AUSTRIAN ECONOMICS ADDICT

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AFFORDABLE ENERGY?

Market forces are more powerful than the hoped for results of central planners. The most recent example of this is the boom in oil and natural gas production, created by hydraulic fracturing [ fracking],which is taking place on private land in spite of Government policies. Our politicians shut down some Government lands to oil exploration, and made the process of getting permits for exploration on remaining lands more time-consuming [costlier]. They used their power, and our tax dollars, to promote and invest in, “green energy”. Green energy was going to create new jobs and lead our economy into the future; do you remember Van Jones the Green Jobs Tzar. As always, the plans by our best and brightest politicians, must be obedient to economic forces. Green energy has, and is, going bankrupt, in spite of being propped up by Government incentives  and our tax dollars. They tried to make carbon based fuels more expensive through regulation, and green energy more affordable through tax payer subsidies; and even with all this Government help, the economic reality that green energy produces less energy at a higher cost, and carbon based fuel produces more energy at a lower cost, can’t be overcome.

This article titled, “Fracking Revolutionized American Energy As Green Energy Failed“, by Conn Carroll at washingtonexaminer.com, shows how the President went all in on green energy, at tax payers expense. We are witnessing what Robert Bradley Jr., at masterresource.org, has stated so well, “When Government tries to pick winners and losers, it typically picks losers. Why? Because in a free market consumers pick winners to leave the losers for Government

AFFORDABLE HOUSING?

Lets look at the results of some other good ideas by Government. Starting in the thirties, during the Roosevelt administration, Government has tried to “encourage” home ownership, mainly through tax policy and subsidies. Things started to ramp up when The Community Reinvestment Act was passed in 1977; it’s purpose was to “encourage” banks to make home loans to low-income borrowers. Then the Clinton administration made “affordable housing” a goal and started to mandate that banks lower borrowing standards, eventually applying it to all income levels. The creation of these high risk loans [sub prime] by lowering the standards; the artificial lowering of interest rates by the Fed to make these loans more “affordable”; the Fed printing counterfeit money to provide the funding for these high risk loans; and the fact that Fannie Mae and Freddie Mac would purchase this bad paper: all worked together to create the artificial housing boom, and eventual bust. The idea of affordable housing was forced to obey the first rule of economics which is scarcity, and also the law that you must first produce before you can consume. Under normal market conditions; scarce resources, labor, land, and capital would not have been misdirected into the housing industry, they would have been allocated to their most productive uses.

AFFORDABLE COLLEGE?

Politicians have stated they want to make college affordable for all students. They have taken over the college loan market, and made it easy for students to get loans. Many of them can’t afford to pay back these loans, even if they graduate. Many drop out after one or two years and have nothing to show for it except the debt they incurred. A recent post titled, “Young People Get Hooked Into Huge Debt, When They Take The Student Loan Bait”, explains this in more detail. The same economic principle that was in play in the housing bubble is in play for the college bubble. Scarce resources, including students, are being misdirected into areas that are not productive. Many students come out of college and can’t find work that pays enough to pay back their student loan debt. College is supposed to be the student’s investment in his future production. When the future production doesn’t cover the cost of the initial investment, it is malinvestment, and must be liquidated. Unfortunately under present rules you are stuck paying the debt, just like the home owner who is paying on his underwater mortgage. The students and tax payers lose, and the colleges win because they get their money upfront, thanks to our all-knowing and all caring Government. At some point students won’t go to college in as large a number, because they won’t see any economic benefit in going, and it will result in Colleges losing revenue.

AFFORDABLE HEALTH CARE?

As the Affordable Care Act is starting to get implemented, we are already seeing health insurance premiums rise, doctor’s not accepting Medicare and Medicaid patients, doctors retiring, and taxes related to health care going up. During the health care debate, many people were duped into thinking that health care was a right. Unfortunately health care is a good or service provided in the market, and  it must obey economic laws. Just because healthcare was redefine as a right doesn’t mean it can be magically provided. Individuals must first produce healthcare goods and services before they can be consumed. In a free market, where there are always options, Government can’t force people to keep producing a good of service, if it can’t be sold at a price that covers the costs of its production. The Affordable Care Act creates incentives that increase the demand for health care on the one hand, and constrain the supply of health care on the other. Under normal market conditions supply and demand are constantly correcting as they move toward a state of equilibrium [balance]. Equilibrium can’t be reached as a fixed point, because everything constantly changes as time passes. Equilibrium is always barely out of reach, like the horizon receding before us as we move toward it. As supply and demand constantly correct, it creates the new equilibrium horizon, that it then moves toward. Supply and demand are always trying to balance, and Government intervention, under the health care bill, is pushing supply and demand in opposite directions [away form a state of equilibrium]. But Government doesn’t have enough power to keep supply and demand from trying to balance. Economic forces can’t be changed to fit the Government’s Alice and Wonderland reality.  Read this related article, “The Economics of Health Care vs. The Right to Health Care.

CONCLUSION.

Ludwig von Mises said, “Economic history is a long record of Government policies that failed because they were designed with a bold disregard for the laws of economics.” We have witnessed this recently with the housing boom and bust; we are seeing it play out in real-time with green energy and college debt; and we will see it happen with affordable health care. In a world of scarcity economic forces can’t be avoided or wished away by political rhetoric, they will be obeyed.

Related article, A Look Over The Horizon At What Lies Ahead If We Continue Down The Central Planning Road, at austrianaddict.com

Related article, We can’t Recreate The Garden Of Eden, at austrianaddict.com

This entry was posted on April 22, 2013 at 1:23 am and is filed under Econ. 101, Government and Politics. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Affordable College, Affordable Energy, Affordable Health Care, Affordable housing, Community Reinvestment Act, Economic Forces, Green Energy Fails, Housing Bubble, Student Loan Debt, Van Jones