Good Intentions
Bad Results
I was having a conversation with a young man about voting. He suggested that people should never vote on the issues alone, but should vote according to their conscience. I thought about it for a few seconds and said, "OK, but what if your conscience is a moron? "
A lot of Americans seem to believe that if you have good intentions, motivated by deeply held convictions, you'll arrive at the truth. The truth being some mystical idea or experience that you tap into, like "The Spirit of the Great Eagle" or God as expressed by endless television preachers who offer a vision of God as, “The Great Sugar Daddy"—“'Ask and it shall be given, knock and the door will open, Rub the lamp and you’ll get three wishes'—'War, famine, pestilence and natural disasters, they'll have to wait, it’s your prayer for that new linoleum for the kitchen that God's really interested in!'”
The wisdom of the ages is rendered as so many meaningless slogans, instant success, eternal beauty; fast cars and prodigiously-fake hooters are its gifts. God, the Universe, or some unknown power is always eager to grant your requests, you only have to ask. And with God and the Universe as your best pals, what more could you want? Should there be any surprise that our political ideas follow a similar path?
A primary difference between conservatives and liberals is in the theory of government and its appropriate role in society. Liberals believe that it can be used for the common good by leveling the playing field and giving opportunity to the disadvantaged, which most of us would see as a noble idea. Conservatives argue that government isn't supposed to be a partial judge, one that can bestow favors as they see fit, but is supposed to be an impartial third party, a referee, not an enabler—and that any government powerful enough to give you everything you want or need can just as easily take it away. This is the foundation of our political archetypes, with liberals as “The Grand Political Mother” and conservatives as “The Grand Authoritarian Father.” The American electorate are the children riding in the back seat, screaming, “I want some ice cream” while mom and dad argue about the best approach to good parenting in the front.
As a libertarian/conservative, with more than a few ideas that would be considered liberal, I empathize with both perspectives. Government can do much good. It can and should be the place where men and women of substance offer leadership and vision for their country, even if their ideas are unpopular. Governmental leadership can compel us to move forward, make tough choices and look beyond self-interest. It championed the end of slavery and Jim Crow laws, but let’s not forget that without government, slavery and Jim Crow would've never existed to begin with. Government has made landing on the moon a reality, and helped to create the most lethal weapons of war ever imagined. Government is never benign, and is seldom ever either purely good or bad.
The problem may be one of perceived intuition, or the myth of common sense. What seems reasonable, may in fact be anything but, and that's where the Devil or God always resides, in the details.
This leads me to what I believe to be the primary question; how much government is necessary and how much is too much? In order for democracy to exist at all, governmental powers must be limited. Why? The answer should be obvious. Government has the power to make laws which can turn its citizens into criminals and, with a wave of the legislative wand, it can abscond with your money through taxation, start wars, and enslave whomever it wishes, simply because it has either been given authority by the people or seized it thorough legislative or military force. Once the power has been transferred from the citizens to the state, it can be nearly impossible to take it back, at least not without misery and bloodshed. That's why the Founding Fathers separated and diffused governmental power. It was intended to be shared between The President, the Congress, the Courts, and most importantly, the people. This can make the process of governing cumbersome, which is its intent. It’s the difference between the hope of a benevolent king, and the individual responsibility that is inherent in democracy. Increasingly, it seems that Americans want a king, a benevolent one, mind you, but a king nonetheless. And, it should be clear that nothing is that simple, freedom is never really free, neither is lunch, the military, or healthcare.
That's why forcing people to buy healthcare doesn't constitute free healthcare anymore than forcing people to buy auto insurance makes it free. This is especially difficult in a recession where workers already have declining wages while still paying inflationary prices for everything from housing to fuel and food. The Obama Administration intends to deal with the problem by subsidizing the cost of healthcare using taxpayer dollars for those who can’t afford it. Meaning they’ll raise taxes on an already overtaxed, over-regulated economy, taking more of American’s hard-earned money while increasing the size of government. To say nothing of siphoning off money that would be more efficiently used by the private economy to create new jobs. This will, in turn, produce a demand for even more taxes, making the problem circular in nature, which extends from the circular logic used in formulating the program to begin with. The net effect will be rapidly inflated costs with no mechanism to restrain them. Why? Because that is the nature of all monopolies, which is the real intent behind Obamacare. By eliminating the potential evil of market-driven forces, the well-intended, true believers can ensure that greedy, for-profit businessmen are replaced by altruistic politicians.
A lot of Americans seem to believe that if you have good intentions, motivated by deeply held convictions, you'll arrive at the truth. The truth being some mystical idea or experience that you tap into, like "The Spirit of the Great Eagle" or God as expressed by endless television preachers who offer a vision of God as, “The Great Sugar Daddy"—“'Ask and it shall be given, knock and the door will open, Rub the lamp and you’ll get three wishes'—'War, famine, pestilence and natural disasters, they'll have to wait, it’s your prayer for that new linoleum for the kitchen that God's really interested in!'”
The wisdom of the ages is rendered as so many meaningless slogans, instant success, eternal beauty; fast cars and prodigiously-fake hooters are its gifts. God, the Universe, or some unknown power is always eager to grant your requests, you only have to ask. And with God and the Universe as your best pals, what more could you want? Should there be any surprise that our political ideas follow a similar path?
A primary difference between conservatives and liberals is in the theory of government and its appropriate role in society. Liberals believe that it can be used for the common good by leveling the playing field and giving opportunity to the disadvantaged, which most of us would see as a noble idea. Conservatives argue that government isn't supposed to be a partial judge, one that can bestow favors as they see fit, but is supposed to be an impartial third party, a referee, not an enabler—and that any government powerful enough to give you everything you want or need can just as easily take it away. This is the foundation of our political archetypes, with liberals as “The Grand Political Mother” and conservatives as “The Grand Authoritarian Father.” The American electorate are the children riding in the back seat, screaming, “I want some ice cream” while mom and dad argue about the best approach to good parenting in the front.
As a libertarian/conservative, with more than a few ideas that would be considered liberal, I empathize with both perspectives. Government can do much good. It can and should be the place where men and women of substance offer leadership and vision for their country, even if their ideas are unpopular. Governmental leadership can compel us to move forward, make tough choices and look beyond self-interest. It championed the end of slavery and Jim Crow laws, but let’s not forget that without government, slavery and Jim Crow would've never existed to begin with. Government has made landing on the moon a reality, and helped to create the most lethal weapons of war ever imagined. Government is never benign, and is seldom ever either purely good or bad.
The problem may be one of perceived intuition, or the myth of common sense. What seems reasonable, may in fact be anything but, and that's where the Devil or God always resides, in the details.
This leads me to what I believe to be the primary question; how much government is necessary and how much is too much? In order for democracy to exist at all, governmental powers must be limited. Why? The answer should be obvious. Government has the power to make laws which can turn its citizens into criminals and, with a wave of the legislative wand, it can abscond with your money through taxation, start wars, and enslave whomever it wishes, simply because it has either been given authority by the people or seized it thorough legislative or military force. Once the power has been transferred from the citizens to the state, it can be nearly impossible to take it back, at least not without misery and bloodshed. That's why the Founding Fathers separated and diffused governmental power. It was intended to be shared between The President, the Congress, the Courts, and most importantly, the people. This can make the process of governing cumbersome, which is its intent. It’s the difference between the hope of a benevolent king, and the individual responsibility that is inherent in democracy. Increasingly, it seems that Americans want a king, a benevolent one, mind you, but a king nonetheless. And, it should be clear that nothing is that simple, freedom is never really free, neither is lunch, the military, or healthcare.
That's why forcing people to buy healthcare doesn't constitute free healthcare anymore than forcing people to buy auto insurance makes it free. This is especially difficult in a recession where workers already have declining wages while still paying inflationary prices for everything from housing to fuel and food. The Obama Administration intends to deal with the problem by subsidizing the cost of healthcare using taxpayer dollars for those who can’t afford it. Meaning they’ll raise taxes on an already overtaxed, over-regulated economy, taking more of American’s hard-earned money while increasing the size of government. To say nothing of siphoning off money that would be more efficiently used by the private economy to create new jobs. This will, in turn, produce a demand for even more taxes, making the problem circular in nature, which extends from the circular logic used in formulating the program to begin with. The net effect will be rapidly inflated costs with no mechanism to restrain them. Why? Because that is the nature of all monopolies, which is the real intent behind Obamacare. By eliminating the potential evil of market-driven forces, the well-intended, true believers can ensure that greedy, for-profit businessmen are replaced by altruistic politicians.
For those of us old enough to remember, think of Bell Telephone when it was a monopoly—poor service, high rates and exorbitant long distance fees were the norm. Once Bell Telephone was broken up and competition was allowed, prices plummeted and the free market, through innovation, made it possible to have small, portable cell phones with cameras, that were also video recorders, MP3 players with amazing sound, and unlimited talk anywhere in the world for less than you would've paid for basic phone service forty years ago. Forty years ago that would have sounded like science fiction, or an episode of the Jetsons—and that is only the tip of the iceberg when talking about the remarkable economic and technological benefits that are created by competition and innovation within a free culture and economy.
Little more than a decade ago, home computers and the internet became the norm. There was one hitch however, how to get computers into the hands of the poor? There was a consensus that computers were the future and poor kids would be at a significant disadvantage without access. Jessie Jackson suggested that computers should be made available to inner-city kids first, which he hoped would level the playing field for the poor by making them affordable through government subsidies.
All subsidies have essentially the same effect, they make goods and services affordable to whomever is receiving the subsidy, but keep prices artificially high for everyone else. That is the unintended consequence of good intentions, creating a disincentive to lower prices through competition, while stifling innovation, which is the lifeblood of any economy.
Thankfully, no one listened to Jackson’s well-intended, but economically illiterate theory—and within a few years prices fell so far that computers were given away for free if the taker would simply sign up for a nominal, monthly internet fee. The computers were likewise more powerful and faster than ever before. That is the nature of competition—meaning that untold numbers of highly-educated specialists work independently to create the best product at the best price. It isn’t altruism that is the prime mover of social well-being, but individuals, freely acting on self interest, working to meet the public’s needs, wants and desires. This shouldn't be defined as self interest, but is really shared interests. Business can't exist without customers, and in an attempt to entice potential buyers, businesses have to provide a better, cheaper product and better service. If their actions were purely motivated by self-interest, they wouldn't survive. Only if they are subsidized by government can bad business practices be sustained. That’s why virtually all government-run institutions are costly and bleed money.
Little more than a decade ago, home computers and the internet became the norm. There was one hitch however, how to get computers into the hands of the poor? There was a consensus that computers were the future and poor kids would be at a significant disadvantage without access. Jessie Jackson suggested that computers should be made available to inner-city kids first, which he hoped would level the playing field for the poor by making them affordable through government subsidies.
All subsidies have essentially the same effect, they make goods and services affordable to whomever is receiving the subsidy, but keep prices artificially high for everyone else. That is the unintended consequence of good intentions, creating a disincentive to lower prices through competition, while stifling innovation, which is the lifeblood of any economy.
Thankfully, no one listened to Jackson’s well-intended, but economically illiterate theory—and within a few years prices fell so far that computers were given away for free if the taker would simply sign up for a nominal, monthly internet fee. The computers were likewise more powerful and faster than ever before. That is the nature of competition—meaning that untold numbers of highly-educated specialists work independently to create the best product at the best price. It isn’t altruism that is the prime mover of social well-being, but individuals, freely acting on self interest, working to meet the public’s needs, wants and desires. This shouldn't be defined as self interest, but is really shared interests. Business can't exist without customers, and in an attempt to entice potential buyers, businesses have to provide a better, cheaper product and better service. If their actions were purely motivated by self-interest, they wouldn't survive. Only if they are subsidized by government can bad business practices be sustained. That’s why virtually all government-run institutions are costly and bleed money.
The U.S. Postal Service loses about $25,000,000 a day or more than $8,000,000,000 a year, and those numbers are growing. Just about every other government-funded institution functions with the same gross inefficiency, including public schools and the military. If any for-profit business were to be run the same way, they would rapidly be forced to shut their doors. Government, by comparison, can simply raise your taxes to pay for its bad decisions and then blame the opposition, whoever that might be.
Businesses, unlike government, must adapt to meet the public’s demands for their product or suffer the immediate consequence. Government, on the other hand, can alter the public demand by changing the incentives.
The recent housing boom and bust was created by government incentives in two forms: 1) subsidies that were intended to get banks to lend to buyers who couldn’t normally qualify through the use of government insured loans and, 2) artificially low interest rates by the Federal Reserve which drove housing prices through the roof. Congress lowered the standard for securing the debt for both lenders and borrowers and helped to create, in direct collusion with Wall Street, ways of minimizing the risk for global investors. The result was immediate; creating over-inflated home values, massive debt accumulation by businesses and individuals alike, and something close to a global economic collapse. All subsidized by the good intentions of the Federal Government. Without those same incentives, banks would simply do what they've always done, lend to those who can meet the necessary credit requirements. The government skewed market demand by giving incentives to lend to unqualified applicants, and everyone else, including Wall Street, simply followed the money trail.
Why do government subsidies tend to have a negative long-term effect? Ninety percent of businesses fail within the first two years. Starting any business is risky and costly, which is why smart businessmen won’t invest without making sure that the economic climate is favorable for investment. Ask the average person, "Would they take a job if they weren't guaranteed to be paid for their work"? For most people the question seems ridiculous, but, that’s exactly what investors do every day. They invest their hard-earned money in exchange for nothing more than the “possibility” of turning a profit, the greater the potential payoff, the greater the incentive they have to invest. Create an environment where the rules of the game are constantly changing, or the payoff is low, and investors will stop investing. That’s exactly what has happened over the last four years. The result being that job creation has been stifled and unemployment has soared.
What does this have to do with subsidies? Going back to Jessie Jackson’s model of government-subsidized computers for the poor, we can begin to see how incentives alter behavior. The average cost of a computer in 1999 was $1,300.00, too expensive for most low income families. So, the government says to computer manufacturers, “We’ll pay you $1,100.00 for your product, and we’ll subsidize your manufacturing costs, making computers cheaper to produce, while still guaranteeing you a profit.” This seems like a win-win for both the public and the businesses. The computer companies have lowered their prices, poor folks get computers and everyone else gets a bargain. The subsidy has changed the incentives completely, and this is where the problem begins.
Why take risks, when you can have guarantees? That means that companies stop taking risks and innovation is placed on the back burner. It also means less competition. Why? Because the amount of subsidies that can be provided is limited by the government’s ability to tax its citizens, which is its primary source of income. The result is that new technology is put on hold and more powerful computers that are more efficient are shelved because the financial incentives have changed the industry from risk to guarantee. "A bird in the hand is worth two in the bush" becomes the norm. All of this has the effect of stifling innovation, keeping prices artificially high, even though there’s an initial drop in cost. The effect is a static market with little growth and fewer new jobs. What seems beneficial, or a win-win, is really the end of prosperity. One need only look at what happened in the computer market to understand why this is true. It may seem counterintuitive, but only because we aren't looking beyond the moment, or the bird in the hand. That kind of limited vision is lethal to human productivity.
Businesses, unlike government, must adapt to meet the public’s demands for their product or suffer the immediate consequence. Government, on the other hand, can alter the public demand by changing the incentives.
The recent housing boom and bust was created by government incentives in two forms: 1) subsidies that were intended to get banks to lend to buyers who couldn’t normally qualify through the use of government insured loans and, 2) artificially low interest rates by the Federal Reserve which drove housing prices through the roof. Congress lowered the standard for securing the debt for both lenders and borrowers and helped to create, in direct collusion with Wall Street, ways of minimizing the risk for global investors. The result was immediate; creating over-inflated home values, massive debt accumulation by businesses and individuals alike, and something close to a global economic collapse. All subsidized by the good intentions of the Federal Government. Without those same incentives, banks would simply do what they've always done, lend to those who can meet the necessary credit requirements. The government skewed market demand by giving incentives to lend to unqualified applicants, and everyone else, including Wall Street, simply followed the money trail.
Why do government subsidies tend to have a negative long-term effect? Ninety percent of businesses fail within the first two years. Starting any business is risky and costly, which is why smart businessmen won’t invest without making sure that the economic climate is favorable for investment. Ask the average person, "Would they take a job if they weren't guaranteed to be paid for their work"? For most people the question seems ridiculous, but, that’s exactly what investors do every day. They invest their hard-earned money in exchange for nothing more than the “possibility” of turning a profit, the greater the potential payoff, the greater the incentive they have to invest. Create an environment where the rules of the game are constantly changing, or the payoff is low, and investors will stop investing. That’s exactly what has happened over the last four years. The result being that job creation has been stifled and unemployment has soared.
What does this have to do with subsidies? Going back to Jessie Jackson’s model of government-subsidized computers for the poor, we can begin to see how incentives alter behavior. The average cost of a computer in 1999 was $1,300.00, too expensive for most low income families. So, the government says to computer manufacturers, “We’ll pay you $1,100.00 for your product, and we’ll subsidize your manufacturing costs, making computers cheaper to produce, while still guaranteeing you a profit.” This seems like a win-win for both the public and the businesses. The computer companies have lowered their prices, poor folks get computers and everyone else gets a bargain. The subsidy has changed the incentives completely, and this is where the problem begins.
Why take risks, when you can have guarantees? That means that companies stop taking risks and innovation is placed on the back burner. It also means less competition. Why? Because the amount of subsidies that can be provided is limited by the government’s ability to tax its citizens, which is its primary source of income. The result is that new technology is put on hold and more powerful computers that are more efficient are shelved because the financial incentives have changed the industry from risk to guarantee. "A bird in the hand is worth two in the bush" becomes the norm. All of this has the effect of stifling innovation, keeping prices artificially high, even though there’s an initial drop in cost. The effect is a static market with little growth and fewer new jobs. What seems beneficial, or a win-win, is really the end of prosperity. One need only look at what happened in the computer market to understand why this is true. It may seem counterintuitive, but only because we aren't looking beyond the moment, or the bird in the hand. That kind of limited vision is lethal to human productivity.
Today, we have portable computers that are ten, twenty and thirty times as fast and powerful, with a range of tools that make the computers of 1999 seem like obsolete toys, which they are. We can likewise buy them for about one third of the cost of those being produced more than a decade ago—and that’s without adjusting for inflation. The market, which is made up of risk-taking investors, made this possible, not the government—it’s Bell Telephone all over again. We could go on to automobile production, gas prices, welfare, television, taxi companies, food, even cigarette manufacturers and find exactly the same phenomenon.
All living things act on incentives. Birds instinctively fly south for the winter; they can, however, be coaxed by incentives into acting against their natural instincts when being fed by well-intended people, with a result that generally ends badly for the animal. Feed an alligator and he will begin to associate people with food—and you don’t want an alligator to see you, your child, or pet, and think of food. These basic principles undergird all of nature, including the way in which animals and people organize socially and behave economically.
That is why Obamacare won’t do what its creators say it will do. It will only increase the Federal Government’s size and power, which, in turn, will require more taxes—and it will cause healthcare to become more expensive. In the end, it will fail for the same reason socialist ideas always fail, because they are a fundamental misreading of human nature. The Twentieth Century stands as a testament to the failure of this kind of thinking, which includes two global wars and the two most pernicious political systems ever created, communism and fascism, both of which were government centered and socialist, not capitalist.
If history teaches us anything, it’s that those who remain ignorant of history are doomed to repeat it. But in the case of many progressives, it reflects a willingness to reinterpret reality to coincide with their deep-rooted need to be needed—meaning government as the “Great Enabler” where feelings trump facts and good intentions are all that matter. Whether their actions turn out to be good or not, is beside the point.
Mark Magula
All living things act on incentives. Birds instinctively fly south for the winter; they can, however, be coaxed by incentives into acting against their natural instincts when being fed by well-intended people, with a result that generally ends badly for the animal. Feed an alligator and he will begin to associate people with food—and you don’t want an alligator to see you, your child, or pet, and think of food. These basic principles undergird all of nature, including the way in which animals and people organize socially and behave economically.
That is why Obamacare won’t do what its creators say it will do. It will only increase the Federal Government’s size and power, which, in turn, will require more taxes—and it will cause healthcare to become more expensive. In the end, it will fail for the same reason socialist ideas always fail, because they are a fundamental misreading of human nature. The Twentieth Century stands as a testament to the failure of this kind of thinking, which includes two global wars and the two most pernicious political systems ever created, communism and fascism, both of which were government centered and socialist, not capitalist.
If history teaches us anything, it’s that those who remain ignorant of history are doomed to repeat it. But in the case of many progressives, it reflects a willingness to reinterpret reality to coincide with their deep-rooted need to be needed—meaning government as the “Great Enabler” where feelings trump facts and good intentions are all that matter. Whether their actions turn out to be good or not, is beside the point.
Mark Magula
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