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Wednesday, August 1, 2018

Government and Economic Evolution

Some ten years ago the prevailing wisdom in the public discourse was that "we don't manufacture anything here in America anymore". Given the outsourcing of manufacturing jobs to Asia, there was a grain or two of truth in this statement. However, that is only part of the truth - in fact, it is only a small part of the truth. The U.S. economy has been changing structurally for a long time; in fact, economies are constantly changing. There is nothing dramatic about this; what is dramatic is the obsession that politicians have with injecting themselves into the evolutionary process of our economy.


The entire idea of "economic development" and tax-paid workforce training programs is sprung from the itching desire of our politicians to take a lead role in leaping our economy into its next structural phase. Likewise, many new curricular ideas for K-12 education are driven by the same mindset: that prosperity in the future will not happen unless government is in the driver's seat of the economy.

This is, of course, not true. Our economy has evolved through millennia of human history without tax-paid workforce development programs, without corporate welfare and without government carving out special favors for certain groups or industries. In fact, when government has done just that, countries have gone into economic stagnation. For example, the regulatory zealotry of the Middle Ages that tightly dictated who could learn crafts, and how, kept human ingenuity in a cage for centuries; government-sanctioned fiefdoms prevented productive use of land and conserved a destructive, unproductive economic structure.

The start of the Western world's economic success was a series of engineering and business inventions that increased productivity, opened new trade routes and generated wealth in new hands, outside of government-favored pockets. Eventually, the pressure of the free market and the first, primitive elements of capitalism put so much pressure on archaic governments that the modern state was born. This state, defining a new art of government that gradually expanded its respect for individual freedom, reached its peak in a famous conversation between French King Louis XIV and a group of merchants:

"Que-ce que Nous pouvons faire pour vous aider?"
"Laissez-nous faire."

What can We (Pluralis Maiestatis) do to help you? Let us go about our business without interference.

Through at least the 18th century, capitalism and the free market rose through layers of imperfections and shortcomings. In the 19th century, destructive ideas of political intervention re-emerged, but this time it was not about re-establishing the erstwhile privileges of the nobility. This time, the entitlements pursued by government interventionists were based on the notion that people who earned a lot of money through entrepreneurship, risk taking and hard work had somehow become rich unfairly. Government had to take some of their rightfully earned money and give to others who had not earned it.

From this new egalitarian paradigm, the modern welfare state was born. Thanks to the welfare state, the modern politician thinks he can solve every conceivable problem in the world by taxing some and spending money on others. It is therefore not surprising that the modern economy is plagued by its own form of nobility privileges: corporate welfare.

Unlike the fiefdoms of yore, those built by "economic development" are not inheritable. However, the similarities are striking: government decides what businessmen are to be favored, and which ones are to be left to the wayside; government decides the economic terms on which the favored businessmen can operate; if the favored businessmen fail in their entrepreneurship (a common occurrence) the cost of their failure falls not on them, but on those who toiled to produce the resources that government forcefully took and gave to its privileged class of entrepreneurial nobility. 

So far, corporate welfare is not an endemic problem in the United States. It is a problem: a 2013 estimate of special federal corporate tax breaks put that number alone at $154 billion, to which we have to add all the "economic development" spending by both the federal government and the states. However, compared to the regulatory distortions of our economy, corporate welfare remains a relatively small problem. 

Of more concern is the idea behind it, which is the same idea that drives "workforce development" and reform efforts in our K-12 schools that aim to train our children for "tomorrow's labor market". All these instances of government involvement in our economy aim to use government as the driving force behind the structural evolution of our economy. The end result can only be one: just as the heavy, regulatory and privilege-loaded government hand of the Middle Ages led to economic stagnation, so will the heavy, regulatory and privilege-loaded hand of our modern government bring about a new era of economic stagnation. 

In coming articles I will analyze the economic structure of the U.S. economy. With a careful review of economic statistics from the labor market, household income, workforce earnings, production value and other related data, we can dispel the myths that keep blowing new life into the ridiculous - and dangerous - ideas that government, not free-market capitalism, is the driving force of economic evolution.

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