PArt of my series of "Dear John" letters to my die-hard liberal friend...
Dear John,
I can agree with you that Republicans are often quite hypocritical for supporting so called “free markets.”
Like I’ve said before, Republicans can’t talk credibly about free markets when they support a central bank dominated financial system that literally prints money to pay for a massive military industrial complex and military adventurism all over the world (and bails out politically connected financial institutions).
The Republicans do a disservice to markets when they promise that markets will work everything out or that there is such a thing as trickle down economics, when “we” have injected / infected the market system with easy money. Markets can’t possibly work when they are distorted by unsound money. The rich get richer and the poor get poorer in a system designed around a central bank.
When Republicans ask us to "trust" in the market, they set the market up to be the fall guy when things eventually come crashing down thanks to an inevitable easy money bubble fueled by the Federal Reserve, which is exactly what happened in 2006 - 2008.
Meantime, it is wrong for the GOP to use markets as a silver bullet solve-all for social problems. Markets are inherently flawed. We need to understand and articulate the inherent "micro" flaws in markets that paradoxically make them special and healthy and sustainable from a macro perspective. Pollution, income inequality, and business cycles are just a few examples of what i would consider micro flaws / failures in markets that we can’t fix without undermining the underlying health of the larger economy.
Try to get rid of income inequality or business cycles with enlightened public policy and I guarantee you will set the entire economy up for systemic failure. There are no free lunches. The macro sustainability of markets is in large part due to their inherent volatility and "unfairness."
all of this leads me to the Dems who are just as delusional -- if not more so -- when they promise government solutions to so called “market failures.”
The Dems never ever talk about trade offs. They talk about market failures and win/win solutions provided by enlightened government policy interventions. When anyone disagrees with a Democrat initiative, they’re assumed to be selfish or stupid. Dems never talk about or acknowledge the unintended consequences or the unseen second order unpredictable results of their proposed win/win solutions.
Very often in a complex system like a human economy, the result of an action is the exact opposite of the intended result!!! for example, public schools are intended to help level the playing field in society, yet what they do is hold poor and middle class families hostage to a dysfunctional education system, which the rich (and politicians in Washington DC) can opt out of by sending their children to private schools, or by buying a house in a very wealthy neighborhood.
Trickle down economics is a straw-man. Fine, let’s all agree that trickle down economics doesn’t work (especially when you have a system built on an easy money central bank). But, what is the alternative?
Is there such a thing as trickle up economics? the answer is NO.
Can you actually increase the welfare of a country or a household by providing direct cash aid? What are the second order effects of that cash in the economy or to the household? who gets the cash? What incentives or disincentives to work are created by the cash transfer? Can you reduce income inequality with targeted public policy like highly graduated marginal tax rates? Maybe … but, can you achieve your reduced income inequality goal without also causing harm to larger economy? the answer is no, you cannot have your cake and eat it too.
You can’t raise marginal taxes on the rich without also setting in train a set of negative consequences that impairs the health of the overall economy. the fastest way to income equality is total economic collapse like you see in North Korea or Soviet Union. Dems would counter, well we don’t want perfect income equality, just more income equality or just less income inequality.
Go ahead and try to reduce income inequality with high marginal tax rates. The result will be lower growth and higher unemployment. A good example of this is the US in the 1970s or modern France. If you want to live with structural unemployment above 10%, then fine. Lets at least admit the costs of using public policy to reduce income inequality. While your at it, go ahead and raise the minimum wage.
But be prepared to increase unemployment. Economists can slice and dice the data to prove that raising the minimum wage doesn’t raise unemployment. I don’t buy it.
The fact is, any well intended public policy has a trade off component embedded in it. sometimes the trade off is worth the cost. I just don’t buy the win/win rhetoric of the Dems who promise free lunches and then when they don’t deliver, they blame the GOP for blocking them.
The problem with measuring the costs of public policy is that the second order effects are often hard to link to the initial policy. So we implement one policy to fix one thing; the result is problems somewhere else, and we find ourselves in a never ending cycle of fixing problems caused by some previous policy measure. Politicians point the finger at their political opponent or the market, and the finger rarely if ever gets pointed back at the politicians themselves.
You want universal health care? then at least admit the tradeoffs. There are always tradeoffs. It is true that the US spends a greater share of GDP on health care for worse results than France or Canada. But, that doesn’t mean if the government takes over in the US we can “save” money. There are unique institutional reasons why we spend so much for health care in the US. putting the government in charge will NOT magically reduce the percentage of GDP we spend on health care. There are always tradeoffs.
With Obamacare I can guarantee we will get some combination of low quality, doctor and service shortages, fiscal deficits and in the end we will get forced rationing. The rich will always be able to opt out of the public system, and the poor will be stuck in a dysfunctional system. Look at public education. once the state takes over, the system is unionized and the unions (and politicians) game the system for their own selfish benefits. That is reality. The same will happen with obamacare.
The text book solutions will never happen for government managed health care reform because politics intervene and neutralize the spending cuts while encouraging spending increases. That’s exactly what we saw with Obamacare.
Like I’ve said, I can agree the GOP are often a bunch of power hungry hypocrites or well intended free market advocates who don’t understand how markets work or don’t want to admit that they can’t have their cake and eat it too (big defense spending and free markets).
But the Dems are just as crazy when they claim their own version of promising the public we can all have our cake and eat it too; Dems promise to be able to fix this problem and that problem with public policy for a win/win for society. I mean what fantasy land do we live in? if the government could solve complex economic and social problems, then why are things so screwed up every where you look where government is in charge?
That is not to say “markets” are perfect. markets are inherently unfair and uneven and cyclical and unpredictable and will always result in structural income inequality. There will be pollution and there will be oil spills and other problems.
Markets aren’t perfect. We need to get our arms around that simple fact. The government can’t fix market failures because there is no such thing as market failure per se. Markets have negative features just like any complex system.
The earth system has what we call natural disasters. These aren’t system failures. An earthquake isn't an “earth system failure.” Earthquakes are features of the dynamic complex system that play an essential role in the otherwise “healthy” functioning of the larger earth system. Markets also have negative features that also play a crucial role in the otherwise healthy functioning of the larger economy and financial sector. For example, human economies have cyclical booms and busts. The busts weed out the weak firms and lay the foundation for the establishment of new ones.
Let’s learn to adapt to the cycles rather than try to “fix” them with a central bank.
If you try to fix what you claim are market failures, you are trying to play God. it is like trying to eliminate earthquakes or hurricanes. Impossible.
That is why all of this talk of fixing global warming is nonsense. If global warming is a problem, the ultimate solution will be more market, not more top down directed human intervention, which will just trigger more cycles of negative unintended consequences. More market means getting rid of central banks and governments encouraging easy money fueled growth at any cost, like we see all over the world.
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