The PJ Tatler

Why You Already Get Economics Better Than Most Politicians and Economists

What if the very people you’re voting for to restore prosperity to this land are crippling your hope of getting that new car, that iSmart-gizmo, the shiny red washer/dryer combo, or that Caribbean cruise?

What if the politicians you passionately support — the ones who most authentically connect with your sense of right and wrong, fairness and equality, are, in fact, your worst enemies and, if elected, will damn your country and your household to another seven lean years?

If you knew that these favored politicians were virtually all that stands in the way of a decent education for your children, a comfortable retirement for you and your spouse, and an opportunity to give to others from the excess of your prosperity, would you change your vote, or would you continue to support them because you’re too embarrassed to admit you were wrong?

The good news is that you weren’t wrong. You were merely trusting someone else who seemed to know what he or she was talking about. They were wrong. As my friend, comedian Evan Sayet, quips: “Not only wrong, but wrong as wrong can be.”

Right now, many of those people who grabbed a majority of votes, or who lead in the polls, are telling us we have a problem with “income inequality” because billionaires have too much and the rest of us, too little. They bewail the “trade deficit,” call for higher taxes on “unearned income,” and generally conjure rage over economic policy issues about which they know virtually nothing. You know more.

Let’s start with the dark evil of “income inequality.” What if you found out that income inquality is “truly beautiful.”

John Tamny, makes this point, and a variety of other counter-narrative assertions, in his 2015 book, “Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You about Economics.”

It’s not really a book that teaches you about economics, but one that persuades you that you already understand economics better than the bloviating politicians and obfuscating economists. He uses pop culture to illustrate.

For example, The Rolling Stones left England when the government jacked taxes on the wealthy, thus government got 83% of nothing: no blood from no Stones.

But more than the engaging stories, what sticks with you is Tamny’s gift for plain-spoken common sense.

Here’s why Tamny says income inquality is “truly beautiful”:

“It provides the incentive for creative people to gamble on new ideas, and it turns luxuries into common goods. Income inequality nurses sick companies back to health. It rewards hard work, talent, and achievement regardless of pedigree. And it’s a signal that some of the world’s worst problems will disappear in our lifetimes.”

Popular Economics, by John TamnyIn other words, billionaires aren’t hogging all of the wealth. In fact, they’re voluntarily redistributing it through their own innovative enterprises, and even redistributing the excess (profits), to people willing to take risks on new products and services that create jobs for people who aren’t (yet) billionaires. The latter is called investment, and every “one-percenter” does it. Every one of the rest of us benefits.

Good news for us: The clubhouse of the 1% has no static membership list, and no racial or familial heritage requirements. It’s open to all who find a way to turn a luxury — like computer power — into a commodity, like an iPhone.

While some politicians strive for ways to pick the pockets of the rich to improve the prospects for the poor, free markets and human ambition have already achieved it more equitably and rapidly than they could ever dream. The only barrier to the free flow of redistributed income arises when government redirects that money in ways that satisfy politicians, without regard to the actual needs of people.

Or as Tamny puts it…

 “…entrepreneurial ideas need capital. Government doesn’t provide that capital. It competes for it.”

Every dollar waylaid by the tax man is a dollar misdirected, depriving you (or your boss) of the cash you need to expand the factory, buy that new delivery van, hire those new workers.

And it’s nearly guaranteed that the taxed cash is misdirected, not because all bureaucrats and politicians are corrupt, but because even the smartest minds cannot unerringly predict the source of the next time-saving, money-saving, life-saving innovation that will birth a new industry, or save a dying company.

Taxes steal from you at least three times:
1) directly from your paycheck,
2) indirectly via higher prices on products and services, and
3) more indirectly, yet more significantly, by crippling innovation and sapping productive investment that would grow the economy.

In addition to taxes, government regulation also hobbles the prosperity pony, because politicians and bureaucrats can’t possibly out-think millions of us making daily decisions in free markets.

“But wait,” you say, “what about the capitalists run-amok who nearly brought down the world economy in 2008, leading to this long malaise? Shouldn’t we regulate them?”

Tamny explains that free economies are self-correcting, but that the government interfered in 2008 by preventing the correction, thus bolstering the status quo. Recessions clean house of the bad investments, dysfunctional businesses and “labor mismatches.” They’re not the problem, they’re the cure for what’s wrong with the economy.

He points to the recession of 1920-21, a downturn far more crippling than the more famous one in 1929-30. We don’t hear about it because it didn’t last, nor did it blossom into a Great Depression. That kind of result takes government intervention. But politicians in 1920-21 did nothing other than “lower taxes slightly and slash spending.” Unemployment dropped from 11.2 percent in 1921 to 1.7 percent in 1923, and we now call that post-recession era “the roaring ’20s.”

Likewise, government efforts to break up, or to prevent, monopolies are an utter waste of time and of antitrust lawyer billable hours. Because unless a giant corporation has help from the government, it cannot prevent scrappy entrepreneurs from inventing new ways to not only compete with their so-called monopoly, but to utterly destroy their industry.

I started reading “Popular Economics” on my Kindle device, moments after I first heard about the book, without getting into the family van to drive to the bookstore 20 minutes away. Just a few years ago two major retail chains dominated book-selling, after driving many small, non-adaptive shops out of business. Now, one of those chains is gone, and the other fills up its formerly book-laden shelves with toys, movies and vinyl records in a desperate effort to boost foot-traffic.

Meanwhile, I joyfully get any book I want, either instantly to my Kindle, or tomorrow in hardcover at my doorstep without burning a pint of gasoline or loitering in a serpentine pattern until a parking space opens up within 100 yards of the mall entrance. And I generally get that book at half the price, or less.

Now that it’s happened it seems obvious that it would, but government regulators don’t get the benefit of hindsight in advance. Their actions, taken with faulty foresight and political motivations, distort markets in ways that cripple the investment that would naturally flow downhill toward customer demand.

In addition, because the private sector incentivizes performance while government incentivizes attendance, the best and brightest minds work in the private sector. So, even if a human could see the beneficial future and make wise regulations to guide us toward it, there’s little chance that such a human would seek employment in government.

If you’re a reader of a certain age, you probably remember when nearly everyone bought his phone service, and his phone, from a single company. But it wasn’t the government breaking up Ma Bell that birthed a plethora of telecommunication options. It was innovators breaking the phone off of the wall and putting it in your pocket, and later connecting it to the internet. I haven’t had a landline in more than a decade.

If you’re not old enough to recall such a primitive time, you might find a documentary about this epoch down at your local Blockbuster, the provider destined to become the monopolist in the video rental store sector. O, wait…nevermind…that sector has virtually vanished, because you can now rent a video without touching a DVD or VHS cassette, and with your placid keister comfortably cushioned in a recliner.

If the death of Blockbuster and Borders saddens you, perhaps a trip to your local Tower Records or Sam Goody will cheer you up. O, I’m sorry…they both died in 2006 after decades of dominating the vinyl record retailing business. What bureaucrat saw that coming? Would any regulation aimed at restricting their growth (or mandating the use of their product) for “the good of the consumer” have produced a better outcome?

Perhaps, you’ll argue, government must take a heavy hand in regulating some industries, especially where public safety is concerned.

But what business owner wants to produce a shoddy product, with dangers that outweigh benefits. How long will his investment last if he does?

Even in the extreme example of the government hyper-regulating (nationalizing) airline security after 9/11, what do you think would have happened if government didn’t step in? Not only would airlines have competed on the basis of safety, but the variety of approaches and shifting methods they employed would have made it more difficult for terrorists to subvert “the system,” compared with the utterly predictable protocols of the TSA, a government intervention which produces little but customer inconvenience and leaves passengers as the ultimate terrorism prevention force. After all, who’s more motivated than pilots, flight attendants and passengers to make sure that planes remain aloft and intact from departure through arrival?

Tamny has equally illuminating, yet obvious, insights when it comes to regulating imports and exports, as well as the value of the dollar — neither of which government should do.

Bustling Hong Kong has to import nearly everything, and yet no one there laments the “national trade deficit.” There is no such thing, because…

1) the nation doesn’t trade, persons do, and
2) every arm’s-length voluntary transaction is value for value. We exchange the products of our labor and use money merely as a facilitator of the trade. You give your labor to get theirs. Imbalance is impossible.

As for the dollar, its value is the source of most of our heartburn over rising prices. The actual cost of producing almost everything constantly declines, but because the dollar is not anchored to anything stable, its value — and thus the price you pay for a gallon of gas — is at the whim of bureacrats and politicians who think they know what it should be, without regard to supply or demand. Currency manipulations make investing even riskier, since who wants to borrow a dollar today that must be repaid tomorrow, perhaps with a much bigger dollar, plus interest?

The upshot of “Popular Economics,” is this…

“Government is the only impediment to astonishing prosperity in the United States and everywhere else. Without government’s tax, regulatory, trade, and monetary barriers to man’s natural desire to produce, the only limit we face is the limit of our imagination…Any guarantee of future prosperity requires taming not commerce but government.” — John Tamny