Σάββατο, 18 Σεπτεμβρίου 2010

Oblivious to the Outside World

Bob Herbert, a columnist for the New York Times, wrote that he was oblivious to the terrible storm (or tornado) that hit Brooklyn, Queens and Staten Island a few days ago - he was in his Upper West Side apartment and only noticed some extra rain and thunder; and he drew an analogy of his own obliviousness to that of the government and, mostly, the Republicans, to the plights that many Americans face today. He accused the government of doing nothing for ordinary Americans and the Republicans for caring more about the rich people than the poor. He implied that an outpour of government money (which would come as a result of heavier taxation) would lessen the burdens faced by many a poor and, ever increasingly, a middle-income family. 

If anything, it seems that Herbert himself is oblivious to how the economy works and how sound economic decisions are made. He seems to think that a bunch of Department Secretaries can sit around a table and decide how to best order the economy to get back on track or where to pour money for that purpose. And, perhaps, governmental handouts may offer a temporary relief for many people who are under economic duress. However, this relief is artificial; and, if extended indefinitely, it might lead to a culture of dependency, so prevalent in the '70s, the '80s and the early '90s (Bill Clinton deserves some credit for reversing the welfare culture he inherited). And, as this blog will not tire of reminding, it borders on the criminal to give people false hopes. In the medium term only businesses that correspond to actual market demand are sustainable. This means that if a person's or a family's income is sustained mainly by welfare payments or by government-created jobs, there is a very high probability that, after some time, these sources of income will not be available any more - how long can a Center for the Research of Chimpanzee Mating Habits last? Then, the problem will be even more acute, because, in the meanwhile, the government's intervention will have kept private investment out of the market and the jobs available will be even less. By higher taxation the government will provide people with a counter-motive to invest - and by spending its own money in sectors of the economy, where private investment plays a significant role, many investors will face, in effect, unfair competition from the government. If, on the other hand, burdens to investment are removed and taxes are lowered, it is only a matter of time, before potential investors start creating new businesses and jobs along with them.

Cycles of boom and bust are something every economy can expect; one can debate the wisdom of the government ameliorating the hard consequences faced by the less well-off during the bust cycles; but that should not become an excuse for the government to take over too large a sector of the economy, as Democrats and Bob Herbert seem to propose, because that will lead to the private sector moving out. No shortcuts to Utopia are available, as Herbert would wish - and the answer is to basically let the market fix itself.


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