Liberals in Congress and the White House are claiming victory because the economy is growing at just under two percent. A two-percent growth rate is enough to claim that the recession is over, and by definition it is. However, a two-percent growth rate is not a victory—far from it. Unemployment, under employment, and the other lingering effects of the recession cannot be overcome by a two-percent growth rate. In fact, the hard truth is that the lingering effects of the recession will not be eradicated until the economy is growing at a rate of at least four percent. What liberals refuse to acknowledge is that more of the same statist and socialist-lite economic policies from the White House will not generate four percent growth.
Obama’s grab bag of government-driven programs has not worked, yet he still insists that what America’s tepid economy needs is more government stimulus programs. Further, he refuses to acknowledge the failure of these programs. Think of “Cash for Clunkers” for example. It was supposed to stimulate the purchase of new cars, but its authors failed to consider the law of unintended consequences—the bane of statist and socialist programs. As a result, all this so-called stimulus program really did was dry up the supply of used cars, thereby driving up their cost. Cash for clunkers followed the law of supply and demand to a tee. As the supply of used cars dwindled but their level of demand remained steady, the price of used cars climbed markedly. Supply-and-demand works for the simple reason that it comports with human nature.
Historically, used cars have been the transportation of choice for lower-income Americans. Most people—with exceptions—purchase used cars not because they prefer them but because they can afford them. In the aftermath of cash-for-clunkers, low-income Americans who formerly would have purchased used cars could no longer afford to do so. Why did this happen? In a word: human nature. Human nature is at the heart of one of the most fundamental of rules of economics: supply and demand. When the supply of used cars dried up because Cash for Clunkers required that cars turned in for cash be destroyed, demand for used cars drove their prices up to unaffordable levels. Cash-for-clunkers was just another example of the fact that statist/socialist economic policies may sound good in theory, but do not work in practice because they deny the undeniable reality of human nature. Not only do liberals deny the predictable tendencies of human nature, they think these tendencies can be changed coercively through government control.
A fundamental lesson of economics is that people respond to the world on the basis of self-interest. Free-market economic programs—as opposed to statist and socialist programs—are based on the concept of self-interest. They work because in a free market, I serve my self-interest by serving your self-interest. For example, a farmer grows food and sells it to people who need food. This transaction serves the self-interest of the farmer and the buyer. The farmer gets money, which serves his self-interest, and the buyer gets food, which serves his self-interest. This type of win-win transaction does not appeal to liberals because they confuse self-interest with selfishness. The two concepts are not the same.
With selfishness only one party to the transaction is gaining a benefit. With self-interest both parties can win. Many of the economic problems facing America could be solved if liberals came to accept the role of human nature in life and to understand that only by changing a person’s heart will you change his behavior. Government programs and regulations cannot change a person’s heart.
Liberals like to claim that free-market economic programs are bad because they appeal to selfishness and encourage greed. But this argument is unsupportable. Of course, even the most ardent free-market advocate will admit that greed is part of human nature. Thus, greed is going to surface at points in a free market. However, the free market is much more effective at tempering human greed than the monopolies that result from socialism. The reason for this is competition. The free-market is based on competition while statism and socialism are based on government-directed or government-supported monopolies. Think about it. In a free market, I cannot succeed over the long run by selfishly helping myself to your detriment. This is because competition gives you options. In a free market, if you are unhappy with Wal-Mart you can take your business to K-Mart or Target or several other competitors. But in a centralized, government-controlled economy, competition goes out the window and the tendency is toward monopolies. With statism and socialism, our options are controlled by the government. In a free market, we control our options.
To understand this fundamental difference between free-market economics and socialism, think of the times you have had to deal with the government. If you need a passport, you have only one option: the government office (typically the Clerk of the Court’s Office). If the bureaucrats you deal with treat you poorly, you have accept their rudeness because there is no other source for passports. You cannot take your business elsewhere because there is no elsewhere. There is one and only one government office that can meet your needs. This is why in the old Soviet Union the only way to get anything done was through bribery. Because Soviet citizens had no options, government bureaucrats could coerce them into accepting bribery as a normal way of life.
The competition that is the foundation of free-market economics provides people a measure of protection from the human tendency toward greed. The monopolies, centralization, and government-control associated with statism/socialism promote and enable greed. Further, they are susceptible to the law of unintended consequences. Liberal economic policies fail not because they are evil. They fail because they are not viable, and they are not viable because they do not factor human nature and the law of unintended consequences into the equation.