Lies the government told you (41 page)

President Reagan’s chief economist, Arthur Laffer, has explained that the Obama $780 billion February 2009 stimulus plan, just like the Bush February 2008 $200 billion stimulus and the Bush October 2008 $700 billion TARP plans, will drive the country to economic ruin.
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Laffer argues that these stimulus packages will have the same result as the $85 billion bailout of AIG, most of which money has ended up with the banks as beneficiaries and the taxpayers as the payees.
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The bailout plan is essentially Robin Hood, except he is taking from the rich and poor alike to give to the extraordinarily wealthy. As Laffer notes, “There is no tooth fairy. Every dollar given to someone comes from someone else.”

Since the government does not
produce
wealth, it only
transfers
resources and
consumes
wealth, that someone else who had the money will be driven to spend less. So the only gain is for those who receive that money, who, as has already been aptly proven, are not too good at knowing how to spend it. And an examination of the wish list received from cities around the country illustrates that no one seems to know where it will go. Requests include two million dollars for more neon signs in Las Vegas (of all places), three million for an environmentally friendly clubhouse, six million for waterslides, almost one million for a Frisbee golf course, and even Harley Davidson motorcycles for the police.
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The money and how it is to be allocated are still in question. Some of the various projects that have been proposed will create jobs, as did the digging and filling of ditches during the reign of FDR, but whether they can create prosperity is out of the question.

It is the capitalist market that has proven to be the best allocator of resources. Many considered Lehman Brothers, one of New York’s largest investment banks, too big too fail. Yet fail it did. In January 2008, the bank had assets of $639 billion and over twenty-six thousand employees, but the government let it go. Within a few days, the market had allowed the viable Lehman pieces to survive, and the rest were washed away.
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That is how the market works, and the only way to ensure that the rest of the available resources are allocated to end this bust as quickly as possible is to stop any government intervention, allowing any firms that must fail to fail, and to do so quickly.

Any bailout, as in the case of AIG (where currently, executives largely responsible for its near-bankruptcy are to receive $165 million in bonuses),
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will only result in creating a monster that will have a terrible impact on the future of the economy. If the executives are getting paid the big bucks to fail, why would they make any attempts to succeed? The longer a business that squanders money and profits is allowed to stay open, the more damage will be visited to the market and therefore to viable and profitable companies, which could otherwise fill in the gap that would be left by the closing of such companies.

From Too Big to Fail, to Too Public to Succeed

The claims by the government that the companies it bails out will return to private ownership after they stabilize is a well-known government deception. History has many such stories of companies in trouble that the government “rescues.” Once government bureaucrats get their hands on a certain industry, they cannot let it go.

The strange thing is that Americans really do believe that the government can fix the problems in the private sector, because they believe that it is the greed of capitalistic businessmen that brings the market down, and so only the forces of a not-for-profit government can bring the market back up. People seem to have forgotten the disastrous result of a centrally controlled economy that was the Soviet Union. This government deception has been fed to us for so long that it has become an accepted fact, without any basis in actual reality.

This pervasive myth leads to the situation in which a libertarian may argue for the privatization of some part of the public sector, for example, utility companies, and the general population is shocked and awed that anyone would even contemplate such a thing. Professor Murray Rothbard once made a great analogy, noting that if the government had a monopoly on shoe manufacture and sale and had been providing shoes for everyone from tax revenues, then anyone who proposed that shoe production be privatized would get the same reaction. People would cry:

How could you? You are opposed to the public, to the poor people, wearing
shoes! And who would supply shoes to the public if the government got out of the business? How many shoes would be available in each city and town? How would the shoe firm be capitalized? What material would they use? What would be the pricing arrangements? Wouldn’t regulation of the shoe industry be needed to see to it the product is sound? And who would supply the poor with shoes?
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Because the government’s own mythology has become so predominant in our time, most really do believe that if the government has been providing a monopolized service, no one else could or would want to do it, unless the new producer charged exorbitant amounts. Yet, all Professor Rothbard was attempting to prove was that the capitalist economy can handle itself, and it can do so better than the government because businesspeople have to answer to their customers and investors, and if they do not provide the product that customers want and bring a return to investors, then competition will wipe them out.

The government has no such worries. For one, since there is no relationship between product and payment, the government needn’t worry about not getting paid for the product. It also does not have to worry about competition, because it has effectively banned anyone from competing with it. And, of course, the government never needs to impress investors when it wants cash. It just raises taxes, which we pay like sheep, or it prints money, which devalues all previously printed money.

Government Motors

There are many who argue that the Bush and Obama bailouts were the only possible solutions to ensuring that the economy did not collapse. On the other hand, as former British Prime Minister Margaret Thatcher once said, “The problem with socialism is that sooner or later, you run out of other people’s money,” so some firms need to go down because they are no longer functioning effectively in the market, and the government is just throwing good money after bad.

Some of these are lucky, like General Motors, which has now become Government Motors, with the federal government purchasing a huge stake in the company. General Motors initially received $20 billion as a bailout, but that did not save the company. So the government decided to give the company another $30 billion, but this time with a 60 percent controlling stake in the company. The result has been that government agents are making financing and business decisions, including President Obama effectively firing the long-time CEO, Richard Wagoner, and Congressman Barney Frank deciding where at least one GM warehouse should be (hint: in his congressional district).

Finally, rather than following well-established securities law, where secured creditors and bondholders get paid first when a corporation liquidates, the government paid out the United Auto Workers union, an unsecured creditor meant to get paid last in a bankruptcy. Instead, the union got almost double the amount of what the secured creditors did. Of course, the government continues to placate the public with assurances of the temporary nature of the fix and how GM will soon become profitable again.

So there it is; the government has acquired yet another corporation that it thinks it will be able to run more successfully than the private sector did. Of course, nationalizing an automobile maker sounds very much like something from Communist Russia, or Socialist Venezuela; and we know how successful those governments have been at earning profits. So now our government has spent billions of dollars of taxpayer money so that it can keep open a company, General Motors, that the market was on the brink of closing. And, if the history of Amtrak and the Post Office has anything to say, the government will continue to pour billions into GM well into the next century, without a thought for profit but always with the justifications of employment and public welfare.

Reagan once said that “[g]overnment’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Well, the government has just done that with General Motors, because it will never be able to run it profitably, so instead it will just keep pumping taxpayer money into it.

Government Railroad

The story of Amtrak begins in 1971 during the Nixon Administration, as it was then that Congress established Amtrak as a federally owned passenger railroad. Originally, the government claimed that such a passenger railroad was important and also claimed that it expected “the corporation would experience financial losses for three years and then become a self-sustaining enterprise.”
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Well, it has now been forty years, and Amtrak has yet to make a profit. Instead, it has survived on government subsidies, grants, and loans of enormous proportions, totaling
over $25 billion throughout its existence
.
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At the same time, while airline travel has increased from 191.3 million passengers in 1972 to 665.6 million in 2000, Amtrak passengers went from 16.6 million in 1972 to 22.5 million in 2000.
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This increase of 6 million passengers, considering the intense population growth in the U.S. during that time, exhibits the minimal need for train travel, and the fact that if there were a demand for such travel, the private market could handle it more efficiently. And if it could not, Amtrak would have been closed many years ago.

Privatization in other countries has illustrated that the private industry is much more efficient than anything the public sector can do. For example, privately owned Virgin Rail took over publicly owned British Rail and sparked such a traffic boom that the company has now placed an order for $3 billion in new trains.
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While Amtrak’s survival depends not on its ability to generate profits but solely on political hay, it will keep losing money and costing billions of dollars. The government has given multiple deadlines for Amtrak to reach profitability or face closure, and such deadlines have never been met, yet Amtrak continues its operations.
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One could argue that Amtrak, rather than an illustration of government inefficiency, is an illustration of the lack of demand for rail transport. For those there is the example of the United States Postal Service (USPS). Currently the USPS is facing extraordinary deficits. From January to July 2009,
the USPS lost over $7 billion
, and the government is attempting to figure out a resolution, including stopping Saturday delivery.
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Because the government consumes wealth, rather than produces wealth, the government can only save money by shutting down (so as to stop the consumption). In this respect (consumption versus production) the government and private enterprise are literally opposites. When private enterprise wants more income, it works overtime and produces more goods. When the government wants to save money, as the government of the City of Chicago did for a few days in the summer of 2009, it shuts down.

The Father of the Three-Cent Stamp

For some reason, we have become so indoctrinated to the need for a government-run monopoly on mail delivery that many have forgotten the story of Lysander Spooner. Though not many today know the name, he was a lawyer and author of
The Unconstitutionality of Slavery
, which was cited by Supreme Court Justice Antonin Scalia in his opinion in
District of Columbia v. Heller
. Another of his achievements was his establishment of the American Mail Company in 1844, a challenge to the monopoly of the Post Office, which was charging exorbitant rates.

By early 1843, mail prices had soared, and the government charged nearly nineteen cents to deliver a letter from Boston to New York.
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In setting up his company, Spooner set up service to run between New York, Boston, Philadelphia, and Baltimore, which were also some of the main Post Office routes. He then announced that he would be charging a little over six cents per half-ounce letter and that there would be daily delivery in the cities. Initially, the government ignored his new company, but soon it was losing customers to the American Letter Mail Company.

Because of the competition from his business, the government filed suit to have him barred from invading the postal monopoly. “A ‘not guilty’ verdict was sustained by the U.S. District Court . . . [t]he court expressed doubt that the U.S. had the right to monopolize transportation of mail.”
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Still, Post Office revenues continued to drop until Congress was forced to give the Post Office permission to drop prices to five cents a letter. And later, Spooner was responsible for Congress agreeing
to drop the price once again, which earned him the name “Father of the Three-Cent Stamp.”
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This entrepreneur had been able to create a successful and profitable company that charged almost one-third the price that the government charged for its mail delivery and created a situation where the government was forced to compete and reach prices that people were willing to pay.

Of course, once the government regained its monopoly, the price of mail increased constantly with no end in sight, and the Post Office is no longer even profitable, running massive deficits. Still the government claims that it would not be possible to provide mail service through a private company. Today, it is unlawful to charge the same or less than the Post Office to deliver any mail—unlawful to compete with the government.

R.I.P., Personal Responsibility

The magic of this idea of affordable housing, cheap automobiles, mail, and railroads, the idea that everyone deserves something from another, has resulted in a total depreciation of the idea of personal responsibility, an idea that is at the basis of America’s values. The government does not have its own money to give away, but it loves to reallocate resources. So when the government is using taxes to pay for mistakes made by big businesses as well as by the little guys, it is only taking from those who have managed not to make gigantic mistakes and giving it to save those who have. And, of course, the government justifies its actions, blaming the big businesses and deflecting blame from itself and the little taxpayers who bought houses they could ill afford. And this is where personal responsibility has lost itself.