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Wednesday, December 22, 2010

Presidential Hubris

If we were going to spend $700 billion, it seems it would be wiser having that $700 billion going to folks who would spend that money right away.

In October Barack Obama said this in defense of his opposition to extending the 2001 and 2003 tax-rate reductions for people making more than $200,000 a year. The government guesses that not extending them—that is, raising taxes—would bring in $700 billion over a decade.

Let’s break the statement down.

If we were going to spend $700 billion . . . The “we” isn’t you and I. It’s him and his army of bureaucrats. There is no collective decision made by the nation. A group of identifiable individuals, backed by armed personnel, will decide how those resources will be used. How did they get those resources?

Imagine a mugger eyeing a potential victim, thinking, “I could spend that guy’s money by leaving it in his pocket, or I could spend it myself right away. Now which would be the better way to spend it?”

Anyone can see what’s wrong. But change the context to government, and all the rules are thought to change. Why? Because the government represents us? But it doesn’t really. The people who run the government say it represents us, but they don’t know what they’re saying. True, they can be voted out of office by a majority. But no individuals can opt out. So while the politicians are in office, they represent only themselves and their patrons.

. . . it seems it would be wiser having that $700 billion going to folks . . . Does it now? On what grounds are we to conclude that Barack Obama—or anyone else in political office—is qualified to say what a wiser use of such a sum of money would be? It’s hard enough deciding what’s a wise use of one’s own meager resources. The future is uncertain and the choices are many. It is the height of hubris—a pretense of knowledge, to use Hayek’s phrase—to invoke wisdom while asserting the power to dispose of that money.

. . . who would spend that money right away. There you go. He has a good reason after all. He says the money will go to people who will spend it in a hurry. Of course, he doesn’t actually know that. The money would just be distributed across the budget, funding the same old boondoggles or starting some new ones. Part of that $700 billion would surely go to military contractors to make something irrelevant to Americans’ welfare and inimical to the welfare of some non-Americans. We don’t know how quickly those recipients would spend the money. The wealthy executives of the contracting companies may be the same people who would have held on to the money if the tax-rate reductions were extended. A lot of it will go to government employees, who have higher wages than people in the private sector. This is one of those talking points that sounds as though it makes sense until you . . . think about it.

But let’s assume the people who get the money would spend it right away. Why is that better than simply letting the people who make the money keep it? The theory is that people making over $200,000 a year don’t spend enough of their incomes to stimulate the economy. So it’s Keynesianism that Obama is espousing here. The economy’s in a ditch. Consumer spending would get it out, but consumers are afraid to spend, so the government must spend for them.

But Keynesianism gets it wrong on so many counts. The fundamental economic problem is not that aggregate demand is too low. Individuals are doing things—and not doing things—for particular reasons in response to what’s going on around them. Consumers are holding back because they’ve lost their jobs or fear they may do so. People are losing their jobs because a government-produced inflationary boom went bust and malinvestments need to be liquidated so resources can be realigned with consumer demand. But that’s not happening (fast enough) because unpredictability over what the government may do next and other factors make entrepreneurs and investors cautious.

Once the reasons are understood, the remedy becomes clear. The burdens of government must be lifted quickly and people must be confident they will stay lifted.

* * *

Congress created the Privacy and Civil Liberties Oversight Board to assure the people their freedom is safe. Was it just a device to lull people into believing their freedom is safe? James Bovard says that’s closer to the truth.

Patents and copyrights can do some serious damage to genuine property rights and innovation. But they can also yield some funny stories. David Levine has a few.

New diseases are being invented (not discovered) all the time. They are the product of collusion among the medical profession, the pharmaceutical industry, and the government—not a combination to inspire confidence, writes Wendy McElroy.

Vested interests are powerful political forces, but not as powerful as ideas. Isaac Morehouse explains.

America’s attempt to prohibit the manufacture and sale of alcoholic beverages was a failure on so many levels that it was called off after little more than a decade. Douglas Rogers examines those years via the latest scholarship on Prohibition.

Insider trading sounds like a terrible crime that strikes at the very foundation of the economy. Warren Gibson says it’s more like much ado about nothing.

Wilhelm Röpke was at the first meeting of the Mont Pelerin Society with Ludwig von Mises, F. A. Hayek, Milton Friedman, and Leonard Read. For many years his book A Humane Economy was recommended reading for libertarians. Yet he had some differences with American free-market advocates—differences interesting enough to get the attention of Joseph Stromberg.

As our columnists were saying . . . Donald Boudreaux shows that tariffs did not create America’s nineteenth-century economic growth. Burton Folsom tells the story of a boat-building entrepreneur. John Stossel points to early cracks in Obamacare. Walter Williams says people express preferences among human differences all the time. And Steven Horwitz, reading Paul Krugman’s assertion that war can stimulate an economy, proclaims, “It Just Ain’t So!”

This issue’s book reviewers dissect tomes on the Constitution, revisionist history, socialism, and the New Deal.

—Sheldon Richman
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  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.