Tuesday, July 8, 2008

Caveman economics

Few things require the public’s caution and vigilance more than when politicians attempt to solve problems, either real or perceived, especially if those problems involve economics. Typically, such attempts are misguided, ineffective, and result only in increasing taxes and eroding civil freedoms. Not only do these attempts not solve the problem, they often make matters worse by interfering with self-correcting market forces.

For example, President Nixon’s price controls back in the 1970s did not curtail inflation, they only caused shortages and black markets, and delayed market homeostasis. Government attempts to douse economic conflagrations are as effective as attempts to quench wildfires in high winds. In spite of all the effort, such infernos will run their course.
At the local level, another example of official economic futility is found in Santa Barbara, where the high cost of housing excludes many people who wish to live there. Local politicians preach that the economic and social health of the community requires a diverse economic stratum, especially a middle class. Developers, therefore, are legally required to artificially lower the prices of some of their houses and sell them to economically eligible buyers — i.e. middle class. But, who determines what is middle class, what is affordable, and who gets lucky? Government.
As with any commodity, the price of housing is determined by willing buyers. Price a home too high, and it won’t sell. And, even though the price range of real estate in Santa Barbara is higher than that of most communities, the houses there still sell — even without government price controls.
Gauging what is middle class is relevant to individual economies. The measure of middle class between America and India is quite different. Likewise, the economic stratum in Santa Barbara reflects its local economy. Measure the income or net worth of the local households and you will find a quantitative range that can be segmented into percentiles — call them whatever you like, upper, middle and lower.
Historically, official tamperings with market forces have proven futile. Anyone who still believes the myth that FDR’s New Deal policies rescued America from the Great Depression should read Amity Shlaes’ history of the Great Depression in which she reveals how government’s attempt to resuscitate the economy resulted in nothing more than the growth of government and the diminution of American self-reliance.
Nevertheless, like a childhood bogeyman, the Great Depression lingers in the American psyche, and as the current economy continues to tailspin, Americans are becoming increasingly uneasy about their financial situations. That is why Americans’ attention has so abruptly turned to economic matters and why each uptick in the price of gasoline, and each downtick in the stock markets turn stomachs. Americans are scared, and as we have seen in the past, when Americans are scared they become susceptible to pandering politicians promising solutions and security.
So, here we go again. Attempting to mitigate the impact of skyrocketing fuel prices, a Michigan Congressman has proposed that the nation return to a mandatory 55 mph speed limit. The rationale is that by reducing speed, drivers will reduce their fuel consumption and in turn their fuel expense. A number of politicians believe that this makes such good personal economic sense that everyone should be forced by law to adopt it.
But, are the majority of Americans so mentally incompetent that they can’t make the choice of economizing on fuel without the gun of government being pointed at their heads? If they really want to reduce their fuel budgets, Americans will voluntarily drive slower, or less often, or with properly inflated tires, etc. They will figure it out. Ultimately, economics is about individual choices made within individual financial circumstances.
Most economic problems, therefore, will resolve themselves, but government often feels compelled to interfere in the process by imposing some quick-fix pseudo-solution. Why should those who choose to adjust their budgets for higher fuel costs and prefer to drive at 70 mph be forced to economize by driving at 55? This is supposed to be the land of freedom, not the land of micro-managing state paternalism and enforced egalitarian economics.
Part of this nanny state nuttiness derives from so many politicians having the economic acumen of cavemen trying to operate calculators. With so many economics illiterates in government, we would be better off giving elected politicians those Hasbro toy steering wheels with which they could harmlessly delude themselves into thinking they were really running things. Meanwhile we could go about managing our own lives as free people making our own choices without the interference of government’s economic Neanderthals.
These Stone Age economists, having just learned how to count with their fingers, now think they can run the economy. Please, politicians, go back to tracing your hands on the walls and leave the economy alone.


jqb said...

As usual, Alcorn is wrong in every possible way. And this time, the polls show that great majority of Americans know better.

Beep said...

Interestingly written...as if anyone who disagrees is a "caveman". I'm not a believer in Adam Smith's Invisible Hand always rushing to the scene in time to save us all from disaster, but then again I don't believe in the Tooth Fairy showing up tonight to pay my dental bills, either (damn). Examples of market failure, such as the over 18,000 Americans who die annually due to lack of health insurance, abound. The best policy undoubtedly varies by situation. I do not think "hands off" is always the best choice and hope the politicians who represent me will consider each individual case carefully and refrain from knee-jerk, lockstep decisionmaking. And I don't live in a cave. I'm afraid of bats.

Patrick said...

Economic policy is easily evaluated- does it put people to work?
If yes, then good policy. If not, then bad.
By this criteria, New Deal was good.
For better or for worse, the only fully collective expression is government. The 'market' has no mechanisms for values of collective assets, be they the air, water or fishery. Until economics is adjusted to deal with the laws of physics and chemistry, we will have an unhealthy dynamic between those focused on the man made statistic of growth, and those focused on anything else.
Instability is unhealthy, which is why a solid bell curve distribution of wealth is preferable to the redistribution to the wealthiest that has taken place since the 80's.

Bryan said...

Actually, from an economic perspective a middle class is necessary for the long-term health of a community. By artificially limiting the amount of land available to develop and keeping the density of housing low to a level below that of demand, the city of Santa Barbara has systematically squeezed out the middle class. Without housing, no middle class will stay. As witness to this policy, Santa Barbara has the living poor, the rich and the renters. Ironically, over time this policy will create a class of renters that will eventually become the majority of citizens. As property is deeded to heirs who cannot move to SB because of the lack of middle class jobs, the homes will become rentals. This rental class will eventually put pro-renter candidates into office and a backlash against decades of pent-up housing demand will likely be rushed through with a minimum of planning. Instead of creating a systematic planning of growth that would allow a middle class to be formed, the city will then allow growth and building any place, anytime, anywhere. This is the hard reality of economics. Where there is demand, there will eventually always be supply. There are many who think that SB may just become another Carmel, but the size and tax base of SB make that very unlikely. I think it's time that the many affordable housing groups and advocates throw in the towel and unite with builders to start building some homes. Only this will lead to a long-term prosperity that all citizens of SB want. BTW,
low-cost units are like putting a band-aid on a gushing wound, it won't do anything.