Saturday, March 26, 2011


by James Craig Green

Two hundred years ago, Thomas Malthus predicted mass starvation in Europe, since the population was growing much faster than the food supply. A few decades later, Thomas Carlyle would call Adam Smith's new science of economics the dismal science, in part because of Malthus's prediction. Malthus turned out to be massively wrong however, because he didn't consider the potential for human ingenuity to expand agricultural production through economic incentives.

Contrary to Adam Smith's new science, governments in the Twentieth Century learned to promise almost endless benefits without apparent cost, by following the so-called Keynesian model of deficit spending, ignoring Adam Smith's "invisible hand." England's John Maynard Keynes had proposed this for a bad economy, paying back deficits when economic activity recovered. But, governments soon learned they could get away with expanding public debt almost endlessly to provide a lifetime of growth based on a flawed economic model. This completely violated the natural controls markets have by eliminating the risk of loss and the price communication between supply and demand.

In Great Myths of the  Great Depression, Lawrence Reed points out that it was government intervention, and not free markets, that created and sustained the worst economic crisis in U.S. history. An online version of this important work may be found at A better understanding of Keynes' big government economics and its free market counter arguments may be gained from the Austrian School of Economics led by Ludwig von Mises, Freidrich Hayek and Murray Rothbard. See, the website for the Mises Institute in Auburn, Alabama.

The massive growth of government spending and promises during our lifetimes has resulted in the accumulation of future unfunded liabilities exceeding 60 trillion dollars, which former Comptroller General of the U.S. David Walker says is unsustainable. See Many people think this was the result of laissez-faire or free market capitalism, but they ignore the government's 100-year war on prosperity and the markets that provided it.

Since 1890, when federal antitrust laws were first enacted, government intervention in the markets that produce all wealth has expanded multiple times. This included the creation of the Federal Reserve and income tax in 1913, the Smoot-Hawley tariff implemented by Republican President Hoover in 1930, the New Deal programs begun by Hoover and continued by Democrat President Roosevelt for more than a decade, and a series of welfare state programs, including massive corporate welfare, ever since. Each of these interventions made the economy worse, but the intoxication of immediate benefits for some, like the heroin addict's high, felt too good to stop.

Economics may be thought of as the allocation of scarce resources. But, this is lost on those who rely on government to solve their real or imagined problems at everyone else’s expense. The most dangerous narcotic in a democratic society is endless government freebies. Markets work because transactions are voluntary. Without the perception of a net gain by both the buyer and seller, neither of whom is forced to participate, the transaction would not take place. One of the most important, but least understood aspects of markets is their ruthless punishment of failure. When market participants make mistakes, they tend to be the ones punished, by failure of their investments, business plans, loss of capital or their businesses. That is, unless government steps in to "help" them, like the recent bailouts of banks, auto companies and other failed businesses.

Today, many people think business is inherently evil, but they confuse fantasy with reality. Free market reforms are needed today, not to be confused with government subsidies to business which Adam Smith called mercantilism. Business makes everything you eat, wear, live in, drive, play with, or use in any conceivable way. But, business doesn’t give you everything you want for free, because without both the profit incentive and risk of loss, these things would not be available. Today's mistrust of business by politicians was widespread in the Soviet Union, where few goods were available, of poor quality, prices were high, and there was no choice.

It was business and voluntary charity that delivered the goods to New Orleans after Hurricane Katrina, while cops became looters and the feds wouldn’t let trucks full of food, clothing and other essentials into the City. Now, the same government agency that screwed up the levees in the first place (Army Corps of Engineers) is being rewarded with the expensive task of doing it again.

Although the dismal science can't compete with government when it comes to unrealistic short term promises, it always outperforms government in the long run, because addicts must eventually must enter rehab or die.

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