Government "Solutions"

Thomas Sowell once pointed out that, when it comes to economic matters, generally there really aren’t any solutions, only tradeoffs. If this is true, than it is a vital concept for the American public to grasp, as our politicians continue to bombard us with their “solutions” to our economic woes. If there are no solutions, we ought to be far more skeptical of the proposals they try to push.

Incumbent Utah Senator Bob Bennett had a segment on a local radio show, where he pitched his campaign platform. He described his private sector experience and success, and pointed to that as evidence of his ability to produce innovative solutions for the American people. This hacked me off. I called into the program the next day to express my displeasure. “We don’t want government to provide innovative solutions”, I told host Bob Lonsberry. “We don’t want them to provide solutions of any kind. We want them to leave us alone so we can solve our own problems.”

Let’s examine Dr. Sowell’s claim for a minute. Economically speaking, there are no solutions, only tradeoffs. He didn’t blanket this statement over all cases, but said it is typically the case. Is it? If so, when is it so, and when is it not?

In private industry, are there solutions? Absolutely. Creative ideas to make businesses solvent and successful abound. Are these just tradeoffs, allowing one business to thrive solely at the expense of the failure of another? This is a commonly held notion, but is absolutely false. The world is not a pie, where taking a bigger slice means less for the rest of us. If you produce more via hard work and innovation, and are therefore more successful, it is because you have added to the pie, making the pie bigger. Thus economic solutions do indeed exist in wealth producing industries.

What about government? Government produces nothing. It is completely and entirely a service sector. The services they provide are paid for with the wealth produced in productive industries. Thus any solution they invent cannot, by nature, come from an increase in production of wealth. They produce no wealth. Government tends to treat the economy as a pie because for them it is. They can only increase the size of their slice by taking from other slices. Any solution they invent cannot come from government. Unless they find a way to govern private industries to become more efficient and productive than they are now of their own accord, they cannot increase the size of the pie. Thus any solution can only involve moving one part of the pie to another. There indeed are only tradeoffs.

Many argue that moving this money around could result in a more effectively balanced distribution, so industries can grow better. Actually, the typical argument is to take from the rich industries to give to poor people. This will, they argue, give the poor a chance to improve their station and get the ball rolling for higher education and thus higher wages. Is it possible then? Could a well-planned redistribution of wealth create a more effective growth rate for the economy? Yes, it’s possible. But those who argue for it don’t understand the mechanism that’s already in place.

If an industry has the potential to create good returns, and produce high amounts of wealth, but lacks sufficient funds to get the ball rolling, what happens? If an industry indeed has a strong plan for growth, investors from across the world are more than willing to fund the project, with the expectation of a decent return on their investment. What about the argument that poor people need some help getting started? Banks are already very willing to invest in students by giving them loans to get through school. Why is it, then, that some people choose not to go to school? Is it because they can’t find a way to pay tuition? No, it’s because they either don’t like school, or they don’t feel it’s a good investment of their time and future earnings. It’s their choice to not attend school. If you give them more money, is that decision going to change? No. You’re not investing in them, you’re donating to them. There is no return on investment. It is simply a wealth transfer.

When we come to understand wealth and money, we will learn that Wall Street is not the enemy of the nation. It is not the cause of a huge and unfair maldistribution of our resources and wealth. It is exactly the opposite. It is the most effective system available to put all the resources exactly where they can best be used.

Government, on the other hand, is the economic enemy of the nation. It’s kind of strange to think about it that way. But Government “solutions” are not solutions, but tradeoffs. And in nearly all cases, these tradeoffs are for the worse, simply because they move money away from the ideal balance that was established naturally by more prudent investors who are willing to put their own money on the line for these companies.

Let government deal with social issues as they will. But we need to stop them from providing any more economic “solutions”.