Tag: government programs

The Fallacy Of Government Production

By Mason Mohon | @mohonofficial

On a school trip to Washington D.C. for Trump’s inauguration a little over a year ago, my friend and I faced a bit of an awkward situation when we expressed our libertarian leanings to the school sponsor. He was also the government teacher (non-AP, of course). When we stated that we were libertarians, he said something along the lines of “If libertarians got their way, there would be no roads, no healthcare, no military, and no police.”

Obviously, my friend and I do not hate healthcare or roads. Some basic rational thinking would suggest that we probably have alternatives to the government for such issues, but he was not willing to hear us out. He fell into the trap of his own fallacious thinking.

I don’t blame him, because humans are not perfect.

We tend to get what is mixed up with what can be, and on most occasions, we think what is is all that can ever be. This is what is known as the availability heuristic – we tend to exhibit a bias towards what we can see. We look at what is in the present or in front of us, and we trust whatever that is more than whatever is not there.

There is a good reason for the availability heuristic. Heuristics exist so that we can save time and brainpower. They are mental shortcuts that allow us to quickly reach a solution. They can also be our undoing.

Most people tend to believe that if the government is producing something in the status quo, that is the only way that thing can ever be produced. A libertarian sees the clear flaw in this line of thinking.

Many economists that I have spoken to and enjoyed the lectures of have quipped that if the state nationalized production of T-shirts or sneakers, many would begin to believe that the only way we could ever have such products is if the government continues to produce. They despair that if the industry were taken from the hands of the government, shirts and shoes would be a relic of the past.

It is clear that this line of thinking has its issues, but most people have problems with privatizing industries such as the police and healthcare, rather than things like shirts.

Let us look, then, at what may be one of the most difficult functions of the government to privatize: money. Over the last hundreds of years, money without government intervention has been a rare phenomenon, with examples few and far between. There were brief spats, such as the gold renaissance in America after the Civil War. But these moments were still mixed with government, and eventually, we got to the monetary status-quo: fiat currency that is inflated at the whim of the Federal Reserve.

Money needs a central authority for everyone to accept it. Well, this was the case, until it wasn’t. Satoshi Nakamoto’s whitepaper birthed the first blockchain currency, Bitcoin, in early 2009. It showed that the long-accepted way we saw money was wrong. Such change from the status quo showed that the way we think about functions of government sits inside a box, and it takes a really smart person to think outside that box.

What seems impossible from our current economic vantage point may very well be possible. Humans are not very good at looking ahead past what we see as possible so it would be a wise move to give arguments for privatized industries a little more weight in the future. We get caught thinking in the box and miss out on an opportunity for a world without a violent state.


Bernie Sanders, You Can’t Just Give Everyone a Job

By Mason Mohon | @mohonofficial

Bernie Sanders is back in the headlines, and he has brewed an economic wonder concoction that will supposedly solve every single one of the left’s discontents. It all takes the form of the dear old Senator’s jobs plan.

As the Washington Post reports, Sanders wishes to roll out a federal plan that would guarantee a $15/hour job, along with health-care benefits, to anyone “who wants or needs one.” The plan is expected to help the environment, infrastructure, and education, along with a reduction in racism and sexism.

It is probably the perfect program.

And its perfection is its fatal flaw.

As of now, there is not a hint of a funding plan for this program, nor is there any idea how it would be implemented. Sanders is just laying out exactly the type of socialist rhetoric his base wants to hear.

Because Sanders is not going to bother looking at the consequences of his actions, we should. This program would be immensely costly. The unemployment rate is currently 4.1%. Hypothetically, if Sanders gave each and every one of these people a $15/hour job, and they worked 40 hours per week and 50 weeks per year, the total would come out to $3.69 billion per year, and this is just for the wages. This figure does not include administrative costs and any costs in implementation.

The program would be a profound burden on American taxpayers.

At the same time, it would misallocate money. The reason that not everyone is paid $15/hour in the status quo is because not everyone does work worth $15/hour. Many do not operate at a level of productivity that is worthy of such a wage, so a jobs program would give artificially high wages to people doing less-than-adequate work.

One may object that anyone can work that hard or that skillfully if the incentive is there, but that is untrue. Some people are just less skilled than others, and it is the way things are.

Jordan Peterson outlines the jobs issue very well. He explains that “no, there isn’t a job for everyone, and no, you can’t train everyone to do everything.”

He explains that because of I.Q. distributions, within our increasingly complex society, there “isn’t anything for 10% of the population to do.” He is referring in this instance to the cutoff point for joining the military, which is at an I.Q. of 83. iq_bell_curve.gif

There are not areas of the economy where such people cannot be sufficiently productive to earn $15/hour. It is a harsh reality, but it is a reality. Bernie Sanders seems to think that we can just shove everyone in a job and expect them to learn a skill, but people who are less productive would start out with a much lower wage than $15/hour in other sectors of the economy.

At the same time, Sanders’s plan would artificially boost industries that there is not necessarily demand for. As is the problem with all government production programs, the emphasis on infrastructure and education in the employment category leaves the potential for there to be overproduction in parts of the economy there is no demand for. The result would be a misallocation, and hence, and a waste of resources.

Keep in mind, all of his waste is coming out of the pockets of status quo American workers.

The fact of the matter, though, is that most of these consequences are long-term consequences, and the long-term is something the government rarely concerned with. Bernie Sanders especially.

To put it kindly, Bernie Sanders is not in his prime (assuming he ever had a “prime”). The Senator is 76 years old so he will not have to see the long-term consequences of any program he puts in place. Rather, he, like just about every politician, is primarily concerned with the short term. The short-term to them is the next election.

Politicians make moves to get themselves re-elected primarily. That is the number one goal, because without it other political goals are not going to happen. With this goal, though, comes a phenomenally high time preference. Politicians are incentivized to only look at the next election, so the lie, cheat, slander, and make promises they cannot keep.

Once they reach the age that Senator Sanders is at right now, it is a whole nother ball game. At his age, it is time to go for the big promises and ignore the long-term. Why would one look at the long-term when they will not live to see it.

Sanders has a jobs program that is good at heart; he wants to see the downtrodden reach new comforts. His method is not the proper method, though. Voters, especially young ones, need to be incredibly wary of older politicians making such grand promises.

Entrepreneurship is the best solution to our problems, not state intervention.

Featured image source.

Socialism Fails Due to the Lack of Economic Calculation

By Andrew Lepore | United States

In 1920, an article first appeared In the German Archive for social sciences which decimated the socialist economic model and laid the foundation for the Austrian price theory. Economist Ludwig Von Mises’s article, “Economic Calculation in the Socialist Commonwealth”, demonstrates the impossibility of a successful socialist economy. For this reason, it is one of the world’s most important economic articles.

At the time Mises published it, those in academia were debating the problem with incentive under socialism. The incentive to work as much as others, to work your hardest, to provide the best services, to do the jobs nobody wants to do, etc. Scholars and left-wing economists were attempting to solve the problem of incentive under socialism, and once they did so, they thought, they would have a system just as productive as capitalism.

By publishing this article, Mises answered their question by proving it is an impossible problem to solve. Mises demonstrated that the incentive which drives economic actions, both on the supply and demand side, comes from monetary reward. The cost-benefit analysis of the individual ultimately is how a person decides what they will do and how much they will work.

Similarly with what a person decides to buy, an individual will use their capital to purchase the object of most value to them at the least opportunity cost, or the least amount of money spent. The medium for all of this; for how we represent economic calculation that takes place in the market, how we determine profits and losses, and how we measure the cost and compare it to benefit, is through prices.

Prices emerge when there are many private owners of the means of production competing in the marketplace to convince consumers to spend their hard-earned capital on their product or service. Or in other words, prices emerge when many companies compete for the business of many customers by convincing them they can get the best product at the lowest cost ( The lowest opportunity cost for the greatest benefit, economic calculation).

Mises proved that socialism wouldn’t work because It cannot distinguish more or less valuable uses of resources. Nevertheless, with leftists being as hard headed as they are, the debate over the socialist calculation problem still rages on.

I recommend to all readers who want a deeper economic understanding of the failure after failure of government programs. It’s a short read, yet is full of information. It will arm you with economic facts to counter argument for statist programs, both on the left and the right.

“The significance of Mises’s 1920 article extends far beyond its devastating demonstration of the impossibility of socialist economy and society. It provides the rationale for the price system, purely free markets, the security of private property against all encroachments, and sound money. Its thesis will continue to be relevant as long as economists and policy-makers want to understand why even minor government economic interventions consistently fail to achieve socially beneficial results. “Economic Calculation in the Socialist Commonwealth” surely ranks among the most important economic articles written this century.” – Joe Salerno

Featured image source.