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Consumer Sovereignty vs. Government Sovereignty


Hope springs eternal, at least for the socialists. Despite the fact that socialism has failed all over the world to raise people’s standard of living, socialists continue to hope that someone will finally prove that socialism will work. The latest hope arises with the U.S. government’s decision to become the majority owner of General Motors, in exchange for the infusion of some $50 billion of taxpayer money into the company.

Let’s examine the moral and economic aspects of what is taking place here.

General Motors was unable to raise needed capital through the sale of stock. That meant that the American people were unwilling to invest their hard-earned savings in the company. People felt that they had other things to do with their money that were more important to them than investing in GM stock.

So, what does the federal government do? It effectively says, “We don’t really care what you want to do with your own money. So, we’re just going to take the $50 billion that GM needs from you through taxation and give it to the company. In return, we — the federal government — will become GM’s principal stockholder.”

Justifying their action, federal officials exclaim, “Look at what our infusion of $50 billion of tax money is accomplishing. We are saving thousands of jobs and making sure that GM vehicles continue to be sold.”

They forget one important thing, however: all the jobs and products that will not come into existence because people in the private sector never got to spend or invest that $50 billion that was taken from them. Rather than buy GM stock, Americans would have spent or invested their money for other products and services. Demand would have rise in those sectors, which would have raised the demand for labor in those sectors. Since Americans have had that $50 billion taken away from them, those products and services and those jobs now don’t come into existence. That’s the unseen consequence of what the socialists have done by taking $50 billion from the American people and giving it to General Motors.

And don’t you just love it when the commentators say that the new owners of GM are “the taxpayers”? Well, I’m a taxpayer. Does this mean that I get to sell my share of the company? Of course not. This is just socialist talk. You hear it all the time in Latin America, where governments nationalize oil companies. To justify their nationalizations, they say that “the people” or “society” or “the taxpayers” now own the nation’s natural resources.

That’s ludicrous. We’re dealing with two separate and distinct entities here — the federal government and the American people. When a company is privately owned, it is owned by those Americans who own stock in the company. When a company is owned by the federal government, the owner is the federal government.

It’s amusing to see federal officials filled with so much optimism. It’s the optimism of the socialist. Never mind that socialism has never succeeded anywhere. Indeed, never mind that it is inherently defective. And never mind that the federal government has made an absolute mess out of everything it has touched — Social Security, the Postal Service, Amtrak, Medicare, Medicaid, immigration, the drug war, Iraq, Afghanistan, the war on terrorism, the mistreatment of detainees, and all the rest.

This time, the statists tell us, it’s going to be different. Now that GM is owned by those selfless federal officials, not those greedy, profit-seeking capitalists, the company will be an enormous success and become the hope and inspiration for socialists everywhere.

In a free market the consumer is sovereign. Through his spending and investing, he decides which businesses are going to remain in business and which are not. If a business fails to satisfy the consumer, that business loses market share and possibly even goes out of business.

Why shouldn’t the consumer be sovereign? Why shouldn’t he decide what to do with his own money? Why should the federal government have the authority to run roughshod over consumers by taking their money from them and giving it to failed enterprises? Doesn’t that make the government, rather than the consumer, sovereign?

Now is not the time for Americans to be embracing socialism. Now is the time for Americans to be leading the world in the restoration of a genuine free-market society to our land.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.