Love of Liberty : interventionism

Those Small Government Republicans

ChrisR — Tue, 30 Sep 2008 02:27:00 GMT

Arianna Huffington writes:

Ronald Reagan, in his first inaugural address, famously declared that "government is not the solution to our problem; government is the problem."

Twenty-seven years later, in the midst of the worst economic crisis since the Great Depression, and seven-plus years into the reign of Bush and Cheney, Reagan's anti-government battle cry should be on trial. But, stunningly, it is not.

Yet, when I bring up a chart of the federal budget, I have a hard time seeing even the hint of a downtrend.

The Federal budget under Reagan was around $0.5 trillion.....We're now over $3 Trillion!

It appears the Democrats are trying to re-live the New Deal years.

But will Americans buy it this time?

Will Americans believe that it is lack of government spending and regulating that is the problem?

My Thoughts on "Cash For Clunkers"

ChrisR — Sun, 27 Jul 2008 00:37:00 GMT

Alan S. Blinder wrote a piece for the NY Times, in which he suggests the government buy up old vehicles ("clunkers") and scrap them in order to stimulate the economy, help the environment, and improve income inequality.

I'd like to comment on some of his main points. He writes that this plan will produce:

A CLEANER ENVIRONMENT The oldest cars, especially those in poor condition, pollute far more per mile driven than newer cars with better emission controls. A California study estimated that cars 13 years old and older accounted for 25 percent of the miles driven but 75 percent of all pollution from cars. So we can reduce pollution by pulling some of these wrecks off the road. Several pilot programs have found that doing so is a cost-effective way to reduce emissions.

The first thing I'd like to point out is that since government receives its funds from taxation (or inflation), there is no way to know if this would be cost-effective.

There are, however, groups of individuals in our society that do risk their own funds and can calculate profits/losses: Private Enterprises.

This country is teeming with private entrepreneurs searching for profitable opportunities. Why aren't they getting in the business of buying "clunkers" and then destroying them? If we saw such activity, and then examined the balance sheets, we'd know if this is a cost-effective venture. If the profits were large enough, we'd also know that there is a large demand for such a business. We'd know that this is what people actually desire.

The next benefit according to Mr. Blinder is:

MORE EQUAL INCOME DISTRIBUTION It won’t surprise you to learn that the well-to-do own relatively few clunkers. Most are owned, instead, by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor.

Right away we can see another strike against cost-effectiveness. Already the government would be paying above-market prices...for something that is going to be destroyed!

Another error that I see is the suggestion that this would "transfer a little purchasing power to the poor." Unfortunately, the poor are the hardest hit by inflation. The best way to help them would be to stop inflating.

The final benefit that Mr. Blinder sees with this plan is that it would be:

AN EFFECTIVE ECONOMIC STIMULUS With almost all the income tax rebates paid out, and the economy weakening, Cash for Clunkers would be a timely stimulus in 2009. As was made clear during the Congressional debate last winter, prompt spending is critical to an effective stimulus program. And the quickest, surest way to get more consumer spending is to put more cash into the hands of people who live hand-to-mouth.

This is precisely the opposite of what needs to happen in order to return the economy to health. During a recession, the malinvestments created by the previous inflation need to be liquidated. Capital must be transferred to more profitable hands (that is, to those who are succeeding at filling consumer demands). Prices need to come down, and individuals need to save....not keep spending. Right now, the people of Zimbabwe are proof that putting cash in the hands of people who live hand-to-mouth is not the answer.

Minimum Wage Increase in California

ChrisR — Tue, 01 Jan 2008 23:48:00 GMT

From the Santa Cruz Sentinel:

Eli Reynolds, a driver at Pizza My Heart, is about to see his pay go up. So is Catherine Yi, a waitress at Clouds restaurant in downtown Santa Cruz.
The state's new minimum, takes effect today, raising pay from $7.50 per hour to $8 per hour.

This is a classic example of Bastiat's "That Which is Seen, and That Which is Not Seen."

In the above minimum wage example, the fact that pay will go up for both Eli Reynolds and Catherine Yi is the seen. This is the visible effect of raising the minimum wage. But what about the unseen?

The California minimum wage was raised to $8 per hour. What happens to Joe Average, who only has the skills to earn $7 per hour? What happens to Suzy Average, who can only be hired at $5 per hour? They must remain unemployed, of course.

But what if there is an employer who's ready and willing to pay Joe Average $7 per hour? And what if Joe Average would take such a job in a heartbeat? Too bad...it's now illegal.

When government fixes prices, you can expect one of two results: Shortages or Surpluses.

If the government fixes a price below the market price, the inevitable result is shortages.
If the government fixes a price above the market price, the result is surpluses.

In this case, the government is fixing wages above the market price for low-skilled individuals...so the inevitable result will be a surplus.

A surplus of what?

Unemployed low-skilled individuals.

The higher the minimum wage is raised, the larger the number of unemployed will ultimately become. Just imagine if the goverment were to raise the minimum wage to $50 or $100 per hour....How many people would fall into unemployment because they do not have the skills to earn $50 or $100 per hour?