Sunday, June 26, 2011


by James Craig Green

Most people in government don't have to worry about costs, waste or efficiency, because they don't have to earn the money they receive in salary or spend on the job. Unlike money earned in the marketplace through voluntary exchange, government money is acquired by force, which destroys the price communication between supply and demand, reducing overall value and economic activity.

The profit motive in business and its absence in government guarantee this.

Government employees often benefit from waste, high costs and economic inefficiency, because a shortfall in this year's budget can be used to increase a department's budget for the following year. In other words, government usually rewards failure (high costs, waste and less efficiency), while markets usually reward success (low costs, minimal waste and higher efficiency). When, due to economic downturns (more often than not created by government), local governments do have to tighten their belts, they always cut the most important people first: police, fire protection and utilities.

Perverse and destructive incentives in local government are magnified in the federal government, since it not only has a Department of Revenue like cities and states, but it also has the Federal Reserve, which can create money out of thin air.

If printing money improves the economy, why not allow everyone to print their own? The Fed and members of Congress benefit from this symbiotic relationship, as neither is blamed for the foibles of the other. Congress gets unlimited funding without obvious taxation (inflation and public debt are hidden taxes), while the world's most powerful private banking cartel (The Fed) enjoys a monopoly for the money supply. More on this below.

The Essence of Government

When a thief takes your property by force or fraud, his gain appears to be your loss, but that's not accurate in an economic sense. What you worked hard to get, he took for much less effort, so your loss in value is greater than his gain. This is true whether the theft is illegal (a burglar) or legal (government).

Government reduces the value of goods and services in the economy because it transfers wealth by force and fraud, just like the common thief or con-man. You may believe that legalized theft (taxes, inflation, public debt, unfunded future liabilities) is justified to maintain a system of law, courts and police, but claims that the economy will be better off are almost always false or greatly exaggerated. One reason is that government today is more likely to take your property than protect it, as it has long since evolved into a wealth-destroying monster.

The French economist Frederic Bastiat (1801-1850), in THE LAW said the primary purpose of the law is to protect people and their property. But, as soon as it begins to transfer wealth by force, it violates that primary duty. He also said the use of collective force can only be justified by its duty to protect the individual's right to use force to protect himself and his property. Today, government spends much more time and effort transferring wealth by force than performing its primary duty, which is to protect people and their property.

You might argue that a certain amount of force is necessary to maintain order, protect people and provide a system of dispute resolution, among other things. But, when the American Republic was created by the U.S. Constitution for such purposes, its powers were severely limited. Its first ten amendments, known as the Bill of Rights, listed individual rights considered to be superior to the collective powers of government. Please read the NINTH AMENDMENT to the U.S. Constitution. While you're there, also read the TENTH AMENDMENT, which limits the powers of the federal government to those stated in the Constitution.

Over the last two centuries, American government has consistently shifted away from the limited use of its force justified for protection, to an almost unlimited use of force for transferring wealth, without regard to individual rights. The Constitution has been ignored and re-interpreted to accomplish this, especially among lawyers, judges and politicians who have become high priests in the cult of unlimited government power. This has corrupted almost all elements of American society and will destroy its economy unless this trend is reversed. See MARKETS WORK - GOVERNMENTS DON'T, CRONY CAPITALISM and WHO BENEFITS AND WHO PAYS FOR GOVERNMENT?.

Voluntary vs. Involuntary Transfer

To further explain the relative value of voluntary vs. forced transfers of wealth, let's say a thief steals your car. Clearly, he gains, and you lose, but it's not that simple. Since you earned the money you spent on the car and its features reflect your own individual choices, it is worth more to you than to the thief, who spent much less effort acquiring it, and with much less careful thought about how it fits his particular wants. This means that every act of theft, while benefiting the thief, hurts the economy.

If you paid say, $20,000 for the car, it means you wanted that particular car, at that time, more than you wanted the money (cash or credit). The dealer who sold it to you may have hundreds of cars, for which he pays less (wholesale) than you (retail). Therefore, he wants your $20,000 more than the car, to gain his profit. This is a market transaction, since both parties improve their satisfaction by giving up something they want less to get something they want more. When the thief steals your car however, it is transferred from someone who values it highly to someone who values it less. This creates an overall loss of value, in addition to the obvious, but inaccurate, view that $20,000 of value was maintained; just moved from one person to another. This reduction in value remains even if the thief sells your car to someone who values it more than him, but less than you.

I credit my most recent, improved understanding of this concept to my friends and professional economists Paul Prentice and Penn Pfiffner, who teach different versions of their Free People, Free Markets course in Colorado. Their classroom demonstration of the Demand Wizard is brilliant, elegant and insightful. Tomorrow, I will dedicate an entire article to the Demand Wizard.

Government gets money the same way as the thief (Bastiat called it "plunder"), but the process is sanitized, legalized and characterized as something good instead of bad. When you peel the onion away from government lies, half-truths and exaggerations however, you find a much different reality than you learned in government schools. Since politicians, government-subsidized businesses and government workers all benefit from this unsavory process, most never think of their careers as working for the Mafia, or adversely affecting the economy. In fact, government is much worse than the Mafia, because its lies, half-truths and exaggerations are hidden, popular and much more difficult to understand than the common thief, especially among government employees themselves. See SOLAR JOBS.

This means the real value or real need for government services can never be determined. As the great Austrian economist Ludwig von Mises pointed out in his 1951 book SOCIALISM, economies based on force rather than exchange have no rational way to determine the price that will balance supply and demand, nor the incentive for government officials to even try. This is why the Soviet Union produced chronic shortages of poor quality goods, the tyranny of a police state and the starvation of millions of people from the forced collectivization of agriculture and its entire economy. America is already a long way down the same path. President Obama is the highest priest, the culmination of more than a century of the stifling collectivist ideology of the Soviet Union, applied most successfully in the U.S., not the Soviet Union or Russia. See Chart 5 in HERITAGE on GOVERNMENT SPENDING and REVENUE.

There are exceptions to this, but they are trivial. For example, some government agencies produce goods and services that customers may choose to buy or not, like maps, books and other optional services. The Colorado Division of Wildlife has funded its annual operating expenses, including salaries, from fishing and hunting license sales.

Government Workers Don't "Earn" Their Salaries

Let me explain what I mean that government workers don't earn the money they get. In the marketplace, goods and services are exchanged based on voluntary transactions, producing a net benefit to both parties involved, and therefore to society. But, each act of theft, legal or illegal, reduces society's wealth, as I have discussed. This does not simply transfer the same value from one person to another, but diminishes its overall value in the economy.

Through government subsidies, establishing government-sponsored monopolies (like the Fed) and other forceful interventions into the economy by government, private businesses quickly learn that the State provides them with immediate benefits without risking legal recourse for damages, intended or not. Most don't realize that government can only steal, cheat and otherwise hurt others to provide those benefits (with few and trivial exceptions). This is the addictive allure that corrupts many businesses, as their profits increase and risks decrease when they provide services to government. Occasionally, police, enforcement agents and other public employees get caught red-handed doing something so outrageous that their normal immunity as government employees is set aside, but this is the exception rather than the rule. This is being brought to the attention of the public more than ever before, due to the proliferation of cell phone videos and YouTube.

It is more lucrative and less risky to defraud, control and steal with the legal sanction of the state than without it. This makes today's governments, at all levels, much more dangerous and destructive than smaller, limited ones focused on citizen protection. Despite mottos seen on some police cars ("to protect and serve"), police spend most of their time enforcing laws passed by legislatures controlled by special interests. Law Enforcement is not protection, except by coincidence on occasion.

The Federal Reserve, a private banking cartel, was given a legal monopoly over the money and credit of the United States by Congress in 1913, the same year the Income Tax was created. Unlike the Income Tax however, the Fed was not the result of a Constitutional amendment, but just an act of Congress. This means any future Congress could abolish it, without affecting the Constitution. See my recent paper on the Constitution, SUBORDINATE ACTS.

Give me control of a nation's money and credit, and I care not who makes its laws.
--Mayer Amschel Rothschild


In short, free markets and government limited to protection are more like a good parent: protecting the freedom to prosper, but not guaranteeing success. See THE LITTLE BOY WHO COULDN'T FAIL. Today's government, on the other hand, is like an abusive or too-permissive parent, transferring wealth from those who produce it to those who don't, by force. It corrupts individuals and businesses by offering its generous benefits without the stigma attached to its theft-laden revenue agencies. It's law, always designed to protect and enhance government above all other considerations, is widely accepted, even when overstepping its bounds (a common feature of government monopolies). Although there may always be theft, fraud and aggression, today's large, oppressive governments encourage and subsidize it, while markets tend to minimize it. Most people, educated in government schools for two-thirds of their formative years, think otherwise, considering its law to be, at worst, a necessary evil for society to function and at best, a cornucopia of wealth from little or no effort.

These are ignorant, naive beliefs from the indoctrination of children in government schools. In fact, mandatory, free public education was the tenth plank of Karl Marx's COMMUNIST MANIFESTO (Scroll to the end of Section II, Proletarians and Communists, for his list of ten planks).

Unfortunately, government almost always creates more problems than it solves and makes the economy worse with each intervention, while failing to accomplish its most important task - the protection of people and their property. America would be much better served by restoring the Founding Fathers' vision of limited government instead of today's unsustainable, bloated monster that promises everything to everyone, for "free."

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