In the market economy companies which accurately forecast consumer demand and provide valued goods and services to consumers at reasonable prices make profits while inefficient and wasteful firms that cannot compete post losses and eventually go bankrupt. This entire process is phenomenally healthy. It's not really a big deal when a company does go bankrupt because while there might be some temporary pain as the employees have to find new jobs the capital doesn't simply disappear into thin air; it is instead acquired by a firm that can put it to more economic use. Now while it is true that government intervention in the marketplace has hindered the dynamism of the capitalist economy and made the rapid reallocation of capital more difficult the solution to that problem is not a massive scheme of corporate welfare and subsidies to inefficient firms but instead for the Canadian government to adopt a laissez-faire approach to economic affairs.
Bizarrely the attitude of intellectuals, newspapermen and politicians has been to savagely attack businesses which do a good job and make profits while coddling and bailing out the incompetent enterprises that lose money. This is completely backwards and needs to stop. Enter Bombardier. Bombardier, which has already received one billion from the Province of Quebec and has been the recipient of billions of dollars in government subsidies in the past, is about to once again get assistance from Ottawa. But why should the taxpayer be soaked to prop up an inefficient and failing enterprise? If a firm cannot compete in the market place then let them go bust. This creative destruction is a vital component of the free enterprise system. There is no such thing as too big to fail. When the government starts picking winners and losers in the economy taxpayers, consumers and competing companies all suffer.
The market economy is a dynamic place; consumer demand shifts rapidly and it's important that there be limited (or no) government intervention in the economy so that entrepreneurs and investors are able to rapidly reallocate resources in order to satisfy this shifting demand. Various policies such as the corporate income tax or regulations on an industry can impede the dynamism of the capitalist order by freezing in investment or preventing a firm from adapting to changing conditions. Markets work best when they are untaxed and unregulated. It is hubris to imagine that the government should try to lock in the economic status quo by bailing out failing enterprises or imposing regulations which crush small competitors who are trying to innovate and out compete established business interests. Over time, under the influence of foreign trade or simply because of the vagaries of the market economy, industries which were once dominant will fade and capital will be concentrated in new areas of production. This is a natural and healthy process which should be respected and allowed to occur, not fought with handouts and subsidies to dying corporations. Prolonging the inevitable simply retards economic growth and hurts both consumers and taxpayers.
Sunday, February 21, 2016
Friday, February 19, 2016
the looming menace of a sanders presidency
The Sanders campaign with strong showings in both New Hampshire (where he won) and Iowa (where he came in second) is quickly gaining momentum. While still an underdog to the formidable Clinton machine, Sanders has tapped in to the frustration of working class Americans and has a very realistic chance of becoming the Democratic nominee for president which would likely make him a favourite in the general. This is a truly horrific prospect.
Sanders, who constantly trumpets the redistribution of wealth, has a fundamental animus towards people who have been successful in the market economy by providing valued goods and services to others. But it is wrong for the state to take from one man and give to another; this is theft. People who get rich in the private sector do so because they have served their fellow man; their profits should be confiscated by the state because they have been justly earned. There is no fundamental conflict between the rich and the poor until the state enters the equation. In a capitalist order, virtually all exchanges are mutually beneficial; that is why people trade, because they expect to benefit. Individuals are uniquely capable of assessing whether or not a given transaction works to their advantage. But with the state, class conflict is created as interactions become coercive and win/lose instead of win/win. When the state grants monopoly privileges to a firm or keeps out competitors in an industry through compulsory licensure this hurts some and helps others and suddenly success becomes less about serving your fellow man and more about lobbying the state for special favours. The net result, especially once this mercantilism permeates throughout the whole of the economy, is devastating to the wealth of the nation. The real problem is not people who got rich by working hard and creating value for others but those who, like Sanders, got rich by by using the state to take the wealth that other people had created. Sander's fundamental belief system is parasitism, the idea that he has the right to live off the fruit of another man's labour.
Sanders constantly rails against the rise in teen unemployment which has been steadily increasing over the last fifty years, which is ironic because the main proximate cause for this phenomenon is the steadily increasing minimum wage, a policy which he enthusiastically supports. The minimum wage prices low skilled workers out of the market place and offers precious little advantage to anyone. Unfortunately the victims of the minimum wage are all too often invisible and very few people understand the impact of this policy, despite the best efforts of advocates of laissez-faire to educate the public over the years. To fight teenage unemployment (indeed, involuntary unemployment of all types) the most important policy move is to eliminate barriers to entry such as the minimum wage and compulsory licensure. The impact of confiscatory tax rates and profligate government spending in this area should not be understated as well. Groucho Marx said "Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." Never has that quip been more true that in the Sanders campaign. The tax, spend and regulate policies of Sanders would significantly aggravate unemployment.
The Senator from Vermont is also fond of attacking America's high rates of incarceration and yet he is too timid to suggest the obvious fix; an immediate end to the war on drugs. Instead we are assured by this angry little socialist that education can be a panacea for all social ills. Half of the federal prison population is in there because of drug crimes. The only solution to this problem is immediate legalization of both hard and soft drugs, as well as amnesty for all convicted users and dealers. Drug trafficking is a victimless crime and turning it into a felony has been a full frontal assault on the fourth amendment and completely eroded American civil liberties. Ending the war on drugs would free up police resources to handle the truly horrific crime and the government has no place regulating what a person chooses to put in their body.
In order to fund his 'free education for all', Sanders wants to impose a crippling tax on financial speculation. But speculators play an important role in the market economy, by moving resources from where or when they are plentiful to where or when they are scarce. This transaction tax would have a chilling effect on the dynamism of the market economy, freezing investments in place and having massive, long term consequences for economic growth. And there are already too many people going to college and university. Not everyone can benefit from higher education. Many people simply do not have the mental capacity for advanced studies. This simple reality may upset egalitarians who submit that we are all simply a tableau rousseau that can be molded into any form but it is the truth. Precisely how many basket weaving and women's studies courses do we need?
There are some good ideas which have sprang from the Sanders campaign. He is right to champion undocumented immigrants, many of whom risked their lives wanting nothing more than the chance to work and provide for their families. The de-militarization of police is also worthy goal. But ultimately his socialist policies would be an absolute disaster for the American people.
Sanders, who constantly trumpets the redistribution of wealth, has a fundamental animus towards people who have been successful in the market economy by providing valued goods and services to others. But it is wrong for the state to take from one man and give to another; this is theft. People who get rich in the private sector do so because they have served their fellow man; their profits should be confiscated by the state because they have been justly earned. There is no fundamental conflict between the rich and the poor until the state enters the equation. In a capitalist order, virtually all exchanges are mutually beneficial; that is why people trade, because they expect to benefit. Individuals are uniquely capable of assessing whether or not a given transaction works to their advantage. But with the state, class conflict is created as interactions become coercive and win/lose instead of win/win. When the state grants monopoly privileges to a firm or keeps out competitors in an industry through compulsory licensure this hurts some and helps others and suddenly success becomes less about serving your fellow man and more about lobbying the state for special favours. The net result, especially once this mercantilism permeates throughout the whole of the economy, is devastating to the wealth of the nation. The real problem is not people who got rich by working hard and creating value for others but those who, like Sanders, got rich by by using the state to take the wealth that other people had created. Sander's fundamental belief system is parasitism, the idea that he has the right to live off the fruit of another man's labour.
Sanders constantly rails against the rise in teen unemployment which has been steadily increasing over the last fifty years, which is ironic because the main proximate cause for this phenomenon is the steadily increasing minimum wage, a policy which he enthusiastically supports. The minimum wage prices low skilled workers out of the market place and offers precious little advantage to anyone. Unfortunately the victims of the minimum wage are all too often invisible and very few people understand the impact of this policy, despite the best efforts of advocates of laissez-faire to educate the public over the years. To fight teenage unemployment (indeed, involuntary unemployment of all types) the most important policy move is to eliminate barriers to entry such as the minimum wage and compulsory licensure. The impact of confiscatory tax rates and profligate government spending in this area should not be understated as well. Groucho Marx said "Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." Never has that quip been more true that in the Sanders campaign. The tax, spend and regulate policies of Sanders would significantly aggravate unemployment.
The Senator from Vermont is also fond of attacking America's high rates of incarceration and yet he is too timid to suggest the obvious fix; an immediate end to the war on drugs. Instead we are assured by this angry little socialist that education can be a panacea for all social ills. Half of the federal prison population is in there because of drug crimes. The only solution to this problem is immediate legalization of both hard and soft drugs, as well as amnesty for all convicted users and dealers. Drug trafficking is a victimless crime and turning it into a felony has been a full frontal assault on the fourth amendment and completely eroded American civil liberties. Ending the war on drugs would free up police resources to handle the truly horrific crime and the government has no place regulating what a person chooses to put in their body.
In order to fund his 'free education for all', Sanders wants to impose a crippling tax on financial speculation. But speculators play an important role in the market economy, by moving resources from where or when they are plentiful to where or when they are scarce. This transaction tax would have a chilling effect on the dynamism of the market economy, freezing investments in place and having massive, long term consequences for economic growth. And there are already too many people going to college and university. Not everyone can benefit from higher education. Many people simply do not have the mental capacity for advanced studies. This simple reality may upset egalitarians who submit that we are all simply a tableau rousseau that can be molded into any form but it is the truth. Precisely how many basket weaving and women's studies courses do we need?
There are some good ideas which have sprang from the Sanders campaign. He is right to champion undocumented immigrants, many of whom risked their lives wanting nothing more than the chance to work and provide for their families. The de-militarization of police is also worthy goal. But ultimately his socialist policies would be an absolute disaster for the American people.
Wednesday, February 17, 2016
deficits matter
With the Trudeau government's maiden budget looming amid threats of stimulus spending, it is a virtual lock that the Canadian federal government will run a 15-20 billion dollar deficit this year. And while so called 'deficit hawks' may be quick to point the blame at one of the few good thing that Trudeau has done so far (the middle class tax cut) the reality is that balancing the budget by raising taxes (or not cutting them) is like curing the disease by killing the patient. Deficits matters because government spending matters.
There is a truly bewildering array of statistics and misinformation (but I repeat myself) surrounding all things political. Economics has long been one of the softest of soft sciences, coloured significantly by political bias and economic interests. But of the morass of numbers and data points that claim to elucidate current events there is one you should keep track of; aggregate government spending in nominal terms. This is the true measure of whether government is growing or not; of whether we are headed towards a free society or leaving it behind. Massive borrowing on the part of the state enables significant expansions in spending programs that would not be politically feasible were the electorate forced to pay up front in the form of tax hikes. But despite the silver tongued claims of etatists there is no free lunch. Ultimately a price must be paid for these borrow and spend policies, either through the devaluation of savings, sluggish economic growth or capital flight as investors seek more business friendly jurisdictions. The more money the government spends the poorer our nation. Resources are finite; this money does not simply appear out of thin air. It is taken from individuals and businesses. Every dollar of government spending means less money in the private sector and fewer resources directed towards creating wealth and satisfying consumer demands. There is a massive loss in utility when you take money from someone, who would be spending it on their highest ranking ends, and instead have some bureaucrat decide to spend it on their behalf, inevitably on an end which is significantly lower down on their hierarchy of values. It is precisely because of the constant growth of government throughout the 20th century in Canada that we now live in an age of anemic economic growth and perpetual depression. With such a massive amount of the wealth created in this country every year expropriated by the state it has become increasingly more difficult for ordinary Canadians to make ends meet.
Deficits can be inflationary. Whether or not deficit spending is inflationary depends on whether they are financed through the sale of savings bonds, in which case they would not be, or if the money comes from expanding bank credit (printing new money). Given that only some 2 billion dollars was obtained through the sale of government savings bonds in 2011 it seems reasonable to conclude that this deficit will be financed through the expansion of bank credit and contribute to the inflation that has plagued our nation for too long. Inflation distorts price signals, causes havoc in our economy and makes it difficult for people to save. A stable monetary unit is crucial to a nation's economic health. Money is the blood of the economy, through which everything flows. What we should have is a sound monetary policy; a dollar, backed by gold, which instead of constantly depreciating in value actually appreciated as the number of goods available for purchase steadily increased. With sound money comes prosperity. Paper money is inherently unstable and the temptation to print more of it will always prove irresistible for politicians who are never the most principled of people to begin with.
Deficits matter. The Canadian government is moving full speed ahead in the wrong direction. Instead of less government, every year we are saddled with new spending obligations and expansions of old, failed programs. Where we need deregulation and non intervention in the economy we see instead ever expanding government control and regulations lobbied for by established business interests to perpetuate their profits and harm small competitors. Unfortunately for Canadians, Trudeau's handlers (and let's not fool ourselves about who is calling the shots, Trudeau is an utter moron, incapable of doing anything aside from mouthing vague platitudes, no doubt because he's been hit in the head a few too many times) are devoted to a dirigiste ideology and completely opposed to the free society and liberal economic policies. If our nation is to avoid bankruptcy and return to our rightful place in the sun then we as a people must rise up and demand that the run away government spending stop and some fiscal sanity be imposed on Ottawa.
Deficits matter. The Canadian government is moving full speed ahead in the wrong direction. Instead of less government, every year we are saddled with new spending obligations and expansions of old, failed programs. Where we need deregulation and non intervention in the economy we see instead ever expanding government control and regulations lobbied for by established business interests to perpetuate their profits and harm small competitors. Unfortunately for Canadians, Trudeau's handlers (and let's not fool ourselves about who is calling the shots, Trudeau is an utter moron, incapable of doing anything aside from mouthing vague platitudes, no doubt because he's been hit in the head a few too many times) are devoted to a dirigiste ideology and completely opposed to the free society and liberal economic policies. If our nation is to avoid bankruptcy and return to our rightful place in the sun then we as a people must rise up and demand that the run away government spending stop and some fiscal sanity be imposed on Ottawa.
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