Sunday, March 4, 2007

Markets limit unaccountable government power.

If you want to save the world, and help the 'poor' then embrace market dynamics.

by StFerdIII

Governments are skillful at destroying market forces and wealth. In the on-going battle of the market versus the state, the limitations of coercive arbitrary governmental power lie almost entirely in the creation of stable markets. Stable and naturally functioning markets will create wealth, help build solid societies and families and will create institutions that limit government theft and oppression. A sure road to societal failure is to invest ever more powers in ever expanding government.

Governments have two basic tools of abuse regarding economic affairs. The first is monetary policy and the printing of money. The second is the power to tax and spend. A key principle of the modern world must be to limit the impact of these two tools of governmental power in its distortion of the market. Markets may rise or fall. Natural market cycles are to be expected and embraced. Government induced ones need to be avoided.

As David Ricardo, Milton Friedman, Friedrich Hayek and others long ago point out, markets function on price points based on a number of factors that naturally create supply and demand conditions. These conditions allow economies to develop and create independent classes of wealth owners who have every interest to oppose coercive government.

Governmental power to tax, spend, and print money will artificially inflate or deflate these conditions. Markets react to governmental policies and if these policies are not market-friendly or are openly and nakedly based on political power and opportunism, wealth will be destroyed and economics deranged.

The Great Depression of the 30s, the near depression of the 1970s and early 80s are obvious examples of governmental incompetence. The dirty 30’s were caused by the late 1920s imposition of high tariffs; protectionism; high interest rates and a ramp up in taxation. Markets reacted as markets should – by selling off in the expectation of lower future profits.

The sad 70s were manufactured by much of the same forces. Stagflation, low economic growth and an eradication of personal wealth were the hallmarks of the 70s and early 80s. Government’s printed money, raised interest rates, imposed punishingly high marginal tax rates and then were amazed when markets and economies sank. Wage and price controls were hastily enacted to counter-balance the original policies which only exacerbated the economic decline.

When government size exceeds 30% of a country’s GDP you have unnatural forces and unaccountable powers impacting market price points. These powers would include; income subsidization; business and agricultural supports; regional transfers; the growth of government ministries; and the creation of a mommy-state. The results are market dislocations; corruption; and one class of people [the doers] subsidizing everyone else. There is nothing moral or enlightened about such unnatural and coercive non-market based forces.

Properly functioning markets will rise and fall and it is the market, and the wealth owning class that is the best security against coercive, unaccountable government and politicians. Representative democracy can only take root in a system that has a market based economy protected by laws and institutions to enforce contracts.

Historically this is why England became the first modern nation state and was able to accumulate enough capital to engage in innovation and create the industrial revolution. English industrial supremacy has its roots in the market and political forces that shaped the Magna Carta agreement of 1215. Through a painfully slow process the political-market organization demanded by the Magna Carta evolved into a system wherein the market was able to check the unaccountable coercive powers of government.

Fast forward to today and the same lessons apply. In Europe governments take almost 50% of GDP. In Canada it is 43% and rising. In the US it is 32 % and rising. There is no program, policy, or group that government will not support – as long as more government workers are hired, taxes can be levied and the state can be expanded. Market forces are not only concerned with monetary creation, they are also focused on the after affects of creating a wealthy society. Moral, social and familial considerations are improved, not deranged by naturally functioning market forces.

Government distortion programs have little in common with societal welfare – regardless of political rhetoric. Though some basic services should be provided [security, transport, police, courts], the panoply of governmental nonsense does nothing to enhance society. Some simple concrete examples illustrate this fact.

Long term welfare guarantees in Europe means an effective real employment rate of only 60% versus 70% and higher in North America. High under-employment is hardly moral or necessary. It is a government distortion.

Regulated telecommunications markets in North America during the 1970s created black and white phones and badly inefficient and costly networks. After deregulation everything from internet access to lower telephone expenses, to blackberry phones have appeared. It is hard to make the argument that we are worse off after getting government out of telecommunications.

Third world exports are limited from richer market access thanks to government tariff barriers in Europe and North America. In order to buy the agri-business and farming vote, governments have ensured that literally thousands of Africans die each year. By limiting trade, Africa cannot develop. As compensation rich governments pour billions into Africa [$700 billion in 40 years], with most of it being used to buy arms, start wars, or enhance the political compact that runs the country in question. This hardly appears to be a moral or economically supportable position.

The environment is another cause celebre. Apparently if you don’t have a good cry over our impending ‘global warming’ disaster, you are not a real human. The wealthiest countries are the cleanest. The most advanced technologies ensure the cleanest burning of fuel.

Government subsidies of polluting industries, polluting firms and old technologies ensures environmental degradation. If you want a cleaner world, then embrace technology and market dynamics – not government mismanaged eco-regulations with massive regulatory and bureaucratic schemes designed to increase taxes and fees. The world is better off now than 30 years ago thanks to technology. If you don’t believe that market forces are better than government managed industry take a tour of the former Soviet Union and behold an environmental catastrophe.

And on it goes. Pick any sector, subject or program and you can make the same caustic analysis. Government has some roles, but its current mommy-state, octopus like expansion is not conducive to building up civilization.

When people chatter that only stupid ‘right wingers’ want tax reduction and limits on government power, it reveals more about the depths of their own ignorance then it does about reality. Labeling someone a right-winger [whatever that means], is suppose to denote one supposes, some sort of moral superiority. But government is not a moral creation. It is self-serving, usually unaccountable, and quite often immoral.

For those of us who want to limit government power we do so for practical reasons. Liberty, market wealth creation, social and family cohesion and cultural advancement are better off without the dead weight of politicians and bureaucracies. Even on issues like welfare and helping the poor, I would put more faith in the power of market and individual support of charities than in big government sending money hither and yon, much of it eaten up by its own bureaucracy.

It would be nice to see some politicians discuss these issues without labels and without implying that market forces are somehow fascistic, cabalistic or mean-spirited. None of this makes any sense or is true. Markets limit unaccountable government. That is a primary lesson of historical development. It is sadly a lesson that is hardly taught and even more rarely understood.