What the Regime Thought Would Happen
but government always makes the economy worse
After cranking the M2 money supply up by 40 percent in two years from $15.3 trillion at the beginning of 2020 to $21.7 trillion at the beginning of 2022 — what did you rulers think would happen on the inflation front?
In the aftermath the Federal Reserve Board talked about “transitory” inflation. But it turned out that it wasn’t. Inflation from the Bureau of Economic Analysis for FY2023 was 6.1 percent.
Since 2021 the Biden administration has implemented every possible agenda item in the climate change agenda, from advancing EVs and wind power to sunsetting gas stoves and gas-powered cars. What did you rulers think would happen to the income of ordinary middle-class Americans?
Since 2021 the Biden administration has pushed its racist-sexist-heterophobic DEI policy everywhere, from government to education to corporations. What did you rulers think would happen to competence in high-status institutions and to social trust and relations in America?
It is clear to me that the Biden administration is bewildered that its touted “Bidenomics” has turned out to be not an indicator of prosperity but a reminder to ordinary Americans of economic hardship. I am forced to conclude that the great minds of our ruling class really thought that a huge splurge in government spending and regulation would lead to the economic Promised Land.
You can see why. It is because people in political power think only in political terms, of the fight against the enemy and the care of their friends. Thus, if the economy is stalled by a pandemic, the answer is to stimulate the economy with increased government spending to all our friends, and good things will happen. Thus, if the US is fighting climate change, we hand out subsidies for nice liberal ladies to buy EVs and good things will happen. If the US is fighting discrimination with DEI, good things will happen.
In fact, this is not how the world works.
Everything the government does is taking resources away from people — often millions of people — that might would have done something different with the resources. Dollars to donuts that people using resources would have created more prosperity than government. Why? Because people are forced to respond to market signals, and the whole point of a government program or a government subsidy is to create the means for government actors to ignore market signals.
That’s why the New Deal stimulus programs didn’t work, and that’s why the Obama stimulus program didn’t work. That s why the tax rate cuts of the Reagan years and the Trump years stimulated economic growth. Typically, government programs don’t create prosperity. But ordinary people with more money after taxes do create growth.
Why? Because the market economy is an incredibly complex entity in which economic actors are signaling constantly by their economic actions and responding constantly to market signals. The market signals are constantlysignaling to market actors: you need to adjust your prices, or products, or sales, or workforce.
Government programs, like the Green New Deal, are all about forcing the economic actors to ignore market signals and instead do what the government wants — or else we are all going to die!
And so we get to my Four Laws.
Socialism cannot work because it cannot compute prices (Mises).
Prices are economic signals that tell you what to do and what not to do.
The administrative state cannot work because the Man in Washington does not have the bandwidth to run the economy (Hayek).
He doesn’t have the bandwidth to respond to all the price signals he’s getting.
Regulation does not work because “regulatory capture” (Stigler).
Regulation enables the regulated to jam up the system and stop price signals that would hurt their business.
Government programs cannot work because you can never reform them (Chantrill).
The whole point of a government program is to hand out free stuff to supporters and ignore price signals.
I like to think that economics is a science to help governments manipulate the economy without actually wrecking it.
But rulers should understand that whatever they do, the results will be less than they anticipated, and there will be less prosperity than if they just kept their cotton-pickin’ hands off. The best economic policy is no economic policy.