America in Decline? Simple Economics

“In all labor there is profit, But mere talk leads only to poverty” – Proverbs 14:23

The economic forecasts are growing more grim by the day. Breitbart is reporting that “Doomsday warnings of US apocalypse gain ground.” There is great fear amongst the economic prognosticators that the U.S. economy cannot withstand another shock, even a mild one, without facing an utter collapse. Are they right? It seems to me that if they are right, it is only in a very narrow concept of economy.

The Keynesians have made quite a mess of the entire study and concept of economy. Beyond all of the smoke and mirrors though, there are some simple, fundamental truths that cannot be overlooked, much less thwarted by wayward theories. Beyond unemployment rates, debt-to-GDP ratios, and stimulus packages, economy is about production and efficient use of resources.

Money, as we now know it, is only useful as a medium of exchange to replace barter. While we can all do productive things with our time, bartering makes it difficult to be productive in the proper proportion at the proper time for the proper exchange partner. So then, we use “money” as a mechanism to store our productivity for later consumption.

As for labor, consider the simple example of new home construction. Suppose I have $250,000 in cash (just laying around) and I want to commission a new home. I buy the land, hire a builder, purchase necessary materiel, and pay the laborers and craftsmen – to build my home. At the end of the process, wealth has been created. Before their was $250,000 in cash – now there is $250,000 in cash and a new house. I am no wealthier than before though; I have exchanged $250,000 for a house worth $250,000. The former owners of land and materiel have simply exchanged one form of asset for another. It is the laborers and craftsmen that did the work who actually produced wealth. It is productivity that matters, not necessarily the form of exchange (remember that the next time we have to give billions to bankers so they will agree to lend and save the economy).

When we talk about a collapse in the American economy, we don’t really mean that people will lose the ability to produce goods and services. The wheels could fall off tomorrow and I haven’t lost any of the skills I’ve accrued over time. (Have those skills become less valuable? possibly – but only to the extent that others are not willing to trade their productive capabilities for mine.)

So how then does the economy collapse? Perhaps the problem is not that people are no longer capable of production, but that their productive processes are inhibited from use.

The real problems that our economy faces are rather simple ones. Not simple in the sense of being “easy” to solve – just having rather straight-forward solutions. Let’s begin with the least painful and move to the more painful.

There are far too many barriers to exchange of productivity. People want to work. (Well, people want to work and exchange, not necessarily work for free.) Why then is it so difficult to get people working in exchange with one another? At every turn there is a barrier. The number of forms and procedures and responsibilities that a potential employer must undertake to hire a potential employee is staggering. All told, the more government regulation over economic activity, the less economic activity we shall see – and the less people will be willing or able to exchange their productive abilities with each other. (Hernando de Soto has a nice take-down of this in The Mystery of Capital.)

The second, larger, and more painful issue is the manner in which we handle or production at the federal level. We trade good production for bad. We take saved production (in the form of money – taxes) from people who are actually producing and pay it out to people who are not producing. From an economics standpoint, this is about as dumb as it gets.

Social Security, Medicare, Medicaid, Welfare – all programs that trade production for non-production. We pay retirees to be retired, and we pay for their medical care, even though they don’t produce anything. (Remember this issue, it will come up again.) We pay for food, shelter, and medical care for non-producing members of society. About 2/3 of the considerable federal budget is spent on these non-discretionary entitlement programs. And what do we get for all of that spending? Do we get new roads or new homes or infrastructure? No, we get nothing. At best you can say we get some sense of moral peace by “helping” those in need, or we avert mass rioting by hoards of underprivileged. But from the standpoint of economy, production, efficient use of sparse resources – we get nothing.

We could cut the federal budget by 2/3 in a flash by eliminating these spending programs that don’t produce anything. we could dramatically cut taxes and still balance the budget. It would be an economic boom.

At this point, the caring reader is protesting that such a dramatic step would leave a lot of people with a great deal of hardship. To be sure. Any time a support structure is taken away from someone who has grown dependent on it, there will be hardship. But, we began this post aiming to consider economy, not emotion. The fact remains that cutting the nearly $4 trillion federal budget by 2/3 would provide a dramatic lift to our economic prospects.

So, when the prognosticators indicate that the U.S. economy cannot endure another shock, what they mean is that the U.S. economy cannot endure another shock and continue to commit significant wealth to non-productive endeavors and still survive.

I have hope though. If it comes right down to it I imagine the adults who have jobs will step in and say plainly that we have no intention of continuing this rubbish. We will  not throw away any hope for the future out of fear of hardship by non-productive members of society. We will not continue to flush productive capability down the drain to allow the federal government to continue on its social experiments. We will find another way.

As for dealing with the needs, the very real needs of the elderly and downtrodden, I personally hold that it is the responsibility of the Church and private citizens, not the government. Private organizations would handle the issues with dramatically less waste. Free-loaders would be booted tomorrow (private individuals are not afraid of losing votes – they are concerned with addressing real needs). Yes, folks who have paid into a system with an expectation of getting something back would probably find the promises coming up empty – such is the way of things in the over-promising Granny State.

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