Statism Is the Problem
by Jacob G. Hornberger
If you want to understand why this nation is headed into deep trouble, all you have to do is read this editorial from the New York Times. It constitutes a perfect manifestation of the statist economic mindset that holds our nation in its grip and that is heading it toward more economic chaos.
The Times argues that the solution to the federal government’s out-of-control federal spending and borrowing is ... are you ready? ... more spending and borrowing! I kid you not. The Times is saying that the worst thing that U.S. officials could do is slash spending.
In fact, the Times is actually arguing that the same solution applies to Greece, whose government is bankrupt. According to the Times, the Greek government shouldn’t cut spending, it should increase it.
Don’t believe me? Here’s a direct quote from the editorial: “Deep government budget cuts at a time of economic weakness are counterproductive, complicated, if not ruining, the chances for economic growth.... If governments push ahead anyway with deep spending cuts, the result is only more economic weakness without the hoped for budget improvement.”
The Times says that spending cuts should come only after the “economy regains its health,” which is one of the most ridiculous notions because everyone but the Times knows that if the “economy regains its health,” the last thing any public official is going to do is cut spending.
Let’s consider North Korea, where the public (i.e., government) sector is large. I’m not sure what percentage of the population works for the state but I’d estimate that it’s about 100 percent.
Most everyone knows that economically North Korea is an absolute basket case. People are starving to death. The nation depends on generous amounts of foreign aid to keep its populace alive.
What would we libertarians say to the North Koreans? We’d say: Dismantle the bureaucracies, including the enormous standing army, and lay off most everyone. Yes, fire them. Put them all into the private sector immediately. Don’t delay it.
What would your average statist say? He’d say, “Don’t even think of listening to those libertarians. They’re too radical. Why, laying off all those government employees would cause the unemployment rate to soar. A job with the state, even at starvation wages, is better than no job at all. Just stimulate the economy with a bit of printed money and wait until the economy improves.”
Doesn’t that seem ridiculous on its face? The reason that North Koreans are starving is because everyone is employed by the government. Remember: the government sector is a parasitic sector. It thrives by taxing those in the private sector. When there is no private sector, there is nothing for the public sector to tax. That’s why North Korea must look to foreign countries for aid — countries in which there is still a private sector to tax. If everyone in the world adopted the North Korean model, people all over the world, not just the North Koreans, would be starving to death.
The best thing that could ever happen to the North Korean people is if the North Korean government was to fire all of them. Even though the North Korean people have lived their lives totally dependent on a paternalistic, socialist state, they would respond to economic liberty by immediately engaging in economic activity, either by opening their own business or going to work for a business that someone else is opening. Human beings are resilient and enterprising. All you have to do is free them.
It’s no different, in principle, here in the United States and in Greece. The problem in both nations is the over-bloated public sector, in terms of number of people employed and number of people receiving federal largess. Remember: The public sector is the parasitic sector, not the productive sector. The U.S. government and the Greece government do not produce wealth. They confiscate wealth from the private sector and then use that confiscated wealth to pay for federal salaries, welfare benefits, grants, soldiers, weapons, and so forth.
Today, the U.S. government is spending more than a trillion dollars a year in excess of what it is collecting in taxes. It’s overspending. It’s been doing that for years. Where does it get the money to spend the difference? It borrows it. And it continues doing that, year after year. That’s why the size of the government’s overall debt continues to soar every minute.
Is growing debt a problem? Well, if it isn’t a problem, then why has Congress established a debt ceiling? By establishing a debt ceiling, the Congress is saying that too much debt is a very bad thing, even dangerous. The idea of the ceiling is to prohibit the federal government from accumulating more than a certain level of debt.
The Greek people have learned what lies at the end of the road when government spends and borrows excessively. I’ll bet they now wish their government had had a debt ceiling and that it had never been exceeded. They’ve learned that bankruptcy lies at the end of this road. That’s when the government is unable to borrow any more money to pay its bills because no one will lend it money.
We see this phenomenon all the time in the private sector. A company’s revenues fail to keep up with its expenditures. It borrows the difference, hoping that things turn around. They don’t. The company can’t pay its bills. It files for bankruptcy.
We’ve seen it happen with cities. They borrow to the hilt and then can’t pay their bills. They file for bankruptcy.
It happens with families. They go out and buy fancy homes and cars on credit and then are unable to make the payments. They file for bankruptcy.
What would the Times say to all these bankrupts? Go out and spend and borrow some more until things pick up? Where would they borrow the money to continue their profligate ways? Would the New York Times lend them the money?
Contrary to what the Times suggests, the best thing that could ever happen to Greece and the United States is the same best thing that could ever happen to North Korea — massive immediate layoffs in the public (the parasitic) sector, including the military, and immediate termination of welfare-state and warfare-state programs.
That would mean an immediate double-productive effect. One, the private sector would now be able to keep the money that was being taxed to pay for the parasitic sector, which could be invested in productive capital, which is the key to rising wages and standards of living. Two, the people who had been in the parasitic sector would now be producing wealth in the private sector rather than consuming wealth taken out of the private sector.
Further, contrary to what the Times suggests, taxing people to solve the problem would be the worst approach. Higher taxes to fund the parasitic sector means that marginal firms will go out of business, thereby exacerbating the problem. It would mean less people in the private sector to tax and more people in the public (parasitic) sector seeking state sustenance. Ultimately, the process ends up killing off the private sector entirely, as it did in North Korea.
The Times’ suggestion that the government should inflate the currency is nothing more than destructive monetary nonsense. If inflation was the key to prosperity, North Korea would be rich today. All it would have to do is print more money. That’s so ridiculous that it’s hard to believe that there are still people who make that argument.
Printing money does not increase the amount of real wealth in the private sector. What it does is send fake and false signals to businessmen that economic conditions warrant expanding production. What is actually happening is a fake and false prosperity. When the paper-money, inflationary bubble inevitably bursts, people are thrown back into economic depression.
What the Times cannot bring itself to do is acknowledge that the fundamental problem is statism itself. This shouldn’t surprise anyone, given that the Times just a few days ago published an accolade celebrating the father of America’s welfare-warfare state, Franklin D. Roosevelt.
The problem is statism. It’s the problem in North Korea. It’s the problem in Greece. It’s the problem in the United States. It’s the problem worldwide. It is statism that is taking our nation down and the world down. It’s time to reject this corrupt, destructive philosophy in all its manifestations. There is no better time than now.