Isn’t economics the “dismal science”; that thing you had to suffer through in college with graphs and equations, none of which seemed to make sense?
Economics is actually very simple. Human beings, by their nature, must be free to take action to achieve their goals. We don’t have fur, claws and instincts like lower animals. We must apply our minds to goal-directed action to satisfy our needs. Freedom works because it is consistent with our nature — our requirement to be free to take action to survive and flourish. Political liberty, in turn, is designed to protect that requirement.
Un-perverted by false incentives, people will always work and save based on their actual needs and priorities. It’s in our nature to do so in the quest for economic security, because we don’t want to starve today or tomorrow.
The quest for economic security starts with production, not consumption. Consumption is a given. It’s automatic. People have limitless desires and will consume if they can consume. Yet one hears constantly that consumption comes first, that we must “stimulate” the economy by inducing people to borrow and spend.
Putting consumption first in the equation turns good economics on its head, however. Consumption is the end of the process, not the beginning. Borrowing and spending in a struggling economy based on the false notion that consumption is king simply depletes already strained resources, erodes genuine capital formation required for recovery, and makes both individuals and the greater economy more fragile. More work is then required to dig out of the hole created by borrowing and spending beyond our limits.
Government policy does have a role in creating the conditions for prosperity, but that role does not include creating false incentives for over-consumption or seeking to penalize productive behavior. Contracts must be enforced, fraud prosecuted, and the product of our effort protected with property rights. These measures secure our fundamental right to take action to secure our lives.
Government planning is the opposite of freedom and goes beyond these essential protections. At the highest level, you see the devastating effects of central planning with the housing boom and bust. The Federal Reserve artificially suppressed interest rates while expanding the supply of money and credit. These false incentives resulted in artificial, unsustainable booms in borrowing and spending on all sorts of goods, including housing.
Government’s reaction has been more of the same, which prevents the economy from shedding distorted investment patterns. This delays resumption of normal patterns of production, savings and investment that would quickly set the foundation for genuine recovery.
In Colorado every effort is being made to thwart and undermine healthy production, savings, and investment. The package of new taxes and fees colloquially known as the “Dirty Baker’s Dozen” recently passed by the Democrat controlled legislature and signed by Governor Ritter will have the effect of driving companies out of Colorado, because some of them penalize the productive actions of specific businesses like software companies. They also reallocate precious resources from the productive private sector to the unproductive public sector.
When you penalize something, you get less of it. People who are highly productive, and the jobs they create, can simply move out of Colorado, or opt not to re-locate here in the first place.
Colorado also piles mandates on health insurance companies causing dramatic increases in premiums. The increases are effectively hidden taxes that turn insurance companies into expensive, outsourced welfare programs. This intervention distorts the way these companies function, raises costs, and interferes with our freedom of contract with predictably bad results.
Examples abound of government policy harming production, savings, and investment in favor of foolish, consumption-driven economics and self-serving political agendas. Each instance denies the fundamental truth that freedom works because it is an essential requirement of our nature. When little or no value is placed on the individual and the necessity of freedom, there are no perceived constraints on the controls and burdens political leaders will place upon us.
The unfortunate result is a lower standard of living and a greater struggle to survive, let alone prosper.
Don Beezley is a business consultant and guest writer for the Independence Institute.