7 ways government screws up the economy
Few would deny that the market is an integral part of every economy. The market involves all of the processes necessary for the economy to function, from the efficient management of resources to the setting of prices by means of differences between supply and demand and subsequent economic growth that results from a tendency to produce more value than is consumed.
Wikipedia defines the market as follows:
A market is any one of a variety of different systems, institutions, procedures, social relations and infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy.
So the essence of every market is in trade, which is also defined as a voluntary exchange of goods, services, or both” and “voluntary” is defined as “a word meaning “done, given, or acting of one’s own free will“. Since what is being voluntarily exchanged can be both goods and services every act by a trader can be considered a service so everything an individual does for another individual, for it to be a part of the market as hereby defined, must be completely voluntary, of one’s own free will rather than by compulsion or coercion. Thus the essence of a market is voluntary interaction.
It seems obvious then that any form of compulsion or coercion is incompatible with the market and is exactly opposite of the kinds of interactions that happen within the market. Since the market is a crucial part of the economy then voluntary interaction is crucial to the workings of a healthy economy. Any economic management that involves coercion therefore harms the market. One would argue that such coercive intervention on the economic activity brings more good than harm, but the harm can hardly be dismissed while the good remains to be proven.
The argument that coercive intervention on the market brings more good than harm (since it is fundamentally anti-market) generally stems from the assumption that the one coercing knows better what is good for the economy than the one being coerced and thus implements his “better knowledge” or wisdom by means of force. However, in addition to arising an obvious question of trust into the coercers wisdom, this also gives rise to flawed logic.
The purpose of the economy is the management of value or wealth. Natural resources, products of human labor (such as technology) and human labor itself (or services) all have certain values. However value is subjective since one person may value something to be worth far more than another depending on their individual needs, desires and personal value systems. Yet nothing in the universe and natural world by itself has a specific inherent price tag on it. Nothing in the universe inherently values itself relative to human beings. It simply is the way it is and human individuals are the ones who mentally assign value to it.
So when it is claimed that the one has higher wisdom and thus the right to force another to act against his will, it is in fact claimed that one’s values trump another’s without leaving any further objective justification of why that is so, because such justification is impossible. It is one essentially forcing another to do his bidding. The “higher wisdom” is a thus a fallacy, because it merely matches one’s personal values, no matter how many people agree with such values (majority doesn’t make coercion right).
Government is based on compulsion or coercion. It is founded on the assumption that a group of people chosen by means of a particular process or ritual is justified in forcing others to do another’s bidding. They want to help the poor by stealing from those a little more well off (not even necessarily the rich). They say the price of security can only be paid by money which is taken against your will and so on. All laws include punitive laws as threats of incarceration, extraction of money or worse for disobedience, which is what qualifies each and every instruction in these laws as coercive.
So how does this government harm the economy?
1. It is a coercive monopoly.
Even the most minimal governments outright monopolize at least a few markets, by threatening force against competition and thus essentially denying even the existence of these markets since markets are about voluntary interaction not compulsion. The typical examples of these markets are defense (police monopoly) and arbitration (court monopoly), but very often includes far more such as the monopoly on provision of roads, telecommunications monopoly, healthcare monopoly and so on.
Every industry monopolized by a government is one less opportunity for an individual to use in order to achieve greater economic success. An individual either has to work for the government or he can’t work at all or in limited cases can work only if licensed by the government and still under their rules, which hardly in any way allows any real competition. This lack of competition in these industries thus ensures that certain people who would have otherwise prospered in them don’t, that advances in quality of service in these industries are not made or are made very slowly and that prices remain static or even increasing (essentially determined by an arbitrary tax rate).
It’s not only that these industries are monopolized in the sense that you have nobody else to turn to if you need these services, but in most cases you are not even allowed to refuse them. You must pay for it whether you’d like to use it or not. The only way to escape this is by exile, leaving the country only to enter a jurisdiction of another monopolizing group (another government).
2. Fiat money currency
In theory some say it is possible to trade with currencies other than those government provides, yet history (even recent history in cases of certain electronic currencies like e-gold) is filled with examples of governments clamping down or trying to control currencies that are alternative to their own. Yet their own currency is in modern world backed by absolutely nothing except the largely unfounded faith of the people using it. The government or agencies which it has exclusive partnership with, such as Federal Reserve in the US can arbitrarily print more or less of the currency or just create it by typing a number in the computer. This gives them the unearned power to manipulate the value of every dollar you hold on a nearly daily basis.
When using such a currency for trade individuals are using a measure of value which by itself has no value whatsoever. It is just paper or numbers in a computer. It means nothing and is worth nothing and you cannot exchange it for anything other than more worthless paper or worthless numbers. You can buy things with it so long as enough people have unfounded faith in it, but if you are foolish enough to hold it as a storage of value you in reality have nothing. You are gambling.
This faith never can and never does last forever. Currencies not backed by something of actual tangible and measurable value not determined by arbitrary whims of a certain central government agency (or even a non-government agency doing its bidding like Federal Reserve) but rather by actual supply and demand in the market always do and always will collapse. That day is coming for the US dollar just as it is eventually for the Euro and every other fiat currency in existence.
This creates a ridiculous situation in which every economy is essentially pre-destined for a monetary collapse because its lifeblood, the currency, is in fact poison – a fraud, a lie everybody believes in, unreal and subject to malicious manipulation. Yet the government with all its force stands behind it and tends to look very unfavorably to more solid alternatives such as gold – usually banning its use for currency once it is most needed and thus once its popularity rises more than the government can tolerate. The government wants you to use their monopoly money, not real money, because that’s what gives it power over your wealth.
3. The Corporation
If you think corporations are the product of a free market you have been living under a rock, but don’t feel bad because most people have too. Corporations have very little to do with the free market. The power of a corporation is largely the extension of government power. Corporations are “legal entities” not individual human beings nor groups of them. They are fictional and exist merely as a set of promises, permissions and restrictions provided by the government. They are analogous to sock puppets pulled by actual human beings which is why you can see business people talking about their corporations as if they were persons separate from them, even when said business people seem to run the said corporation and all its dealings.
The problem with this arrangement is that it basically shields said corporations from the effects of the market (the voluntary interactions described earlier) since instead of being subject solely to the natural laws of supply and demand based on individuals pursuing their values through voluntary trade they are subjected to not only restrictions, but also powers and benefits they have not earned through the market. This is evident from the very separation of the corporation and the individual actually running and owning it. This separation makes it possible for the corporation to be ran as if IT and not its owner was the one doing the jobs, so if IT uses bad business practices or perpetrates fraud, IT is to blame, not the actual individual running it, yet IT doesn’t exist in reality – it’s just a fictional entity based on said promises, permissions and restrictions to the said individual, all of which can be arbitrarily manipulated by their provider, the government.
So there is no real liability and no real accountability to the market. Corporations are thus such a great tool for business people to gain unearned power. It is hard for a smaller business to sue them without being in an unfavorable position, because the power of government favors the corporation.
Of course, there are not only unearned promises and permissions, but also restrictions which gives people the illusion that government actually doesn’t empower these corporations, but merely “keeps them in check”. However these restrictions often end up merely scrubbing off the part of the whole of power they already gave to the corporation and often end up in merely shifting the power from one to the other corporation. For instance, antitrust laws punishing one corporation only means that another corporation just gained a free unearned boost. A particular new regulation prohibiting a particular way of doing business will punish one set of corporations depending on such a business practice thus effectively giving a free boost to those who don’t.
Therefore no restriction and no government regulation can actually ensure that all corporations are “kept in check” at once. All of it has “unintended” consequences which beat the whole supposed purpose of regulation.
Finally, the whole concept of regulation even if idealized in some manner is completely flawed because whatever the powers the institution of a corporation as a legal entity provides the business owners or whatever restrictions it imposes on them are both artificial because they are unearned through the market. Thus the whole scheme completely routes around the market, removing YOU from the power of affecting the value and wealth of the corporation, removing your power to vote with your wallet. Even boycotts become ineffective. No wonder some people end up feeling quite futile in their attempts to thwart the big corporations. The problem is they are blaming corporations themselves and then the free market for this instead for the source of their empowerment: the government. People shout at the “free” market (which we don’t have) saying it gives free reign to corporations yet it is government, the supposed savior, which by itself has free reign and empowers corporations with it.
Needless to say, omitting market forces has generally bad effects on the economy. Corporations get bigger, competition is stifled and when the compound of all the ways in which government harms the economy collide creating a huge economic crisis, government fails the last test of their credibility as those keeping the bad corporations in check: they don’t let them fail, instead they use the money they took from you with taxes or created out of nothing (devaluing, again YOUR money) to BAIL THEM OUT, claiming this will save the economy, when in fact they merely expand the very practice that caused economic failure in the first place – coercion = involuntary interaction – anti-market activity – forcing you to pay for something you don’t want to pay for thus perpetuating win-lose relationships rather than win-win relationships upon which the health of the economy and continued growth depends.
4. Taxes and bureaucracy
This may be somewhat redundant given point number 1 about the government monopolies since I already pointed out that people don’t have a choice but pay for government services regardless of whether they want them while being denied the right to form competing ones. However it bears special mention in one aspect: it makes getting into business as well as maintaining it harder, thus making a larger amount of the population into what some call “wage slaves” rather than innovative entrepreneurs that create competition and push the economy forward.
Taxes serve as a disincentive to doing business since they rob you of a good chunk of what you’ve earned by application of your own mental and physical effort. Bureaucracy ties well into this motivation crushing effect as, unlike being a simple employee, as an entrepreneur you become obligated (forced by government) to deal with tax filing, various registrations, licenses, keeping up with latest regulations etc. all of which obviously increases your costs of time and effort even further. Government thus makes doing business as an entrepreneur much harder than it otherwise would be which means less entrepreneurs, less competition, less innovation, less economic growth, worse economic conditions for too many people and lower level of satisfaction and happiness.
It then feeds into the self-reinforcing chain of poverty, which is often the reason cited as justification of poverty, that someone must feed the poor. Continuous free hand outs of band aid charity to the poor without provision of education and motivation only prolongs their poverty, and when an inevitably economic collapse occurs, even these hand outs stop and the poor become even poorer if they can even survive. Thus instead of actually fighting poverty, taxes act as a double edged sword against the solution to poverty: free handouts without entrepreneurial education keep people poor continuously while the bureaucratic and tax costs make it that much harder for them to actually become entrepreneurs and thus rise out of poverty.
Taxes create poverty rather than solve them. People have been using the same old justification for taxes for decades and centuries, yet poor still get poorer while rich (the corporations above) get richer. And you still keep pretending.
5. Perpetuation of personal irresponsibility
The government and the ideas which justify it are surrounded by myths of its far reaching power, wisdom and ability, even as people continue to view its talking heads make fools of themselves on TV on an almost daily basis. It is as if people believe that government is something beyond the group of people actually calling themselves the government, as if it’s some sort of an all powerful entity that has the ability to protect them from all harm, like a father extending his strong arms around you or a mother keeping you in her arms.
This submission to coercive authority that can punish the “bad” and reward the “good” despite a lack of an apparent definition of the two out and keep all harms away indeed very much fits the typical family setting. Parents are seldom well practiced in philosophy and science to the point to which they can with great true authority actually define good from bad, and besides they never really try. They simply tell you what you can or can’t do regardless of their definitions and justifications. You are treated as if you don’t need to know why something is “bad” and another thing “good”. You simply learn that those things which are prohibited and for which you get punished are “bad” and those for which you aren’t or are rewarder are “good” and that sits with you on an emotional level till adulthood and becomes the way your persona operates, completely bypassing the rational examination of the empirical world around you.
The government then merely replaces the parents. Their justifications for punishment are filled with contradiction you’re incapable of seeing because you’ve never been taught to think critically about them and you simply end up accepting everything on the basis of them being a government, having all the power and thus they must be right. What they say is “legal” and everything they prohibit is “illegal”. If you do “illegal” things you are bad and so you must always obey, always do the legal, always “be clean under the law”, even when such law contradicts reality and human nature.
How does this affect the economy? The inhibition of critical reasoning as well as the learned adherence to coercive authority rids the individual of much of the sense of personal responsibility. Instead (s)he outsources much of it to said government. Let them take care of the big issues, of the ills in the world, let them cure the economy, let them cure violence and poverty – they should do everything and you the individual are supposed to simply vote for the right people. Whenever something bad happens, like the current economic crisis, everyone turns to the daddy/mommy government and tells it how bad it is, how it failed, how it sucks and how it should change immediately, like a child shouting in frustration at his or her parent. It’s not a sign of a child being less submissive to the parent, it’s just another protest “you’re supposed to protect me from this, so do it!”.
Personal responsibility is dead. Instead when such people talk of personal responsibility they talk of fraud that took its place, mere personal allegiance to the government and the mythical “nation” or “country” it represents. How can such a mentality help create a prosperous economy if it is fundamentally based on submission of the individual creative power and critical thought to the one entity which by nature exists as an anti-market force? It can’t.
I have never understood the justification of war except on an emotional level which I would describe more in terms of mental illness than in terms of healthy reasoning. The reason people support war is because they are emotionally manipulated into hating the mere image of an enemy. They never see the people branded as the enemy, they don’t imagine them as human beings just like them, they don’t imagine their suffering and their struggles in life nor their honest successes and achievements. They merely imagine them as evil drones bent on destroying them. This is what war brainwashing does. In an attempt to defeat this terrible image of an enemy, they are willing to support or actually perpetrate even the worst of atrocities.
Thus the government uses such support to commit billions if not trillions of funds from taxes and money created out of thin air into massive war efforts which by their very nature are impossible to be defined as mere defense of any kind. Defense is an immediate reaction to an attack or an individual’s increase in his own security measures. It most certainly is not an increase in the likelihood of getting shot by a police officer or a clamp down on your privacy (the “security measures” of the post 9/11 USA) nor is it a vengeful destruction of almost an entire country followed by years of chaos and violence on its streets. Vengeance is not defense. It is merely a blood thirsty destructor of both the perceived enemy and the self.
This self destruction is the effect of war on economy as its efforts tend to drain the economy to the limits and beyond, albeit the actual effect on individuals is postponed by the governments arrogant and arbitrary ability to create money out of nothing. The resulting devaluation of currency takes time to make its way through the economy, but such a process is absolutely inevitable. In case of the current economic crisis, it has in fact slowed down the process by countering said inflation with deflation, but given government’s absolutely stupid and malicious moves to respond with 10 trillion fold inflation, the corrective power of said deflation was effectively cut and hyperinflation is to follow sooner or later. USD’s days are being numbered.
Another way in which it affects the economy is the rise of the threat level. If you have an enemy designated as such and one you bully on a regular basis you’re seldom to expect safety from his retaliation and this would go on forever if you take every sign of his potential or actual retaliation as only further justification for continued violence. Violence breeds violence and it is only destructive of value and thus completely and diametrically opposed to economic growth. It’s more expensive to do business if fear is pumped up and pretty much impossible if bombs are whizzing over your heads.
7. The inevitable diminishing of liberty
Since it is based on coercion the nature of government is by itself anti-liberty for the same reason it is anti-market. Liberty is the ability to choose for yourself how to think and act without fear. Coercion, however, depends on fear. Thus all of the 6 previous points are already examples of particular ways in which liberty is diminished to the detriment of economy, which is to say, the detriment of well being of nearly all individuals in a country.
However this particular point is primarily about the inevitability of diminishing of liberties, something that is impossible to avoid so long as the very idea of government continues to be believed and pursued, regardless of what illusions to the contrary you may hold. Needless to say that less liberty, the ability to choose for yourself without fear, also means less economic activity – since economic activity directly depends on you choosing to act upon your values. If you are afraid to do a particular kind of business, produce a particular kind of good, offer a particular kind of service or just generally afraid to make money to begin with out of fear of misstepping in your tax obligations you are that much more likely to simply not bother, thus robbing yourself and others of the wealth you could’ve created.
The reason diminishing of liberty is inevitable is simple. Just as violence breeds more violence government breeds more government. It feeds in on itself in order to justify its very existence. If government starts very small, monopolizing solely the arbitration and protection industries, it wouldn’t be too long before people would question the necessity of it being a monopoly in these areas. Why can’t people establish other agencies to offer the service of arbitration (private courts) or protection (private defense)? Thus in order to continue being a government (a coercive monopoly) it must continuously keep active, it’s not enough to simply sit in place and keep things just right as they are. Instead it must keep raising issues and fuss and campaign for new legislation and yet more legislation eventually monopolizing new industries and as it keeps biting into more and more of the market and thus inevitably more and more of individual liberties, there is more and more fuss, more and more issues to keep addressing, more and more laws to pass to supposedly address said issues.
People end up being duped into believing that every problem can be solved by a yet another law being oblivious to the fact that law merely increases the government power at the expense of their liberty and consequently their own power to solve said problems so the circle of hell continues until the government effectively eats up the whole market, and so little of civil liberty is left that people are essentially boxed. Just holding the wrong views may get you kidnapped (jailed) or murdered (executed) by the government for whom now more than half of the entire country works.
In such conditions the economy is effectively at a stand still since people are literally afraid to be themselves and thus liberate their own creative potential that is necessary to innovate and create more value in the market. In fact the market barely even exists. All production is centrally coordinated and only produces what is necessary for basic subsistence of what was already achieved when the country was still relatively free.
This totalitarian nightmare thus keeps living on the brink of total collapse just waiting for an event to trigger it, whether it is a yet another “glorious” war with the nightmare inspiring image of an enemy or the few brave martyrs inciting general rioting that leads to the violent implosion of the regime.
This, my american and european friends is where we are inevitably heading if you continue believing that a group of people willing to use threats of violence or actual violence , no matter how you elected them to such a position, are the ones who should solve your economic and societal problems. Government is not a magic bullet that you may believe it to be. It is not an answer to everything. There is no magic bullet in fact, not even anarchy.
Anarchy is not an answer. Anarchy – as the admission that violence is not the way, but rather exclusively voluntary interaction, a free market – is merely the recognition of the fact that there is no single answer and that solutions are best found when individuals are let free to apply their unique creative abilities, without compulsion, to find solutions to the problems that we face. And that’s the only way we stand a chance at building a stable and perpetually prosperous and accelerating economy which can last for not merely decades before the collapses or years between recessions, but centuries and millenia.