The main question you need to ask whenever you hear about an outcome of “government spending” is: Instead of what?! The cost of any economic decision is never simply “What were the outcomes?” but also ‘What were the potential outcomes?” – what was the opportunity cost? What could have been achieved if I invested my time and capital differently?
Today President Obama announced that 1 million jobs were saved due to the $787 billion dollar stimulus plan he initiated earlier this year. I ask, “Instead of what?”
At first glance this may sound like a great headline for Obama, but only if you make an all-too-often economic fallacy about the nature of government spending. When we are on the receiving end, it is all too easy to forget that governments do not have their own source of wealth; they only absorb wealth from their citizens through taxes and monetary inflation. In this sense there is no such thing as government spending, only redistribution. As argued by many intellectuals throughout the past century, this kind of economic planning often comes with disastrous effects. Yet politicians refuse to listen, often only citing Keynesian economists – who justify increased government spending even when it is in contradiction with the most basic laws of the free market.
In this article I will argue that almost all government spending “for the sake of the economy” – no matter the intentions – is bad. I will argue that it doesn’t matter which way the money flows; it is the principle of the action that hurts the economy and undermines the intelligence of the market. And in the end we all lose out as a result of government meddling in the economy.
Government spending vs. Market spending
I find the best way to frame the battle between markets and governments is as follows,
When individuals are given the chance to keep their earnings (private property) and spend it as they see fit (voluntary contracts) – does this lead to better outcomes than when governments decide where money should be spent?
ARGUMENT 1: Fallacy Of Intentions (The Belief In A “Benevolent Government”)
One argument in favor of government is what I call the fallacy of intentions. This is the general belief that a benevolent government can provide for society better than self-interested individuals.
The underlying premise is that individuals are greedy and we can not expect greed to serve the general welfare of the people. As John Maynard Keynes once said, “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”
But this is a fallacy. Governments, like markets, are also a conglomeration of individual humans; humans that have the same potential for greed as anyone else. One of my favorite rebuttals to this fallacy is a quote by Austrian economist Ludwig von Mises, in which he states:
“If one rejects laissez faire on account of mans fallibility and moral weakness, one must for the same reasons also reject every kind of government action.”
A Keynesian might then counter this point by arguing that in a democracy – since the people elect their representatives – greed could therefore be limited.
But certainly “greedy individuals” are just as capable of organizing campaigns and becoming elected officials as “benevolent individuals”? America is already a great example of how money seems to be the best predictor of government power.
However we cannot blame this on capitalism, we can only blame government for not following its original constitutional foundation. This is why it is my belief that a constitutional republic, one which concentrates government power closest towards the individual, is one that best serves a free society. A constitution is necessary in order to define the purpose of government and to limit it from breaking these restrictions.
ARGUMENT 2: The Intelligence Of Governments Versus Markets.
Another argument in favor of government is that government can better allocate resources than the free market can. It is believed that under laissez-faire capitalism self-interested individuals will only act in a way that maximizes profit for themselves and consequently not provide for the needs of others.
However, economic activity is not a zero-sum game; everyone reaps benefits from voluntary trade. If individuals didn’t see benefit in an action they simply wouldn’t do it. As Adam Smith once famously wrote in his influential book “The Wealth of Nations” (1776):
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
Adam Smith later named these market forces the invisible hand. Ludwig von Mises claimed that Smith believed that the invisible hand was that of God. He did not mean this as a criticism, since he held that secular reasoning leads to similar conclusions.
Mises’ contrasted the invisible hand of the market with central economic planning, claiming the the latter was not only undesirable but impossible. In his theory of the “economic calculation problem” which was later expounded by Nobel laureate Friedrich Hayek, Mises argues that governments cannot possibly have the knowledge to know what is good for the economy. Mises believed that only the voluntary actions of consenting adults could properly allocate resources throughout the market. Hayek expanded on this idea by stating the efficient exchange and use of resources can be maintained only through the price mechanisms possible through free markets.
When governments legislate price and wage limits, the market is inhibited from reacting properly when changes occur in supply and demand. Due to the uncertainty of the economy, government can not possibly have enough knowledge to benefit society through massive spending. In fact, they almost always undermine a “natural market” solution from taking place. The more you give individuals a chance to act freely the better each individual’s needs will be met.
Of course the market isn’t perfect or Utopian. Individuals do not always make the right decisions for themselves and economies will fall into recessions during bad economic times. But this is true for any aspect of life. Just because half of American marriages end in a divorce doesn’t mean we want the government to make decisions on who we should marry. Life is filled with mistakes; it is how we learn, and it is a part of freedom.
So, yes, it sounds nice when we hear that Obama created X amount of jobs or saved Y. But how would this solution compare to a market solution? How do we know Obama is “creating” or “saving” jobs that really serve the American people? Yes, governments can help the unemployment rate by starting wars, or even by having everyone build pyramids, but is this really signs of a growing economy? Is this really an efficient allocation of resources? When Obama and Bush “bailout” companies that the market has already chosen to fail, then they are only delaying the inevitable destruction of these jobs. The people have already chosen another product. People losing jobs is a necessary function of a healthy market.
Note on GDP as a measure of economic growth
Like unemployment rates, GDP is another statistic that can be easily manipulated by government. The government reported this week that the economy grew 3.5 percent from July through September. But since government spending is a part of GDP, no wonder the “economy grew” with all this stimulus spending.
“G. Edward Griffin (born November 7, 1931) is an American film producer, author, and political lecturer. Starting as a child actor, he became a radio station manager before age 20. He then began a career of producing documentaries and books on often-debated topics like cancer, Noah’s ark, and the Federal Reserve, as well as on right-libertarian views of the U.S. Supreme Court, terrorism, subversion, and foreign policy. He has opposed the Federal Reserve since the 1960s, saying it constitutes a banking cartel and an instrument of war and totalitarianism.”
These guys are just about everywhere nowadays and for good reason: they have been pushing libertarian ideals hard since 1977.
This non-profit, pro-free market libertarian think tank, and public policy research facility, was first founded by Edward Crane after he received assistance from Mr. Libertarian himself Murray Rothbard as well as some funding by engineer and CEO Charles Koch.
According to their website,
“The mission of the Cato Institute is to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty, and peace. The Institute will use the most effective means to originate, advocate, promote, and disseminate applicable policy proposals that create free, open, and civil societies in the United States and throughout the world.”
The Cato Institute is responsible for a variety of publications and essays throughout the decades on a on a wide range of policy issues including taxing and spending, education, free speech, Social Security, regulation, federalism, individual rights, the rule of law, globalization, national security, and the environment.
Where to start:
Their main blog is great as well as their multimedia section and homepage where they display recent articles and recommended links.
The Mises Institute considers themselves the world center of the Austrian School of economics as well as libertarian political and social theory. That can certainly not be disputed. They also have an incredible amount of content – so you are going to want to get digging soon.
In the media center you will find a variety of downloadable video and audio files of lectures, documentaries, and interviews. These are great to put on your IPOD and listen to on long road trips. Topics cover welfare, bureaucracy, war, monetary reform, and economic critiques on Keynesian, classical, monetarism, socialism, Marxism, and communism.
The literature section is also full of gold, where you will find hundreds and hundreds of downloadable books, journal articles, essays, and even study guides.
Where to start:
One of my personal recommendations is to check out their study guide dedicated to Mises’ magnum opus Human Action, which lays out the Austrian methodology of praxeology – the basis of all Austrian economic theory. Praxeology is a form of methodological individualism (who early economist and Nobel Laureate Friedrich Hayek, and one of the most influential philosophers of science Karl Popper both advocated), which demands that social sciences ground their theories in the actions of individuals and not collective entities who do not behave as autonomous decision makers.
If that last paragraph bored the heck out of you: then just check out their daily archive and recommended links on their homepage.
I’ll be honest here, LewRockwell.com is my favorite libertarian resource but it is also the most extreme recommendation on this list. I think their main slogan sums up what you are going to get here perfectly: “Anti-State, Anti-War, and Pro-Market,” and their articles are certainly not bashful of it.
You won’t be seeing many kind words regarding government – but it is not like they are just being spewed by the mouths of government fear-mongering, Fox News-motivated drones.
Far from it: LewRockwell.com is nothing but quality reading. They update their site daily with about 13-15 new articles, with about 75% being about current issues in politics and economics and 25% regarding miscellaneous topics like art, culture, and science.
LewRockwell.com’s strong point is its stunning display of diversity in perspective. Authors range anywhere between university professors, politicians, economists, financial experts, authors, doctors, psychiatrists, and various others devoted to individual rights, limited state (sometimes flirting with anarchism), and the freedom to choose within the marketplace.
You may not readily agree with some of the ideas you read, but at the very least LewRockwell.com offers one of the freshest, inspiring, and most intellectual perspectives on what liberty really means.
Where to start:
Just check out their daily articles and pick whatever sounds interesting.
FOUNDATION FOR ECONOMIC EDUCATION
The Foundation For Economic Education (FEE) was first founded in 1946 by Leonard E. Read. Since then they have been dedicated to provided a consistent case for freedom and the sanctity of private property, individual liberty, the free market and the moral superiority of individual choice and responsibility over coercion.
Since FEE was established they have published or hosted lectures by some of the greatest economists of the last century: Ludwig von Mises, F.A. Hayek, Henry Hazlitt, Milton Friedman, James Buchanan, Vernon Smith, Israel Kirzner, Walter Williams, George Stigler, Frank Chodorov, John Chamberlain, F.A. “Baldy” Harper, William F. Buckley Jr., among many others.
One quick look through their library of books, articles, audio and videos and you will see the massive database and free information that FEE has to offer to the general public. I also recommend their main blog, Anything Peaceful which gives a free market perspective on current issues facing our nation’s economy, and how we can help move our country in a more free and prosperous direction.
But the fact of the matter is the ideas of Rand’s Objectivism and the ideas of capitalism, individual rights, and limited government are essentially synonymous. Rand just never liked the term “Libertarianism” because she saw it as inherently collectivist.
If I had to say one thing about Rand I would say she was misunderstood, and this was partly because she was such a stubborn person.
But ultimately, she was an intellectual tyrant, and true defender of freedom, the pursuit of happiness, and peace. I highly suggest reading The Ayn Rand Institute’s FAQ page for a full overview on what Rand was about, what her writings were about, what her philosophy called Objectivism was all about, and what the Ayn Rand Institute is doing today, as a non-profit think tank, advancing these ideas and trying to make real world changes.
A lot of the recent popularity in libertarianism is because of Congressmen Ron Paul who ran for President in 2008 under the Republican Party, and also back in 1988 under the Libertarian Party.
He is also currently getting a lot of recognition in the media for his new bill HR1207: Federal Reserve Transparency Act of 2009, which currently has 297 cosponsors, as well as Dr. Paul’s new book “End The Fed” which is an intellectually marathon on the economic, philosophical, and moral reasons why the Federal Reserve is a threat to everyone’s liberty.
I go to DailyPaul.com because when Ron Paul is getting coverage I like to see what he has to say. Just the other week he was on the Daily Show discussing his book. Ron Paul’s opinion matters, and he is still going to be relevant in the next coming years – especially as our economy continues to slide, and the American public gets more eager for answers and rational explanations to what got us into the mess we are experiencing now.
Reason.com is updated daily with articles and columns on current developments in politics and culture. It also contains the full text of past issues of the print edition of Reason Magazine. Like all these other resources, it is also entirely free. You can look through their Print Archives here.
One of my personal favorite features of Reason Online is REASON.TV which contains videos, celebrity interviews, and short documentaries on a variety of topics like civil rights, health care, business and technology, welfare, foreign policy, government spending, The War On Drugs, abortion, gun rights, labor unions, global warming, science, art, culture, and much more.
Their slogan is “Free Minds, Free Markets,” which are ideals they hold to pretty well since they are very non-partisan in their political beliefs and very dedicated to the principles of liberty and voluntary transactions as they would take place in a free market.
There is also REASON.ORG, or the Reason Foundation, which takes a more academic approach at critiquing public policy, offering different solutions. According to the Washington Journal, “Of all the nation’s conservative or free-market policy groups, it may be the most libertarian among them, the Reason Foundation in Southern California, that ends up having the most direct impact on the actual functioning of government.”
Where to start:
It really depends if you want to read articles, watch videos, or listen to podcasts or audio files. Reason has all of the above and the best idea is to just go to their main page and start digging through all they have.
Yes, it is affiliated with Fox News. Yes, Judge Napolitano sometimes fills in for the Glenn Beck show. Now can we get over it? The truth is Freedom Watch is the best libertarian TV show on the internet, and it is now running on a new daily schedule, or as Napolitano calls it: “A Daily Dose Of Raw Liberty!”
Frequent guests include pretty much everyone we have discussed above: members from The Cato Institute, Reason magazine, Mises Institute, Ayn Rand Institute, and politicians like Ron Paul, Peter Schiff, Rand Paul, and Jim Demint, including many other knowledgeable guests, authors, constitutional and law experts, etc.
Where to start:
You could just check out the site and start streaming the videos. Or, if you want to take a personal recommendation, check out my recent article, “Legalize It? Director of NORML on Marijuana Prohibition.”
HONORABLE MENTIONS:
HOOVER INSTITUTION
They Hoover Institution at Stanford University is a public policy think tank which has had much influence in both conservative and libertarian circles. It was first founded in 1919 by then-future U.S. president Herbert Hoover. High-profile conservatives like Edwin Meese, Milton Friedman, George Shultz, Thomas Sowell, Shelby Steele, and Amy Zegart are all Hoover Institution fellows. Check out their website for a great archive section and various other material on economics, politics, and freedom within the marketplace.
Sure it’s not libertarian, but it is always healthy to keep up to date on what other political commentators are saying about current issues in America. The Huffington Post has a lot to offer libertarians and the American public in general by raising awareness about serious issues our country is facing.
Even if many of the solutions they might propose are more government and regulation, I still find their reporting much more unbiased than some of the stuff I have found at DailyKOS, truthdig and alternet.
FORA.TV is not libertarian either but its site gathers the web’s largest collection of unmediated video drawn from live events, lectures, and debates at universities, think tanks and conferences. Of course their politics section and economics section would be the pages libertarians would be most interested in but they also include some great information on various things about science, culture, the environment, and technology.