace
with taxpayers' money. In either case, a destruction of wealth is
involved, and the jobs -- unlike private-sector jobs -- do not pay for
themselves but in fact require ever more taxpayer funding each year,
which further reduces capital in the economy."
Can Politicians Help Us?
Wednesday, September 29, 2010
by Kel Kelly
The word "politician" usually comes with a negative
connotation. It often brings to mind thieving, lying, corruption, and
malfeasance. Nonetheless, most people seem to look to politicians to
manage their world for them, to protect them, and to make their lives
better. In every instance of local or national elections, citizens are
deeply focused on choosing the politician they think will do the best for
their community or nation. They seek politicians with experience,
knowledge, insights, and ideas. They seek a leader.
But can our elected officials, even if honorable and well-intentioned,
really improve our lives? Let's take a look at the various possible
avenues of assistance.
Currently, the main demand placed upon politicians is to create jobs for
us. But, since it is companies -- not the government -- that create jobs,
such a task is impossible. Government can expand and draw more workers
into its ranks, or it can directly finance the creation of specific jobs
in a specific marketplace with taxpayers' money. In either case, a
destruction of wealth is involved, and the jobs -- unlike private-sector
jobs -- do not pay for themselves but in fact require ever more taxpayer
funding each year, which further reduces capital in the economy.
If jobs are not profitable -- if they are not part of a production
process that results in creating at least the same amount of sales
revenues as the costs that went into generating those revenues -- then
they use more resources than they create; they destroy wealth. That
ultimately means fewer goods available for each person, and at higher
prices.
But even if the government subsidizes unprofitable jobs (e.g., green
jobs) and "funds" (i.e., subsidizes) that work to make up for
its lack of profit, there is still a net destruction of wealth. This is
because subsidies come directly from what would otherwise be our
incomes.
When money is taken from us through taxes to pay the extra costs required
to produce something that we would not voluntarily choose to
purchase on our own at that higher total price (i.e., the selling price
plus the subsidy we paid out of pocket to make the item "worth"
producing), our money is wasted. Other goods we would prefer will not
become available because the resources used to make those goods were
instead used in making the product we didn't want.
Except for building space stations, military bases, or other
government-funded, wealth-destroying activities, government creates and
builds nothing. It thus has no power to create real jobs in the
marketplace; it can only "manage" and regulate.
To repeat, only individuals and individual companies produce and create;
their ideas and capital are what profitably creates jobs.
Year by year, most of the currently existing companies would hire more
workers if only they were allowed. For example, suppose a company has
$100 to pay out in wages. Suppose further that it has hired 9 people for
an average wage of $11.11 per hour each ($11.11 × 9 people =$100). If
there had been a tenth person available to perform work at the company
and help increase its production, why wouldn't the company have hired
that person and spread the $100 across 10 people, instead of 9, at a wage
of $10 per hour each ($10 × 10 people = $100)?
It is because the government prevents people from being hired below a
certain price, primarily through minimum-wage laws. Since unskilled
workers' productivity is low and they are not (yet) capable of bringing
in as much in sales revenues as the company would have to pay them for
their work, they are unprofitable at the minimum wage level and thus not
hired.
Right now, specifically, unemployment is unusually high because the
economy is imbalanced. This imbalance was caused by the government's
credit expansion, which gave economic incentives for companies to
transfer capital and labor to locations where it was revealed
unprofitable once the credit expansion ceased (e.g., the
home-construction industry).
Currently, the imbalance still remains because the policies of stimulus
spending, subsidies, and the printing of yet more money -- money that has
artificially sustained bank balance sheets but has hardly made it into
the real economy -- have prevented prices from falling, losses on bad
investments from being realized, and thus capital and labor from
returning to where they're profitable. If the economy were actually
allowed by our politicians to right itself, banks would lend and the
surviving companies would become more stable, more profitable, and more
eager to hire more workers.
Another way people think that our elected officials can help us is by
supporting us financially. Voters accept politicians' proposals for
government unemployment insurance, subsidies, and transfer payments of
many stripes. But in order to redistribute wealth, wealth must first be
taken from someone else. Voters don't usually mind this, since they know
that the money they'll receive comes mainly from the rich, who, in their
eyes, already have too much.
But what they don't know is that most of the wealth of the rich is not in
the form of houses, cars, and boats, but in the form of factories,
machines, tools, technologies, and labor payments. Through their
ownership of stocks, bonds, private investments, their own companies, and
other assets, the wealth of the rich is mainly in the form of capital
goods. In other words, the wealthy own most of the tools we use in our
jobs to produce the very goods and services we create for ourselves to
consume. On top of this, these owners of capital pay us money to produce
these things we'll consume!
The more money we allow to be taken from the rich -- by way of both
higher taxes and the government's inflation -- the less capital we
ordinary people have to work with, and the less we are able to produce.
This means fewer goods and higher prices; it means lower real
wages.
The effects of our current "stimulus" packages are similar in
nature. Just when companies need as much capital as they can get their
hands on, we are taking it from them to give to others to consume. If
investors and their companies instead kept this capital, they would be
able to provide us with more jobs, more goods, and a higher standard of
living. Capital kept by the wealthy will produce more capital and more
consumer goods.
Capital taken from the wealthy and given to others to consume is not only
destroyed but also represents new, additional wealth that will never be
created.
Politicians are also elected for the purpose of protecting citizens from
supposedly evil businesses -- the entities that have given us virtually
every physical thing we have. The first way they do this is in the form
of regulation. But what actually protects us are laws defending
our property and person from aggression -- regulations mostly just allow
one group to benefit at the expense of another. Regulations do not
benefit individuals.
Regulations such as antitrust laws prevent less-competitive companies
from facing new competition.
Healthcare regulations that are claimed to help provide us with only the
most competent doctors in fact reduce the supply of doctors and raise
healthcare costs. To address this problem, the government pays -- and
prods big businesses to pay -- for our healthcare. The overall result is
an artificially reduced supply and increased demand for healthcare
services, which raises costs at twice the rate of inflation, making
healthcare unaffordable to many.
Energy and environmental regulation prevents us from using safe, clean
nuclear power; it prevents oil companies from owning and drilling on
land, and incentivizes them to drill in less safe territory far offshore,
resulting in oil spills. It has also led to intermittent gasoline
shortages and higher oil prices in general.
FAA and airline regulation results in delayed flights, hours-long
airplane traffic jams on the tarmac, and government-run monopoly airports
with security lines sometimes out the door. It also gives fliers much
higher airfares due to the prevention of competition: domestic airlines
are prevented from foreign competition; and airlines based in some large
cities are protected from other domestic competitors by local city
councils -- such as in my home town of Atlanta, where the city shields
Delta from competition from the likes of Southwest and JetBlue.
Similarly, government regulation of the water industry results in water
shortages in many states. In many countries, government regulation of
power, light, and telephone services bestows on residents constant
outages and wait times of weeks or months to get service.
The examples of harmful regulation go on and on for
thousands of pages (in the national register). Were it not for these
regulations -- since they all result in fewer things being produced -- we
would have many times the goods and services we currently have, and a
much higher quality of life.[1]
Another way politicians help "protect" us from businesses is in
"managing" the economy. One example: instead of allowing
markets to control interest rates, the government chooses a better rate
for us so that it can (supposedly) stimulate economic growth and
"even out business fluctuations."
In order to do this, it creates new money out of thin air and inserts it
into the economy. The new money pushes up consumer and asset prices (most
recently housing prices), and gives companies artificial incentives to
take on loads of debt and invest in areas they wouldn't otherwise, if
guided by market prices. The result is economic booms and busts,
financial crises, capital destruction, recessions, and general despair.
Citizens, in the end, are "helped" by having been given
unemployment, higher prices, fewer savings, and an uncertain
future.
Time after time, we choose local and national politicians who we think
can make our lives better -- but they can't. The very problems we want
them to solve are the ones they previously created in trying to manage
our lives for us.
The truth is that the politicians themselves have no earthly idea how to
help us; they have no clue as to what they are doing. But it's of no
importance to them, because they are in it for the votes and for the
glory of "leading the nation." In fact, the way they get
elected is by selling other people's wealth -- the means of producing
prosperity -- for votes.
Therefore, both to win votes, and to appear to be helping us, they
engage in the same tired actions over and over -- printing money, taxing
the rich, offering new social programs, "investing" in new
industries, engaging in stimulus spending, raising the minimum wage, etc.
On and on it goes, decade after decade, depleting our capital structure
and reducing our ability to create wealth and raise real wages.
The irony is that even though voters, over time, don't see these policies
alleviating poverty, eliminating unemployment, lowering prices,
increasing their real wealth, or giving them increased economic
stability, they vote over and over for the very same people who promise
more of the very same thing. And at every new election cycle, they
earnestly assess the new crop of politicians offering the same old
"plans" and try to determine which one can better help
them.
We should be able to see now that an "experienced" politician
is one who has thorough knowledge of how to buy votes, destroy wealth,
and manipulate the economy for the worst. We should see that when we vote
for a "leader" with "ideas," we will merely get a
good actor who proposes ways to employ the traditional socialist-oriented
policies, but with a new twist, such as a new penalty (tax) on
producing wealth, or a new program (wealth-redistribution
mechanism) to help the "disenfranchised."
We should also now understand that a politician seen as having
"knowledge" or a "track record" is simply one who has
been around the block and knows how to do these things in a smooth,
efficient fashion -- and one who has been thieving, lying, and harming
citizens for a longer time.
Unbeknownst to the average voter, the thing that can best and most safely
improve their lives is what they vote for politicians to protect them
from -- the free market.
A free market would bring about in an increased amount of capital per
person and therefore increased per capita productivity, which in turn
would grow the volume of goods and services, thereby lowering prices
relative to wages. But to achieve this, it would be necessary for
owners of capital to be able to keep their property.
Then, workers would not need government assistance because there
would be plenty of jobs available for everyone -- along with low-cost
health insurance that individuals would purchase for themselves --
since there is always more work to be done than there are workers
available (and since there would be no wage controls preventing workers
from accepting jobs). Transfer payments and government
"services" would be replaced with new and increased wage
payments.
Most importantly, every worker's real wages would increase
year over year, as productivity and output increased (and those who
contributed more to producing things consumers wanted would earn
proportionately more money).
Similarly, in a free market, we would not need government
"protection" because we would be protected by tough competition
in the marketplace. If one company tried to underpay or overcharge us,
there would be many more companies we could turn to that were offering
higher wages and lower prices (i.e., market wages and prices) in order to
attract us. Companies would therefore find ways to produce with lower
costs, a goal they could more easily accomplish with more capital
available to them. The more capital they employed and the greater
workers' corresponding productivity, the higher the market
wages.
And without the government's manipulation of interest rates and the
printing of money, there would be no wide-scale malinvestment, and
therefore no recessions and financial crises. In this case, prices would
fall instead of rise most years, and our lives would generally
improve through time.
No politician can improve our lives.
No central planner can determine what is best for each of us individually
or in the aggregate. The economy works only though individual decisions
and choices.
No politician can help companies produce more efficiently or in a way
that better pleases consumers. By using market prices and rates of
profit, businesses generally best determine what we individuals want for
our lives. If they judge correctly and produce what we need and desire,
they succeed; if they don't, they die.
Government, on the other hand, dictates what it wants us to have, and has
no system of profit and loss to determine whether it is succeeding in
pleasing its "customers," or whether it is producing or
destroying wealth in the process. Since it can't determine its success or
failure in money terms, it is necessarily always destroying wealth on a
net basis. And since government is a monopoly, it does not allow
competitors for us to turn to.
Voters always want politicians who will "do a good job." But
what is a good job? We seem to think politicians are doing well if
the economy seems to be doing well. But this is often an easy illusion to
create by means of printing money and artificially and temporarily! --
pumping up asset markets, GDP, and employment levels.
The only real test of whether a "good job" is done is whether
or not it has become easier for people -- all people -- to achieve an
increased living standard from one year to the next, given the same
amount of labor hours performed.
Indeed, almost any politician can appear to do a decent job just by
showing up, since it is companies and individuals instead of politicians
who run an economy except to the extent that politicians stick a wrench
in the turning economic wheels.
The only way politicians can really improve the economy -- and our lives
-- is by (1) getting out of the way, and (2) undoing the policies they've
previously implemented that hamper it.
In fact, we don't need politicians at all only laws protecting us and
our property. And until one of them comes to us asking to be elected in
return for instituting free markets and freedom in general, there is no
reason we should assign a politician any value or recognition, and should
certainly not take part in voting for them and their harmful
proposals.
Kel Kelly has spent over 13 years as a Wall Street trader, a corporate
finance analyst, and a research director for a Fortune 500 management
consulting firm. Results of his financial analyses have been presented on
CNBC Europe, and the online editions of CNN, Forbes,
BusinessWeek, and the Wall Street Journal. Kel holds a
degree in economics from the University of Tennessee, an MBA from the
University of Hartford, and an MS in economics from Florida State
University. He lives in Atlanta.
Notes
[1] In Cuba, regulation
intended to protect and help citizens includes making air conditioners,
toasters, and microwaves illegal. In Belize, citizens are protected by a
regulation that gives one company a monopoly on cell- phone service,
making its owner very wealthy, but telephone calls very expensive.
http://mises.org/daily/4726
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- Can Politicians Help Us? MJ
