Government Intervention Distort’s Market Signals, Unintended Consequences are the Result.

Unintended Consequences by John Ross, 1996

Unintended Consequences by John Ross, 1996 (Photo credit: Wikipedia)

When Government tries to steer the economy, unintended consequences happen because individuals don’t act the same after Government steering as they did before. The only way central planners have a chance to make their plans work is if people are made to act the way planners want. The only way to make people obey is to have a totalitarian state which can enforce the rules of the central planners. Even though our individual freedoms have been slowly taken away over the last fifty years, enough of a free market remains allowing us to make enough individual decisions, which ultimately thwarts the plans of the planners. Each of us places different values on different things. We weigh our individual value scales against the incentives and constraints which Government policy has created. Because of this diversity of values. Government can’t know what we will do.

Government thinks all we need is to feel better about our economic situations and the economy will magically start to grow. They are trying to spur our Keynesian “animal spirits”. In an article titled “If You Prop up an Artificial Economy Long enough, Does it Become Real“,  Charles Hugh Smith, @ Of Two Minds.com, talks about how the prices of houses have been artificially propped up because Banks won’t foreclose. These houses are kept off the market causing a decreased supply. Depressing the supply of houses keeps housing prices up according to the law of supply and demand. The Keynesian logic of “animal spirits is; if people think they are wealthier because the value of their houses are going up, they will spend more which stimulates the economy.

The same logic is the reason GM’s monthly car sales have been artificially propped up through “channel stuffing”. Read this article, “GM September Sales Miss Channel Stuffing Resumes” at Zero Hedge.com. Channel stuffing is GM stuffing inventory onto dealer’s lots to make GM’s sales look better. A car is counted sold by GM when it is sent to the dealerships not when it is sold to an actual customer. Inventory build up is considered sales. They hope we will think that GM is selling cars which will make us feel better about the economy. Then we will all go out and spend, which will stimulate the economy. Since Government is a partner of GM, and banks are essentially branch offices of the Fed, whom do you think forces, either directly or indirectly, the implementation of these policies.

Will central planners ever admit that they don’t have enough knowledge to pull off their plans? Can’t they learn that stimulating by counterfeiting creates demand, that wouldn’t exist, and production processes, that wouldn’t have existed, in an unhampered market? Do they get the fact that the suppliers of this artificial demand, and the resources used in this process, will be liquidated when the counterfeiting ultimately stops? At what point will they understand that if trillions of dollars haven’t unleashed our “animal spirits” to “stimulate” the economy, how can the mirage that GM is growing, and our home values are going up, possibly spur our animal spirits? They don’t understand we are smarter than our animal spirits. Which means we are not solely driven by them. We won’t eat our seed corn no matter how gluttonous we used to be. If the politicians would roll back regulation, cut Government spending, lower tax rates, and quit counterfeiting money, then go on vacation for a year or two and leave us alone, it would allow us to make decisions according to our individual value scales, and the economy would get “fixed”. When they come back all tanned and refreshed, we will let them take credit for the improvement. We tax payers will gladly pick up the tab for their two-year vacation, it would be the best “investment” of our tax dollars in the history of our country. Just get the  #&//  out of our way. Lead from behind and take credit when you think we’ve arrived on this never-ending journey.

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Explore posts in the same categories: Econ. 201, Government and Politics

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