The Economy Needs No Conductor

We spend too much time waiting for orders—and money—from Washington.

We spend too much time waiting for orders—and money—from Washington.

The collapse of the housing bubble gave politicians a license to do what they wanted to do all along: spend. The usual checks on extravagance, weak as they are, were washed away. Budgets? We’ll worry about that later. Inflation? We’ll worry about that later.

As I point out in my brand new book, No, We Can’t: Why Government Fails—and Individuals Succeed, a true free market doesn’t require much. It’s not like an orchestra in need of a conductor. What it needs is property rights, so no one can take your stuff. Then people trade property to their mutual advantage. Resources move around without the need for a central, coercive government telling people which resources should go where—or telling them that they must get permission to do what they think is advantageous.

Given time, an economy, unless crippled by further government intervention, will regenerate itself. But during the recession, Keynesians in the administration said government had to “jump-start” the economy because businesses weren’t hiring. An economy, however, is not a machine that needs jump-starting. It is people who have objectives they want to achieve.

If the economy continues to recover, President Obama will claim he caused that. It wouldn’t be the first time a “leader” ran in front of a crowd and claimed to have led the way. But politicians don’t deserve credit for what free people do.

Despite politicians’ talk of “giving” money to this or that (remember those tax rebate checks with President George W. Bush’s name emblazoned on them?), government has no money of its own. It has to take it from the private sector. Grabbing those scarce resources stifles the real economy.

One of the most important questions in politics should be: “Would the private sector have done better things with that money?”

A healthy economy does not just create jobs of any kind, it creates productive jobs. The pharaohs of ancient Egypt created plenty of jobs building pyramids, but who knows how much better the lives of ancient Egyptians (especially the slaves) might have been had they been free to engage in other work? They would all have had better housing, more food or snazzier headdresses. Even as smart a person as economist John Maynard Keynes seemed to forget about that when he wrote in his "General Theory" back in 1936, “Pyramid-building, earthquakes, even wars may serve to increase wealth.”

By that logic, government could create full employment tomorrow by outlawing machines. Think of all the work there’d be to do then!

Think about the two other methods to “increase wealth” that Keynes lumped in with pyramid-building: earthquakes and war. Now, sure, after a war or earthquake, there’s plenty of construction to be done. After the Haitian earthquake, Nancy Pelosi actually said, “I think that this can be an opportunity for a real boom economy in Haiti.New York Times columnist Paul Krugman made a similar error. On CNN, he said if “space aliens were planning to attack and we needed a massive buildup to counter the space alien threat ... this slump would be over in 18 months.” Before that, he said the 9/11 attacks would be good for the economy.

This is Keynesian cluelessness at its worst.

Isn’t it obvious that without a catastrophe those same workers and resources could have done productive work—with the overall standard of living higher as a result? There is something wrong with mainstream politics and economics when some of its most respected practitioners overlook this point.

The economic philosopher Frederic Bastiat called their mistake the “broken window fallacy.” If I break your window, it’s easy to see that I gave work to a glass-maker. But what we don’t see is this: You would have improved your circumstances with the money you paid the glass-maker. He merely restored your previous condition. That money could have created different jobs, perhaps more productive ones. They’re unseen.

People favor government projects because they notice the seen, not the unseen.

Creating jobs is not difficult for government. What is difficult is creating jobs that produce wealth.

The private sector does that.

John Stossel (read his Reason archive) is the host of Stossel, which airs Thursdays on the FOX Business Network at 9 pm ET and is rebroadcast on Saturdays and Sundays at 9pm & midnight ET. Go here for more info.

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  • TELLMOFF||

    The government pays people to build bombs, explodes the bombs, pays people to build more bombs. The government does not create jobs. It creates work.

  • anon||

    Don't forget that it also pays people to build shit that was just destroyed by the bombs the other assholes built.

    Broken windows everywhere.

  • Stan||

    As a lazy person I take some issue with jobs being the be all end all measure of a healthy society. Seems strange how much we panic about how increased productivity can reduce workforce demand. Like we all just love working at least 50 hours a week...

  • TELLMOFF||

    Lazy is never crazy. It is a more enjoyable life.

  • Formerly Almanian||

    I've been going around smashing windows everywhere I go.

    The economy WILL rebound, and I am taking all the credit as it does so.

  • TELLMOFF||

    Why don't you become a cop and arrest people for smoking pot?

  • Mr. FIFY||

    Why would he want to do that? We're talking about creating jobs, not shooting dogs.

  • TELLMOFF||

    You're one step ahead of me, Mr.FIFY.

  • Mr. FIFY||

    Well, shooting dogs COULD help the economy, but you'd have to shoot millions of 'em... and Barry can't eat that many.

  • creech||

    Loved his comment about banning machinery. Isn't that what the government means by "shovel ready" projects?

  • AZ||

    Spoon ready.

  • TELLMOFF||

    By not drilling for more oil we can carry goods across the country on our backs.

  • Pro Libertate||

    That's the truth. Government is nothing more or less than a set of economic brakes. Too much, and we slow down or even stop.

  • sarcasmic||

    The story of human history is little more than the rise of parasitic governments, and their implosion as they grow beyond what their host society can support.

  • Jake W||

    Government is just a racket.

  • Soc Indv Sparky||

    government has People have no money of its their own. It has They have to take it from the private sector government

    FTFY

    Amirite Tony? Mrs Warren?

  • Soc Indv Sparky||

    Isn't it obvious that without a catastrophe those same workers and resources could have done productive work — with the overall standard of living higher as a result?

  • Soc Indv Sparky||

    Judging by the state of the economy, no, it isn't obvious. People aren't interested in what might happen, they want results now.

  • Soc Indv Sparky||

    I find it interesting that splitting this into two comments somehow eliminated a word that was too long.

  • Stan||

    "Given time, an economy, unless crippled by further government intervention, will regenerate itself." I don't see any explanation of how this actually happens -- of how these negative demand cycles get established in the first place, how long one would expect them to last based on circumstances, and the actual mechanisms by which negative demand cycles abate without intervention. Some historical examples perhaps? WWII being the classic example for the "shot of intervention" side.

  • sarcasmic||

    Government sucks up resources through taxation and borrowing.
    Those resources could be put to productive use, but are not.
    Those resources employ people who produce nothing of value.
    Rather they impose restrictions and place conditions upon those who do produce value.

    I fail to see how that can do anything other than cripple an economy.

  • Stan||

    That's just standard boilerplate that does not address my question. The vexing thing about things like deflationary cycles is that they are self re-enforcing -- no one wants to invest when they can't count on demand and that itself lowers demand. So how does it end? I'm fairly agnostic on this so I am legitimately curious about other historical examples.

  • Stan||

    Strike the line about standard boilerplate -- not trying to be rude, just wanted to address the specific problem of self-reenforcing cycles.

  • Soc Indv Sparky||

    Once demand drops to a point where it is unprofitable for a company to continue making the product, said product gets shit-canned and the company either makes something new that there is a demand for or folds. If the company folds, all the people working there will go to a profitable company that needs people to produce more products to catch up to a demand that they haven't been able to fulfill.

  • sarcasmic||

    Multiply that by a million and you've got an economy.
    How the heck can that be distilled into simple equations?
    It can't.

  • Stan||

    Which is why historical examples are helpful. (Granted we can read whatever we want into practically any example, but there we are...)

  • sarcasmic||

    Which is why historical examples are helpful.

    To give a historical example would require the same distilling required to reduce the economy into simple equations.

    You are asking me to prove my case by proving yours.

  • Soc Indv Sparky||

    Here's an example.

    While Wham-O never collapsed, almost their entire existence has been meeting the needs for fads. Look at their product listing and figure out which products still need to be mass produced at the level they were when the fad started.

  • sarcasmic||

    Stop looking at aggregates.

    The economy is far to complex to be reduced to simple equations. That's the fatal conceit.

  • AZ||

    This. Aggregates miss the fact that the form of capital and goods matters.

    Things such as easy credit, distortionary policies, and irrational bubbles cause certain sectors to be overbuilt. What's seen as the "demand crash" is a demand crash in areas where there's been malinvestment.

    It solves itself by seeing the malinvestments liquidated (once allowed to hit a clearing price) and resources turned to supplying goods that are better valued by society.

    It's creative destruction. Arresting the destruction leaves far less resources for the next wave of creation, and keeps things in an old form that markets have shown to be overvalued.

  • sarcasmic||

    It solves itself by seeing the malinvestments liquidated (once allowed to hit a clearing price)

    Which is never going to happen if government has its way. Gotta prop up the failing banks, or the failing housing sector, or failing manufacturing, or failing this, that or the other thing...

  • ||

    I used to think that if I could teach everyone in the world one bit of economics wisdom, it would be comparative advantage and the benefits of trade. I'm pretty sure I'll go with the broken widow fallacy now, especially since so many people believe WW2 magically ended the Great Depression.

  • Stan||

    I agree completely about benefits of comparative advantage and trust the near consensus of economists that free trade is good for us. I also think there are some things that are for the public good that would not adequately be taken care of if left just to the marketplace.

    Larger examples: major infrastructure, public research universities, national parks
    Quirky smaller examples: lighthouses, autopsies

    This all is a bit of a separate question from how negative cycles end without intervention.

  • sarcasmic||

    Intervention tries to prevent loss.

    For example the housing bubble needs to bottom out. As long as the government keeps propping it up, it won't.
    Until it does, resources that are tied in it will not be released for more productive uses.

    Negative cycles end when the next innovation or great idea comes along, and value is created.
    That isn't something that can be legislated into existence. It just happens.

  • sarcasmic||

    And when resources are freed to be put towards those next inventions and ideas.

  • Soc Indv Sparky||

    I also think there are some things that are for the public good that would not adequately be taken care of if left just to the marketplace.

    There are not. There are as many ideas of "public good" as there are members of the public. If any one person identifies something that they think of as a "public good", then they would see an advantage to doing something about it. If they could convince others to see the same advantage and work with them, BANG, you've just created a market to deliver whatever product creates that advantage. A product does not have to be something you can hold in your hands.

  • toddb||

    Stan,
    Hazlett's Economics in One Lesson is a great little book and a quick read if you are looking to reinforce some sound basic economic concepts.

  • R C Dean||

    Larger examples: major infrastructure, public research universities, national parks

    Major infrastructure has been built with private money (albeit with a little eminent domain help) throughout history, and is being built with private money today.

    Public research universities can be supported by alumni/donations, or by the licensing of their discoveries (Florida has made a mint off of Gatorade, for example).

    Quirky smaller examples: lighthouses, autopsies

    Autopsies are a service, that is paid for by whoever buys the service, including both private parties and government agencies.

  • Fist of Etiquette||

    Stossel hawking book = special episodes.

  • Fist of Etiquette||

    Yes, Stoss has FIRE in da house.

  • Fist of Etiquette||

    ...with Lukianoff, Vampire Hunter/NHL Goaltender.

  • Fist of Etiquette||

    Notice college girls don't get hassled by administrators for free speechifying.

  • Fist of Etiquette||

    University of Cinci admins sound like dicks when Stoss does their voice. Also when administrators say and do things.

  • Fist of Etiquette||

    Yes, but candidate Paul is pushing weed to kids, while candidate Obama was not.

  • Fist of Etiquette||

    FIRE succeeded in forcing everyone at Auburn to take their banners down.

  • Fist of Etiquette||

    Stossel has his army.

  • Fist of Etiquette||

    Some economists talk about the world as it works rather than as we want it to work. Others, not so much.

  • Fist of Etiquette||

    Someone should means test Stoss's retirement entitlements. He's richer than the Pope.

  • Fist of Etiquette||

    Economic freedom list has the United States under Mauritius? A rivalry is born.

  • Fist of Etiquette||

    The stimulus likes turtles.

  • Fist of Etiquette||

    Does it make them feel any better that the $3 million the feds spent on saving turtles doesn't really exist?

  • Fist of Etiquette||

    Does Stossel pay to fly Lukianoff and the like to these exotic road episode locations? I hope he didn't have to sell his government golf cart.

  • Fist of Etiquette||

    I don't get Fox Business Network. Waaaaaay over my head.

  • Fist of Etiquette||

    Well, then the do-gooders will just ban prostitution like they did the sweatshops.

  • Fist of Etiquette||

    Ha! Stossel's mustache takes one on the chin.

  • Fist of Etiquette||

    Yes, but if not quails then that acreage would just be inhabited by Floridians.

  • Fist of Etiquette||

    Animal rights groups don't get booed? What kind of Stossel audience is this?

  • Fist of Etiquette||

    HFS, those are white teeth.

  • Fist of Etiquette||

    I notice Elizabeth's teeth are plenty white. I smell a rat.

  • Fist of Etiquette||

    OMG, is she suggesting that licensing regulations are cronyism disguised as consumer safety?

  • Fist of Etiquette||

    It would also force a drop in prices with an end to subsidization.

  • Fist of Etiquette||

    Layne is a townie.

  • Fist of Etiquette||

    Wow, Stoss sounds pretty up on his various recreation drugs.

  • Fist of Etiquette||

    Ooo, seventeen more special Stossel episodes.

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