Sometimes the truth hurts.
The economic understandings or misunderstandings of our members of government get reflected in our laws and regulations. And at the end of the day, it is the economic understandings or misunderstandings of our electorate that determine which individuals serve there. In this past election, in siren-song fashion, Barack Obama convinced a majority of voters to act on misunderstandings of how the economy works and became President.
The repercussions of such economic illiteracy are now being played out. First there was last February’s massive “stimulus” bill. Most recently there has been the take-no-prisoners battle to re-make the healthcare portion of our economy. “Cap and Trade” looms in the not too distant future. Obama remains determined to re-pay unions via passage of “Card Check”. Calls for a second stimulus are rising even as majority of the first one’s dollars have not been spent. The list goes on and on. Elections do indeed have consequences.
One of the most fundamental fallacies being followed by Washington these days is the belief that in the face of a slumping economy, government must “stimulate demand”. In the most basic of economic courses, the student is taught that “economic equilibrium” is achieved when demand equals supply, and that markets are always trying to move towards that state. Many in Congress, and the many voters that put and keep them there, seem to think that demand equaling supply falls under the “Which came first, the chicken or the egg?” category. They are sadly mistaken.
Who will defend the practice of “demanding” without first “supplying”? We supply so that we can demand — supply must come first. This truism renders any attempt to “stimulate demand” not just backwards, but practically immoral.
For example, who “demands” that they have gasoline for their car without first supplying their labor in some fashion in order to have money to pay for the gasoline? And is it truly the government’s function to provide that job that will then pay for the gasoline? If so, who supplies the government with that job that can then be dispensed? Should the government command someone to provide the job by force? We’re now only a couple steps away from slavery. Note also that any consumable, such as food, clothing, shelter, or even healthcare, substitutes nicely in this line of reasoning.
“Creating jobs” is not described in the Constitution as a function of government. Only a tortured interpretation of things like the “General Welfare” or “Commerce” clauses would begin to assign that role to government. The moment we look to government to create a job, we fall onto a slippery slope: Who decides what jobs to create? How are they funded? How do we evaluate job performance? As a nation we are now collectively bruised and battered from falling down this slope for several generations. It’s also worth noting that it is exactly when voters “demand” that the government “create jobs” using its redistributive techniques that we wind up with stimulus programs where the effective cost of those “created jobs” runs into the hundreds of thousands of dollars per job. Indeed, if the $787 million February stimulus, according to The White House, “creates or saves” 3.5 million jobs (ignoring for now how we’d actually measure that), that works out to nearly $225,000 per job.
What is fundamentally not understood amongst an apparent majority of voters is that entrepreneurs and their financiers, (often being one in the same), create jobs. They perform the vital discovery mechanism of demand assessment and supply a potential solution, risking their own resources to do so. It is a truly virtuous circle, in which the entrepreneurs who best understand the needs and desires of their customers — their demands — are rewarded most handsomely. Likewise, through the vital role of failure, bad assessors of demand are punished, and collectively we can all watch and learn what works and what doesn’t.
A critical point to realize about the above process is that no central orchestrator directs the entrepreneur as to what action to take. They might do exactly the wrong thing. They might also supply a solution for which there was no prior demand. Yet this is precisely how things like the personal computer or iPhone came about. There was no government program to initiate the demand of having a computer in one’s house, let alone in one’s pocket.
Unfortunately due to a general lack of understanding of this process, we’ve tolerated an increasingly hostile environment towards fostering supply, such as ever-escalating taxes, oppressive regulations and minimum wage laws that prevent employers from putting that first rung on the economic ladder closer to a reaching hand.
Getting back to the election, in the case of Barack Obama, another dynamic was also present: Many voters became further enamored with the historic possibility of electing the first black President. Yet with painful irony, these voters ignored Dr. Martin Luther ‘s historic plea to judge instead by the content of one’s character. Had the philosophies behind Obama’s economic agenda (a major part of his “character” in this case) been more widely understood, a majority of voters would have realized that much of what he wanted to do (and indeed is now trying to do) has been tried before and has failed. They simply would never have elected him because doing so would cause themselves great economic harm. And sadly, as prominent economists like Thomas Sowell have noted, it is exactly these failed economic policies that have disproportionately harmed blacks ever since FDR’s New Deal, accelerating through Johnson’s Great Society to today. Voters should have rejected these policies in the same way that they reject being told that 2+2=5. Fortunately our collective mathematical literacy has not yet caused us to re-write that fact (although Congress often makes valiant attempts).
Ironically, economic illiteracy also kept Obama’s opponent, John McCain, from being able to convincingly articulate an alternative to Obama’s vision of a bigger, more activist government. So perhaps it is fair to say that more economically literate voters had no horse in that race. But it’s also fair to say that an economically illiterate mainstream media fanned the flames in Obama’s favor, recklessly avoiding any kind of challenge to his audaciously hopeful plans. As the saying goes, “hope is not a strategy.”
So will 2010 be the year that voters snap out of it and send the likes of Nancy Pelosi, Barney Frank, Maxine Waters, Christopher Dodd and the rest of them packing? With incumbent reelection rates in the mid-90% range, it would be fair for Congress to think the voters have approved of their actions so far. To the voters we say, “we have met the enemy, and it is us.”