The Source Of Prosperity
There seems to be growing confusion as to the real source of prosperity. The mass media is full of stories about how the White House and Congress are heroically struggling to stimulate the economy with vast government spending programs. We're also told of the need for ever more controls and regulations to keep greedy corporations from stealing the prosperity that government programs have worked so hard to create.
It's becoming increasingly popular to believe that prosperity is a naturally occurring phenomenon that free markets allow greedy corporations to divert into their own pockets before it can reach the poor and oppressed. According to many politicians, prosperity can be created on demand simply by electing their party. All that is needed is a government willing to stand up to the corporations and the rich, and force them to share our nation's naturally occurring prosperity with everyone.
Politicians and social engineers are fond of citing heart-rending anecdotal accounts of individual hardships or misfortunes to justify their interventionist programs. Advocates then extrapolate this handful of emotionally manipulative anecdotes into justifications for increasingly interventionist economic policies. Lost in the emotional manipulation is any meaningful consideration of whether such issues are within the proper scope of a constitutionally limited government, or whether the proposed interventions will actually solve the alleged problems without causing even greater harm in other ways.
Contrary to the specious emotional manipulations, the primary real world effect of widespread government interference in free markets has been economically destructive distortions in the productive economy. Even worse, the pervasive presence of government in the economy has largely inverted the popular understanding of how our economy actually works. Increasing numbers of voters now appear to believe that government is the source of economic activity, and that politicians can actually create long term productive employment.
Although it's become politically incorrect to acknowledge it, America has already learned the hard way that government jobs programs, wage and price controls, confiscatory tax rates, and other superficially attractive means of achieving arbitrary social goals by manipulating the economy, tend to both fail in their intended purposes and cause far greater harm to the economy than initially projected.
Contrary to the popular mythology, the massive government jobs programs launched by FDR to "save America from the Great Depression" utterly failed to produce any meaningful economic recovery. When the costs of subsidizing legions of parasitic jobs eventually bankrupted the treasury and had to be stopped, the unemployment rate went right back up to the same levels it had been before FDR launched his ruinously expensive government jobs programs. Only by then the side effects of a decade of aggressive government interventions had compounded the damage to the remaining productive economy, crippling its residual ability to recover on its own.
All that a decade of aggressive government intervention accomplished was to greatly extend and expand what should have been a relatively short term economic correction into a depression. By the end of the 1930s, aggressive government obstructions of the natural functions of the free market had turned a robust and productive socioeconomic system into an economic disaster spiraling into total collapse. It took the "open-ended mandatory consumerism" of WWII to save us from ourselves, although at an extraordinarily high cost to the rest of the world.
Or maybe it just postponed our compulsion for economic self-destruction.
The remarkable ability of what's left of our free market capitalist economy to survive abuses and manipulations has been both its greatest strength and vulnerability. The ability of even our crippled free market economy to absorb the adverse effects of irrational politically motivated distortions and continue to function has masked the real effects of those distortions, and allowed their venal advocates to wrap the reality of their failures in a deceptive fiction of success. Their propaganda has been so successful that it has essentially inverted the popular understanding of how our economy works.
Revisionist economists have created a popular perception that government interference in the economy is the source of our current prosperity, while free market capitalism has been vilified as a dangerous evil that causes hardship, misery, and privation unless aggressively controlled. The old slogan of "the business of business is business" has been contorted into "the business of business is to oppress and exploit the heroic proletariat, steal the wealth of the common people, and spread death and destruction wherever possible".
The aberration of "Big Business" has been anointed the exemplar of the entire business sector. The reality is that Big Business is far more an extension and collaborator of Big Government than a productive participant in our free market capitalist socioeconomic system. Big Business only exists because Big Government's regulations tend to create artificial advantages for obsolete business models that contrive to be politically useful to those who regulate them. However, that hasn't stopped the revisionists from using the crimes and abuses committed by Big Business with the active connivance of Big Government, to demonize the dwindling ranks of productive businesses that produce most of the real prosperity that the revisionists falsely attribute to Big Government and Big Business.
The majority of voters now apparently believe this inversion, and increasingly vote for politicians promising ever more aggressive schemes to extract ever more prosperity-on-demand out of the evil free market capitalists.
Today it's often assumed that commerce requires the involvement of a multilayer distribution channel, pervasive advertising and promotion, the paid endorsements of a sports or entertainment celebrities, layers of government regulations and inspectors, impressively meaningless labeling, exhaustive warnings about obscure ways to misuse the product, high tech packaging that is often more durable than the product, etc., but none of these provide the core economic justification for their own existence. Ultimately there has to be some form of real commerce at the core of it all that supports these additional overheads.
Commerce occurs because it serves the needs of its participants. It occurs naturally anytime someone trades something he has for something he'd rather have. Note that at its most fundamental level, only the active participants are required for commerce to occur.
Today most forms of commerce have been saddled with a variety of arbitrary constraints, requirements, parasitic overheads, and other efforts by third parties to intrude into commerce occurring between others. With so much interference in the free market already in place, it's an all too easy step to thinking how much better it would be if the entire chaotic economy was straightened out and run efficiently by a central authority that could properly coordinate all of the various parts.
On the surface it seems entirely reasonable that government should be able to run the economy better than letting it run itself. Experts could order exactly the right goods and services be produced. Prices would be low because inefficient duplication, advertising, and the profits of evil capitalists would be eliminated.
Unfortunately, there are a variety of inherent problems with the basic concept that inevitably cause centrally controlled economies to fail. The most intractable of these are the human factors that vastly complicate any system that must accommodate fallible and often contrarian human nature.
A command driven centrally controlled economy might be possible if human factors could be entirely excluded, but that would also require eliminating the core purpose of the economy. There have been a variety of efforts to solve the problem from the other direction by forcing human nature to conform to the needs and limitations of a centrally controlled economy. The failures of these socioeconomic systems have typically involved death tolls in the millions.
The urge to artificially manipulate and control the impressive power of a free market economy is so deceptively attractive, and the required artificial power structures so well suited to the ulterior agendas of statist authoritarians, that even a long history of consistent failure isn't enough to discourage the arrogantly ignorant from corrupting free markets with "new and improved" variations of these well worn failure patterns.
The current situation in North Korea provides an unexpectedly useful example of the true source of commerce and prosperity. North Korea is probably the most rigidly controlled society in the world today. If prosperity can be created by a government controlled economy, North Korea should be a prosperous country. They've worked hard to eliminate any trace of free market capitalism, and have traditionally imposed harsh punishments on those caught engaging in this illegal activity.
There could hardly be an environment that is more overtly hostile to the principles of free market capitalism than North Korea.
North Korea's centrally controlled economy is a predictable disaster that utterly fails to supply the needs of the population. It has degraded far beyond simply failing to adequately support the citizens to actually become worse than no official economy at all. The state run economy has now become a vast parasite that forces its "employees" to independently earn income outside of the official centrally controlled economy in order to subsidize failed state enterprises.
There is officially no unemployment in North Korea. The state controlled economy provides enough jobs for everyone. However, while all citizens are officially employees of the state, the state can't actually afford to pay them. In fact, it can't even afford to run the factories where they're supposed to work. In spite of the lack of work and/or paychecks, workers are required to put in their time at their state jobs - unless they pay a fee. If they don't pay the fee they will simply starve to death waiting for the government to pay their wages. If they pay the fee they can instead spend their time engaging in small scale private enterprise - both to earn enough money to survive and to pay the fees that subsidize their official state employers.
The government continues to deny the existence of this growing alternative economy, and free market capitalism is still technically illegal. The authorities certainly haven't done anything to encourage, enable, foster, or otherwise contribute to the success of the free market that has spontaneously evolved within their Communist utopia. The only concession has been to tell its enforcers to cut back their harassment of the illegal free enterprise capitalism that is becoming increasingly important to the state controlled economy.
Could there be a more clear-cut demonstration of the true source of prosperity and the real contribution of government?
Free markets aren't created by governments. They spontaneously evolve as a natural function of their participants seeking solutions to unmet needs. North Korea demonstrates that free markets are capable of functioning in environments where there is absolutely no government regulation at all. Official standards for weights and measures, and a working legal system for adjudicating disputes are undeniably useful, but a free market can function without any government involvement at all if necessary.
Free market capitalism created the unprecedented prosperity of our modern world in spite of the best efforts of government to screw things up. Government has slowed and distorted the inherent productivity of the free market, but has never been the source of the prosperity it has sought to exploit.
The accumulating government mandated distortions of our free market capitalist economy, coupled with the increasing economic illiteracy of the voting public, are already at levels that threaten the survival of our once free society. Do we really need to repeat the lessons so vividly demonstrated by North Korea? North Korea is only the latest example of this consistent pattern of failure.
The history of economics offers a wealth of accumulated knowledge, and precious pearls of profound wisdom acquired at great human cost, to anyone willing to learn from them. Alas, no amount of historical evidence can save an illiterate electorate that can't be bothered to understand the wisdom gained from the past, from repeating the tragic mistakes of the past.