It is astonishing that this should be taking place, especially at a time in which three billion people around the globe have rejected the poverty, want and shortages of their command economies to begin the experience and blessings of abundance. It is not as though object lessons are wanting. China’s stunning economic growth, its modernization and rising living standards are the result of nothing more complicated than freeing the command economy. Although lessons abound, Americans are choosing—or perhaps failing to choose and therefore letting the choice be made for them—to go in much the same direction as the command economy of postwar Great Britain. That period saw the nationalization of entire sectors of the British economy, a currency crisis and prolonged economic decline including crippling unemployment and choking inflation. The reasons that the United States would choose to follow a pattern that hollows out economies the way it did the British are many. But as a symptom, although not a cause of this self-inflicted harm, look to the modern American politician. For today’s breed of politician, power is their very passion. Their every concern and the entire public debate about politicians centers around the use of power. How may power best be exploited and aggrandized? Who is to be bailed out, who is to be plundered to pay for it? Who is to be subsidized, who penalized? Who shall be taxed and who shall be paid? In contrast, the founders looked upon power very differently: How can it be kept in check? In yielding to the former and to their command economy, the current generation of Americans, blessed with so much, will be the shame of the ages.

Anyone believing the evidence for the looming command economy is being overstated need look no further than the speed at which American finance has been nationalized in the current crisis. Legislators voted an initial $700 billion bailout package, but in no time the taxpayers ended up with more than eighteen times that, $12.8 trillion in loans, spending, and guarantees. And to make clear who is really in charge, the giveaways are accompanies by a refusal of the authorities to disclose who is getting what and what kind of collateral, if any, is being given. The trend was dramatically illustrated in October 2008. In a development that played out like a scene from The Godfather, the CEOs of the nine largest banks in America, dealmakers and negotiators in their right, were ushered into a room at the Treasury Department in Washington and handed a one-page document agreeing to sell preferred shares to the government. They were told by Henry Paulson, according to the New York Times account, that they must sign it before leaving. The chairman of Wells Fargo protested that his institution didn’t have problems with toxic mortgages and didn’t need a bailout. Too bad. “It was a take it or take it offer,” said one insider. An online writer for The Wall Street Journal favorably likened Paulson’s commandeering of the banks to Reagan at the Berlin Wall. “History often carries an air of inevitability,” he gushed.

If there is inevitability to America’s becoming a command economy, it is a sorrowful day for human freedom. The Central Plan of the command economy is incompatible with dissent, disagreement, individual preferences, and your own plan, whatever it may be. If the Central Plan is to prevent foreclosures on homeowners who can’t pay, then the plans of individuals whose resources will be used to prevent those foreclosures must give way. If your individual plan and the Central Plan are in conflict, you will have to give up your plan. As we have noted, a free economy rests on agreement, but a command economy is constructed of coercion. One of the reasons (among many to which I refer in my book The Dollar Meltdown) that a command economy produces poverty has to do with the diversion of productive human effort. In a free economy people provide services that are sought by others and they are rewarded for doing so. Each individual’s own wants and needs are met to the extent he finds ways to serve others. But in a command economy enormous amounts of human effort are expended in attempts to influence or control the Central Plan. This activity produces no new wealth. It only seeks to divide what wealth already exists.

The command economy is not the exclusive province of either the left or the right, Republican or Democrat, Communist or Fascist, Stalinist or Nazi, Pol Pot, Mao, Chávez, or Ahmadinejad. It is what they all have in common. Just as war is the health of the state, economic turbulence is the state’s opportunity for self-advancement. As the unseen and destructive consequences of each new command and initiative unfold, new plans are created and commands issued to undo the latest harm. In the current sequence, the Fed used its monetary monopoly to create artificial credit conditions; the cheap money fueled a housing boom, which, like all bubbles, popped; the monetary and fiscal authorities rushed in to bail out the banks; the only means they have of bailing out the banks is to borrow or print more money.

Regards,
Charles Goyette

December 23, 2009

The Command Economy was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I don’t mean to preach to the choir, but there goes the remnant of what might otherwise have been the start of a jobs recovery.

Wage and Price Controls don’t work. You and I can see it in everyday real life. Richard Nixon tried it and failed. The Pols that run the country can’t seem to see beyond the end of their noses. Actually, they know exactly what will happen but they’re so hell-bent to reward unions, they don’t care.

Why unions? Simple. If the minimum wage is increased, naturally the union wage must also be increased. Increasing the union wage rate keeps the membership in line and fattens the pockets of the union officials. In turn, it helps get the Pols re-elected. Talk about being hypocritical. The very Pols that caused the dollar to lose purchasing power due to government deficit spending now pretend to be so munificent as to help the poor earn a “living wage.”

This is no different than rent controls or price controls. Anytime artificial numbers are substituted for what an otherwise free market would be willing to pay, somebody gets hurt. In the case of minimum wages, it’s the very low-level worker that gets hurt. If the objective is to provide employment for entry level workers, minimum wage isn’t the answer.

Would you like a job paying $6.55 per hour or would you prefer no-job paying $7.25 per hour?

It really is that simple. If you’re a marginal worker, you’re expendable. The business for which you work can perhaps justify paying you $6.55 per hour to sweep or wash dishes. When then forced to pay $7.25 per hour for the same services, the business just decides they can no longer afford to hire the sweeper or dishwasher. They make other arrangements to get the jobs done. Meanwhile, the former dishwasher is now out of a job thanks to the Federal Government raising the minimum wage.

During WWII, we had all sorts of wage, rent and price controls. Perhaps because we were involved in a major war, folks simply made-do without and devoted their efforts to helping the United States win the war. Once the war was over, most of the wage and price controls were removed. The economy then took-off like a scalded dog.

There were a few pockets of resistance however. One was Santa Monica, CA. They decided rent controls were necessary because “greedy” landlords were taking advantage of the “poor” tenants. Ditto NYC, by the way. The result was fewer units available because the very folks that risk their own money and expended their own energies to provide living accommodations weren’t willing to do so for a less-than-profitable return. Existing units were not well maintained because the owner was seldom allowed to increase rents to cover expenses. New units were exempt. Those new units were rentable at whatever the market would pay. As a result, all varieties of high-priced new units came on the market while the more-affordable units vanished. Once again, the very folks who were supposed to be helped by rent controls now found themselves with no choices, thanks to government interference.

As mentioned above, during WWII, we had price controls on almost everything. We also had coupon books that limited the quantity of almost every good we could purchase. My mom traded coupons with other moms so everyone had a chance to get what they really needed. Shortages, however, were the norm. It made almost no difference whether you had an “A,” “B,” or “C” gasoline sticker for your car because you couldn’t buy tires.

When prices and/or quantities are artificial.

Why Minimum Wage Means Maximum Slaverylly limited, scarcity is the result.

Have you heard the opposition to Obama’s National Health Care complain about rationing? This is exactly the “why” of that complaint. Some bureaucrat will decide who gets what medical treatment. The excuse is that medical costs are too high. It’s another form of wage and price controls. In this case, the result will be otherwise-avoidable deaths simply due to the rationing of medical services. And as you’ve read many times, if you think health care is expensive now, wait until you see what it costs when it’s free.

So what’s the solution? What about “all those poor people?” What’s a heartless capitalist to do?

Recall Mama Obama ranting during the campaign that “some folks are going to have to give-up some of their pie so that others can have some?” Neither she nor the multitudes like her understand the basics of Economics 101. Our economy is not a zero-sum game.

For most of my life, I raced cars and one of my favorite races was the 2000 mile La Carrera Panamericana from Guatemala to the USA through central Mexico. Let’s admit that Mexico is a poor country. That is, many of the folks are considered to be poor. Yet as I traveled throughout Mexico, I saw color TVs in cardboard shacks. I must have been really “poor” when I was a kid because we didn’t even have a black and white TV. No one did. We were one of the first families in the neighborhood to get a TV and that wasn’t until 1948. Today, even a poor Mexican can have a color TV. Why? Because contrary to Mama Obama, the world’s pie continues getting bigger. That means even the poorest among us can enjoy a living standard that wasn’t even available when I was young.

We have a bunch of politicians who continuously deficit-spend thus reducing the purchasing power of the dollar. Then they graciously increase the mandatory minimum wage in order to off-set the loss of purchasing power they, themselves, created. Do you suppose there is a moral hazard hiding somewhere in this fraud?

Regards,
Tex Norton

Why Minimum Wage Means Maximum Slavery was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.