Wednesday, December 5, 2007

Government intervention: a formula for inefficiency

As I've mentioned in a previous blog entry, I've read through Thomas Sowell's Basic Economics and I have to say, he does a good job at writing a book for entry-level economics. For those of you who haven't read it, I suggest you go to the library and check it out (or buy it if you're a little wealthier then me).

Thomas Sowell does not promote one economic system over another directly. He does not openly advocate capitalism over communism, even though he is for a total free-market system, but he does outline the basic principles of economics and demonstrates that even when you totally change the economic system a country uses, it still cannot escape these basic principles.

One of the most significant things he outlines is how managed economies (that is, economies managed by government or some other institution designed to control prices or some other aspect) create inefficiency in production supplies or create excess supplies on the market. He shows how in the USSR, for example, that animal pelts were left rotting in warehouses because the price, as determined by the government, made them very profitable. But because the demand was much lower than the price they sold for, people sold more then they bought and thus there was inefficiency. In the United States, during the Great Depression, there were food shortages brought on as a result of the farm price controls and the supplies being purposely limited by the government. Malnutrition was a serious problem for children during those years, but the government thought the farmer's livelihood was more valuable then a child's health I guess.

And at the end of the day, no ever asks a simple question: should the government be doing this in the first place? I know this because for every sound byte I hear and every article I read online, there is never a question brought up by a reporter or a politician about the validity of government's role in any industry. We always hear about what the government plans to do about health care, while 77% of Americans (see page six) are satisfied with their health coverage (this statistic was taken from an ABC poll months ago, I'm not just pulling numbers out of thin air). But still, there are apparently some people who don't have it because they chose not to get it. Sure, the choice may not seem like theirs, but think about it. Imagine the slacker in high school who never did any work and always go an 'F' in class. He later drops out and is last seem working at a low-paying blue-collar job. He doesn't have health coverage. Now, whose fault is that? Is it our fault because he wasn't motivated to do what he needed to get done in order to succeed in life?

There are four things a person must do in order to stay out of poverty:

1. Graduate from high school (no GEDs)
2. Get a job. Even if it starts out as a low paying job, you will gain experience and eventually either find a better paying job or get a decent raise.
3. Don't have a child out of wedlock. There is no reason for unwanted pregnancy in this country. In fact, if the FDA didn't exist, birth control pills would be readily available and cheap for all people. If you're Catholic and think that's a sin, well so is having sex outside of marriage, so don't bother trying to convince me that taking birth control is wrong while you live with your worthless boyfriend/girlfriend.
4. Don't commit a crime. This is common sense. Still the culture in some neighborhoods holds criminals in high esteem. The black community especially needs to shun the thuggish rap influences if they are ever going to get their youth back on the right track. Also, they need to get rid of this notion that studying and succeeding academically is "acting White." If anything, it's "acting Asian" but still such notions are ridiculous and detrimental to the overall well being of all youth of all races.

The poverty rate among people who accomplish all four of these things is merely 6%. And with adequate insurance (life, long-term disability, health) you should be able to stay far away from falling under that 6% statistic.

But this illustrates my main point: nothing listed above involves government doing anything. Poverty can be eliminated by individuals choosing to make sensible choices in their lives and not doing stupid things (all four listed above are examples of good choices that everyone, rich or poor, can easily make). So I ask, should the government be fighting the war on poverty? It has cost untold trillions of taxpayer dollars (I know, there is probably a finite number that we can quantify) and we still have people living in "poverty." (That word is in quotes because I personally don't believe in poverty in the United States, but that's another whole topic).

And thus, we come back to my original point: government creates inefficiency which at best annoying and at worst detrimental to our economic development. While not all sectors of the economy are controlled and regulated by government, it is certain that those which are could be so much better if regulations were lifted and government stepped back. The gasoline industry is a great example of government hampering the supply. There are several environmental regulations that prevent gasoline from being properly distributed based on demand. None of these regulations have proven to be of any value at preventing the overall pollution we have contributed to the environment, yet these regulations continue because government refuses to budge. We are not allowed to drill for more oil or build more refineries and as such, the price of such scarce resources has gone up since we are beholden to OPEC's whims (in fact, it wouldn't surprise me if OPEC is behind the funding of many environmental lobbyist groups). We have no new nuclear power plants built for over 35 years. Nuclear power is more efficient then coal and less polluting but all you'll hear from the mainstream press is Three Mile Island or Chernobyl and no facts. You'll also never hear how France is nearly 90% energy independent because of nuclear power. If we were to switch to nuclear power totally, there would be no coal burning, and thus less chance of fossil fuels from power plants, less coal mining, less people dying from coal ash in their lungs, and plenty of energy to go around. Did you know that core material is replaced once every four to five years in most plants? Hardly a lot of toxic waste, which is pretty much the only pollutant produced. And we already have a designated area for disposing of such waste. Why shouldn't we be using nuclear power?

Again, more examples of where the free market would properly correct the situation, but the government lays claim on know what is best for us. Obviously, they don't and no one man or group of men and women can properly manage something that is so big and so unpredictable and full of unintended consequences. Economics is the study of the use of scarce resources that have alternative uses. We live in a material world with finite resources. Supply and demand, not government, dictates how those resources are used. Government only serves as a roadblock to progress more so then it does as a beneficiary.