Among the most popular questions that the mainstream press asks Democratic and Republican presidential candidates every election cycle is, “What are you going to do restore growth to the economy?” Each time, the candidates dutifully respond with some sort of nonsensical tripe, such as “I’m going to restore growth to America by bringing jobs to people,” which always seems to satisfies the press.
It’s not going to happen. There isn’t going to be any major economic “growth” for the foreseeable future. That’s because the conditions for major increases in the standard of living in the near term are nonexistent.
There are two major conditions for a major overall rise in people’s standard of living, neither of which is present in the United States: increases in capital and free trade.
When companies are more productive, they stand to receive more income from sales of their goods and services. A farm that produces 10,000 bushels of wheat is going to receive more income than a farm that produces 1,000 bushels of wheat.
By the same token, the farm that is producing 10,000 bushels obviously has more money to pay workers than the farm that produces only 1,000 bushels of wheat. It stands to reason then that workers have an interest in seeing that their company produces more. They also have an interest in seeing other businesses produce more because that provides employers with more money to bid away workers. It is competition for labor that ensures that workers benefit from increased productivity through higher wage rates.
So, how does a company produce more? Through capital. That is, through better equipment, tools, computers, and the like that make workers more productive. A farm that uses tractors is going to produce more than a farm that uses hoes and rakes.
How does the farmer get the money to buy the tractor? He might save up the money. Or he might go to the bank and borrow the money to buy the tractor.
Where does the bank get the money to lend to the farmer? From people who are saving a portion of their income that they’re receiving at work.
Thus, savings=capital=better tools=higher productivity=higher wage rates=a higher standard of living.
At the same time, an increased supply of goods and services as a result of higher productivity means, generally, lower prices for consumer items, which also betters people’s economic condition in their role as consumers. If a car selling for $20,000 suddenly sells for $15,000, consumers are better off.
So, why aren’t we going to see real economic growth for the foreseeable future? Because people, especially young people, aren’t saving enough money, and that’s because they are unable to save any money. Many of them are having a tough time just making ends meet. They consider themselves lucky just to be able to pay their bills. Those in debt are in even worse shape. Many people in their late 20s are still living with their parents owing to financial constraints.
No savings means no capital accumulation, which means no increased productivity, which means no rises in wage rates and increases in the overall standard of living.
Why are people experiencing such enormous financial difficulties? Because of the tremendous amount of money that the federal government is sucking out of people’s pockets to fund its welfare-warfare state. Social Security, Medicare, Medicaid, education grants, farm subsidies, and foreign aid are not cheap. And neither are the bombs, missiles, bullets that are being expended in the Middle East, not to mention the money needed to sustain the vast army of bureaucrats in the welfare-warfare sectors of the federal government.
We’re talking about some $3 trillion dollars that is being sucked out of the private sector to fund the welfare-warfare state. All that money could be going into productive capital. Instead, it is frittered away on welfare and warfare.
And consider the federal government’s debt. It has practically doubled under the Obama administration. That debt load falls on every American. For all practical purposes, it’s like having an enormous addition to one’s credit card bill. The government’s debt is owed to real life people, companies, or foreign governments. They expect to be paid. The people who will be paying them are American taxpayers.
So, no savings and no accumulation of capital, which means no major increases in productivity, which means no major increases in people’s standard of living.
Free trade is another way by which people raise their standard of living. In every trade, both sides benefit because both traders are giving up something they value less and getting something they value more. Suppose John has 10 apples and Jim has 10 oranges. They enter into a trade in which John gives 7 apples to Jim in return for 3 oranges. Have they both benefitted? Absolutely! By choosing to enter into the trade, they both are giving up what they value less and receiving what they value more. They have both improved their economic well-being. Thus, people can raise their standards living through the simple act of trade.
But consider all the economic protectionism — the tariffs, import quotas, and trade restrictions — that the U.S. government imposes on people in foreign countries. Consider all the sanctions, embargoes, and other punitive measures that are imposed on foreigners. All of those measures are also controls and restrictions on the economic liberty of the American people, damaging their ability to improve their own economic well-being by being free to trade with the people of the world.
What’s the statist answer to this welfare-warfare morass? The statists say: No problem! Just have the Federal Reserve lower interest rates and happy days will be here again. But all that does is distort price signals, which inevitably leads to a new financial bubble of mal-investment and lack of savings. While it appears to bring happy days in the short term, it’s actually a chimera that is exposed before too long, as most recently happened in 2008.
There is only one solution to all this, and it lies not in a president’s bringing growth or jobs to the economy or any other sort of central planning. The solution involves a paradigm shift, one that replaces the welfare-warfare state/managed-economy way of life with a way of life based on free markets, free enterprise, private property, and a limited-government republic.