The View From 1776
Tuesday, January 22, 2008
Maladjusted Managed Economies
The experience of the Soviet Union, Japan, and China should, but will not, cause liberal activists to proceed with caution.
According to today’s New York Times:
Senator Hillary Rodham Clinton said that if she became president, the federal government would take a more active role in the economy, to address what she called the excesses of the market and of the Bush administration…
Reflecting what her aides said were very different conditions today, Mrs. Clinton put her emphasis on issues like inequality and the role of institutions like government, rather than market forces, in addressing them.
The logical end of Senator Clinton’s prescription was first articulated by the followers of Henri de Saint-Simon, who in 1829 addressed the following to the President of the French Chamber of Deputies:
The sole effect of [the free market place] system is to leave the distribution of social advantages to a chance few who are able to lay some pretence to it, and to condemn the numerically superior class to deprivation, ignorance, and misery. [Socialists] ask that all the instruments of production, all lands and capital, the funds now divided among individual proprietors, should be pooled so as to form one central social fund…
Saint-Simonian socialists believed that their goal of socializing the production of goods and services would most effectively be achieved by abolishing all rights of inheritance, with property reverting to the political state upon the owner’s death. This, of course, is the underlying logic of our own inheritance taxes and the fight to the death by Democrats to preserve inheritance taxes.
Socialist China, with its rapid, centrally-controlled economic growth, is an example of the painful imbalances that inevitably occur when government planners intervene extensively in the workings of the free marketplace. On the Mises.org website, Robert Blumen describes the results.
Similar problems befell the Soviet Union, whose central planners over-allocated resources to production of armaments, the military forces, and heavy industry to support a militaristic foreign policy. In daily life, the citizenry had to wait hours in line for what little consumer goods were produced; they were not as well off as the lowliest of our welfare recipients.
Nor should we forget that Senator Clinton’s prescription was the avowed policy of Bill Clinton’s economic advisors at the outset of his first term of office in 1992. The model then was paternalistic Japan, Inc., which wowed the President’s Keynesian advisors with its tight control of the economy. Government ministries worked closely with the relative handful of giant industrial and trading conglomerates like Mitsubishi. Mitsui, and Sumitomo, and with the giant banks affiliated with these successors to the pre-World War II ziaibatsu.
President Clinton’s advisors told us that only government planners were capable of foreseeing the kinds of new technologies in which funds had to be invested if the United States were to survive in the emerging global economy and to provide high-paying jobs to our workers. For those ends, we had to emulate the ability of MITI and other Japanese government agencies to direct the course of economic development. Private business in the free marketplace, they said, was too focused on short-term earnings and driven solely by the greedy rich.
Fortunately for us, and unfortunately for the Japanese, their economy fell into a flat-line slump from which it has yet to emerge fully, sixteen years later. That ended President Bill Clinton’s grand economic planning schemes, but clearly failed to teach anything to liberal-progressive-socialists like Senator Hillary Clinton, who are eager once again to pick up the reins of government economic control.
The problem for Senator Clinton and her fellow liberal-progressive-socialists is that the wealth of any society, its Gross Domestic Product (GDP), is simply the total of its output of goods and services, produced by the accumulated savings of society that have been invested in the instruments of production.
Liberal-progressive-socialists confuse GDP with government deficit spending, funded by the Federal Reserve system’s fiat money. GDP is inversely related over the long term to the total volume of money supplied to the economy by the Federal Reserve banks.
Government spending and over-expansion of the money supply produce only one thing: inflation that robs workers of the value of their savings and makes long-term capital investment uneconomic. It is the underlying impetus toward economic maladjustment, the factor that pushes individuals and businesses towards short-term gambling and excessive debt.
Only the free marketplace, funded by individual and business savings, is capable of allocating scarce economic resources to give us a higher standard of living via increased efficiency and greater productivity. Every government economic intervention reduces efficiency and lowers our potential standard of living.