This Isn't a Reckoning
I had all these economic blog entries planned until I started reading Thomas Sowell’s Basic Economics, which said all my stuff and more. There is a (so far) unstated policy point that I see arising from his logic that seems to explain a lot of the otherwise puzzling policy positions we’re seeing coming from the White House.
The focus is said to be on lowering unemployment, but then the moves being taken actually increase the cost of labor and thus decrease the quantity demanded and increase unemployment. As Sowell repeatedly emphasizes, the minimum wage is not the only price floor on employment; mandated benefits (ObamaCare now included) are virtually unavoidable fixed costs (unless you’re a highly politically-connected employer). This discourages hiring by pricing labor above its breakeven economic value to the private firm.
In fact, as Sowell astutely points out, these fixed-cost price floors actually encourage overtime versus part-time hiring, since these expenses are mostly tied to headcount rather than total compensation. The employed gain income while the unemployed stay unemployed.
Kurt Vonnegut referred to bums (his word) as “sacred cattle.” This is telling in a way I never realized: just like a Coach purse is deemed better off destroyed than sold at a deep discount to the detriment of its brand, or how a corn field is kept barren and propped up with transfer payments rather than “depressing” the “fair price” of its neighbors’ output, the true but unstated liberal view is that a human body is innately worth something often far dearer than the economy is willing to value on its own. It is repugnant that a person could work below a policy-dictated “living wage,” despite the fact that the pittance of free market wages far exceeds the zero that the person is both contributing and earning while idle.
The very concept of a “living wage” (also in the book) presupposes a certain lifestyle envisioned by the policy establishment. It doesn’t include living with family in an overcrowded but safe home, or sharing a lawnmower with neighbors, or creating a grocery co-op to save money and be more environmentally responsible. It is an expression of a central planner’s vision for how life should be. With increased and broadened federal power, this starts feeling like a mandate. The free market tradition of America still makes the truth of all this completely repugnant to the average voter, who (while completely willing to vote himself vast government benefits) retains the cognitive dissonance of faith in the free market and retention of personal liberties (his own, at least).
The WPA and other FDR era strategies, while surely imperfect, were an expression of the government thinking on the margin, always a good thing to do in finance and economics: we (the government) see idle labor that is valuable, so we will invest in our infrastructure and use this idle labor at a low cost… what else do they have to do but sit there unhappy and starving?
The Obama perversion of the FDR gambit leaves out the “valuable” part. Sure, valuable effort is preferred to pointless expense, but the whole system is seen to work virtually just as well if the government effectively subsidizes idleness to prop up the price of employed labor. It’s the corn fields all over again. So, “shovel-ready” was literally a joke (at least post facto). I think we all know the only thing that was getting shoveled when all those plans were laid out. Additionally, unemployment benefits were extended, which extended the tolerable duration of idleness for many people who would otherwise feel a greater sense of urgency around finding a new job.
The reason Europe’s natural unemployment rate is double-digits to the point of being able to buy cigarettes is a feature, not a bug. The government is saying that it would rather support idle labor capacity rather than “allowing” the low end of the economic spectrum to be abused by a system that does not believe in the same life the society envisions to be available for all. Therefore, you see a sort of professional unemployed class in Europe, while in America (Sowell’s statistics are outstanding) the idea of a permanent poor class in America is a far smaller slice of the population than we are lead to believe (movement among the income percentiles is vast, especially on the low end of the spectrum).
The free market tradition of America produces the nonsensical “these fat cats need to get out there and hire” rhetoric that screams desire for government control of corporate decisions, otherwise known as central planning or socialism. My message to Obama and friends:
Own your position.
You believe the capitalist system is broken, that wealth is improperly “distributed” and the poor have your voice but also your impotence to manipulate the free market sufficiently to produce “social justice.” Unions are a great way to stabilize the economic cycle from an employment perspective (which in turn destabilizes the business from an economic perspective) and put the burden on the employer to fund those who are laid off in hard times and assure their rehiring when the cycle turns around. The trifecta of refundable tax breaks, unemployment “benefits,” and mandatory benefit “entitlements” independent of employment status (healthcare via ObamaCare, pension via Social Security, and disability insurance also via Social Security) provide an institutional means of funding the unemployed to the point of near-equality with the labor class, if not better (especially when factoring in black market labor such as that from illegal immigrants priced at free market rates).
Seize the banks and use government-provided “capital” to fund only the economic activity of which you approve. Put central planners in charge of critical economic functions. The EPA is trying to ratchet up the CAFE standards again; cut the nonsense and let that be what it is: government control of the auto industry and its corresponding consumer behavior. Create a Ministry of Motor Vehicles to make sure it is all adequately governed, and that unions get their slice of the subsidized battery and electric motor markets when they start to destroy the internal combustion engine prematurely.
I mean, it’s all been done and is in the middle of collapsing across the Atlantic, but maybe (if you actually believed in American exceptionalism, ironically) we could pull it off better than the EU could. It might be worth a try here. This way at least the policy is coherent. It doesn’t have to be bald-faced socialism if you don’t want it to be, but it’s definitely not capitalism in philosophy. The doubletalk is doing nobody any good, except to bolster your position through deceit. Right now, much of your constituency is not fully aware of the trajectory of your course. That is dishonest and essentially immoral. If you want to fight your fight, do it in an open field with fair competition.
Like a capitalist would.