DEBUNKING ECONOMIC MYTHOLOGY PARTWHAT GOVERNMENT CAN_-AND CANNOT-DO
When in a predicament it's always worth asking how it came about. When doing
this usually find it helpful to write about it and, given my personal orientation,
my way through the maze is to focus on economic manifestations, identifying the
principles that operate at the simplest level
Staying with friends in Philadelphia, I noted with a measure of envy that their
kitchen is equipped with devices that we don't have in our kitchen in London. I
suppose this is how progress spreads - I too may decide to install a boon that, at
the press of a button, yields fresh, perfect-size ice cubes as I am about to pour my
6 o'clock Scotch; and a tap that provides water hot enough to brew tea. Some
inventor must have staked a sizeable fortune on assembling the technology
needed to achieve what was not previously available, and on bringing it to
market at a price attractive to large numbers.
The bottom-line truth is that the fewer the factors of production used in
producing goods and services people want, the wealthier the producer will be.
This is surely the key to economic success - the greatest cost-effectiveness is
achieved by the optimum use of capital: employing labour-saving, space-saving
and materials-saving methods
This is certainly the case at the individual level when we shop for bargains, or
seek out the gardener or gutter-mender whose charges are reasonable and is
recommended by others whom we trust. We make these judgments because of
the simple fact that it's our money at stake. Here is "economics" in action,
according to its original meaning of " household management" (from the Greek
"Oikonomia").
The same principle applies at the level of society as a whole. The laissez-faire,
non-interventionist approach, that optimises the application of capital and other
productive factors, is one in which the role of government is proportionate to the
fulfilment of its true function as protector of its citizens' lives, property and civil
liberties.
This natural and original constraint on the size of the state is scarcely in evidence
anywhere today, but it can exist in the mind as a beacon of liberty from which
unimagined benefits flow from even partial fulfilment.
However, if we consider instead what we actually do find wherever we look, we
recognise that "statism" - or government for its own sake - is the increasingly
prevalent order. In this order of things, objective economic calculation is
disregarded as a superfluous interference because government already knows
what's best. Citizens' own preferences are rarely sounded out when state
authorities conduct the planning. Problems associated with unemployment are
rare when the planning process itself creates work and jobs can be made to
order. There is nothing like a real-life example of what happens when local government
supremos assume charge. Somewhere in the bowels of the rubbish removal
department of our local Council, it has been decreed that something should be
added to the list of things that blue (recyclable) bins must not contain - a
decision never communicated to people who live here
On the usual collection morning, the vehicle operatives simply jumped out and
stuck labels on every blue bin in the road without even opening their lids. The
labels declare that the refuse has not been collected because it "contains objects
that we cannot recycle", Well, how did they know, since they didn't look? What I
do know is that our blue bin contained only the paper pile of newspaper and
magazine freebies and the promotional rubbish about fashion and cruises that
fills each day's postbag
Naturally there's no unemployment when council office buildings are packed
with iobsworths paid to spend the day in pointless meetings, or filling in
meaningless forms; or when post deliverers shove piles of unwanted junk
through every letter-box on their round; or when garbage collectors stick notices
on bins rather than empty them. Who would vote to have their resources
squandered in this way?
Expand that spectacle from the local level to the national, and the scale of
mindlessly futile employment broadens exponentially to take in all the make-
work jobs that satisfy no human need. We have had our fill of infrastructure
projects that in the private sector would never have even reached the drawing
board.
[And by "private" I refer to privately owned capital - not the hare-brained "public-
private" scams like Carillion that enrich a few professional exploiters at the expense
of taxpayers and fail every test of ultimate worth.]
Building infrastructure in its time
There is a classic illustration in Alistair Cooke's brilliant documentary, "America"
that I have just revisited. He covers the Transcontinental Railroad, a
commercially dubious, desperately traumatic, government-sponsored project
that virtually wiped out the buffaloes and, by the same token, thousands of native
Indians.
Tellingly, a few decades later, James J Hill built the Great Northern Railway
across the northern tier of the US without petitioning the government to
requisition private property for his project. The Great Northern was the only
privately funded - and successfully built - transcontinental railroad in U.S. history.
No federal subsidies were used during its construction, unlike all other
transcontinental railroads.
The lesson: If a project should be built, private investors will evaluate it and, if
they can foresee a return, they'l come up with the capital. In Patrick Barron's
succinct phrase, "there is no such thing as building something before its time!"
So much of the logic is painfully obvious. Any new government initiative, like
funding for higher education, ostensibly designed to help people compete for jobs, can work only if there is a corresponding increase in suitable jobs on offer.
Otherwise it merely adds to the number of better-educated unemployed.
Our government's latest "help-to-buy" scheme for housing sounds great in
theory. But it falls for the old Keynesian illusion that increasing demand will do
the trick. It's a complete waste of taxpayers' money - until someone actually
builds some damn houses!
Egregious misreporting - by omission
I am writing this while the political classes are once again writhing in the furnace
of their self-made afflictions, and when the ash has settled (when, indeed!) there
will no doubt be much economics material to choose from. Meanwhile it is fair to
say that most debates staged this week on BBC studiously dodged the most
important ingredient in the Brexit story: the untold opportunities that present
themselves to a healthy economy freed from the shackles of a broken customs
prison. Not a mention of this, would you believe!
Nor was there any reference to the dire state of Eurozone finances, literally
teetering on the brink of bankruptcy. We shouldn't be surprised at this blanket
silence - after all, it would frighten the horses and demonstrate, yet again, that
they need us far more than we need them - and that, yet again, all the forecasts of
impending British doom and gloom are so much huff-and-puff - warnings that
would do forecasters Carney, Lagarde, Draghi and Macron proud