The ruckus over the so-called economic stimulus package is a sure sign that Washington is not to be trusted. Both sides in the dispute have it wrong on the fundamentals.
Although the economy is improving, Republicans and Democrats feel they must come to the rescue with a stimulus. They’ve been cooking up bailouts for favored industries, including the airlines and agriculture. A long line of other interests has formed looking for protection from bad luck and poor managerial decision-making. Once again the taxpayers get it in the neck. Why they should be forced to subsidize farmers, the tourism industry, and a host of others is something no one has yet been able to explain. Falling demand for one’s products and services is a risk we all have to live with — unless you have friends on Capitol Hill.
The Democrats want to turn the stimulus package into an outright welfare bill: additional unemployment benefits, subsidies for health care, and tax “rebates” for people who don’t pay income taxes. The Republicans prefer accelerating the meager tax-rate cuts passed last year. No serious economist believes any of this will really juice up the economy, especially when it is working itself out of the recession anyway.
Because tax cuts of whatever size are better than handouts of whatever size, the GOP has a stronger position than the Democrats. But both parties are playing a dangerous game. Both accept the premise that the government is steward over the economy and that if it needs stimulating, government is responsible for doing it.
That’s a bad idea, one that will lead to more and more government interference with our freedom and ability to create prosperity. For one thing, the economy is not a machine that requires someone to tend it. It doesn’t literally overheat and cool down. So the more the politicians think in machine metaphors the worse the decisions we can expect from them.
Far from being a machine, the economy consists of people who save, invest, produce, trade, and consume. Left free, they work and cooperate with others to improve their lot in life. Since the future is always undisclosed, they necessarily take risks in hopes of better lives. In a proper and stable legal environment, most people can manage and prosper to varying degrees, depending on their ingenuity, ambition, and energy. Such an environment consists of secure property rights, sound money, the rule of law, and strict limits on government power. Any departure from these conditions impedes people’s ability to create wealth.
The problem is that the politicians constantly harass and plunder productive people. To get reelected government leaders systematically transfer wealth from those who produce it to those who do not. They concoct tax rules that no one can decipher. They pass regulations that upset long-standing plans. All this distorts economic decision-making and retards the creation of wealth. When the government at any time can enact unpredictable measures in the name of guiding the economy, the resulting uncertainty makes us poorer than we’d otherwise be.
The very idea of a stimulus package is bad. It implies that the politicians know what “the economy” needs and can act in time. That is wrong on both counts.
It so happens that taxes should be cut or — even better — repealed. But the Republican plan is too mild and wrongly justified. Taxes should be slashed not because the economy needs stimulating, but rather because the money belongs to those who earn it. The politicians have no right to it, and they won’t use it wisely anyway.
So what should be done? The government should end all transfer programs, whether the recipients are poor, middle class, wealthy, or corporate. Taxes should be cut commensurably; repealing the income tax would be a good start. Property rights should once again be inviolable.
If that were done, investment, production, and trade would soar, and with them our living standards. People of every economic category would benefit. Rich and poor would grow richer.
The economy does not need a steward because the economy is us and we don’t need a steward. We need freedom, and the politicians aren’t likely to understand that.
