AUSTRIAN ECONOMICS ADDICT

Cover of Truth or Consequences

INTERVENTION PRODUCES CONSEQUENCES

When central planners intervene in the economy, they either think their interventions, A) will help, B) know they won’t help but want to look like they’re “doing something”, or C) know what the result of the interventions actually will be and lie about these results to the public. This means they are either, A)  ignorant, B) politically self-interested, C) evil, or D) all of above. Here are some recent examples of intervention that have or will lead to consequences that are either known or unknown by the implementors of these plans. You decide if they are born out of ignorance, political self-interest, or evil. The central planning devil or angel should not be judged by their intentions, they should be judged by the consequences of their actions. The difficulty comes in sifting through all the propaganda, or spin, as they like to call it, and find the actual results of their actions. Understanding economic principles helps pull out the nugget of truth.

PRICES TRANSMIT KNOWLEDGE

Wal-Mart Says It Won’t Build 3 DC Stores After Council Passes Living Wage Bill, at myfox.com. The D.C. council passed a law, raising the minimum wage to $12.50 an hour, for big box retailers. This is an attack on Wal-Mart, a company that supplies goods to consumers at a low price. For some reason people have been propagandized into hating Wal-Mart for doing exactly what an unhampered market is supposed to do, which is to supply the goods consumer values most, at the lowest possible price. For some reason busybodies want to butt into Wal-Marts business because they think the workers at Wal-Mart aren’t getting paid enough, even though these workers agreed to work for the wage being paid. I’m continually amazed at how self anointed do-gooders feel a need to interfere into the affairs of others, having never been invited to do so. Here is a quote from Councilman Tommy Wells “I, like many, believe that Wal-Mart in particular is not the best citizen nationally or internationally“. In spite of Mr. Wells feelings about Wal-Mart, he voted against the bill saying, “I view this as a job killer. We are not rural America. We need our minimum-wage jobs, our low-wage jobs.” Give credit to Mr. Wells, he allowed logic to trump feelings, which usually never happens in the political arena. He understands jobs will be lost if wages are set above the price the market will bear. This loss includes stores that will not be built.  Are the consequences of the minimum wage law intended or unintended? Are the politicians A) ignorant, B) self-interested, C) evil, or D) all of the above?

COUNTERFEIT MONEY IN SEARCH OF TROUBLE

Fed’s Plosser Admits Fed Was Responsible For Last Housing Bubble, Doesn’t Want To Create Another, at zerohedge.com. President of the Federal Reserve Bank of Philadelphia, Charles Plosser said, “….we should end QE by the end of the year………..we don’t want to create another housing boom.” This statement tells us that, in this case, at least one of the Federal Reserve presidents knows that a housing boom can be created by artificially lowering interest rates, along with expanding banks loanable reserves through the process of the Fed electronically printing counterfeit money and using it to purchase treasury bills and mortgage-backed securities from banks. The banks get counterfeit money, and the Fed gets to hold these debt instruments on their balance sheets. The artificially created inflationary housing boom leads to an unavoidable deflationary housing bust. This deflationary bust has to happen in order to bring supply and demand back into balance, and also to liquidate all nonproductive activity. This is what was happening in the 2008 collapse, but the Fed injected more money into the economy in an attempt to prevent the cleansing liquidation. This cure for the inflationary boom was stopped before it had completed its work. It will have to be allowed to finish its work at some time in the future. The result of the Feds actions is a transfer of wealth from home owners, who are paying on underwater mortgages, to the too big to fail banks, who received the counterfeit money first.  Are the consequences of the Feds policies intended or unintended? Are the Fed policy makers A) ignorant, B) self-interested, C) evil, or D) all of the above?

USING FOOD AS FUEL IS NOT A GOOD IDEA

It’s Time For America To Lead On Ethanol Mandates And Global Food Supply, at smartfuelfuture.org. The increased amount of corn Ethanol in a gallon of gasoline that is mandated by the EPA is having the unintended ,or intended, consequence increased food prices. Because corn is demanded for ever-increasing ethanol mandates, and also for food, supply isn’t keeping up with demand. Less productive land is being used to supply this increasing demand for corn, which means more fertilizer, seed, fuel, labor, capital, etc is used to produce a bushel of corn compared to what is used to produce a bushel of corn on prime land. The cost of producing corn on submarginal land is higher, and if that cost can’t be passed on to the consumer, people will have to consume less food, because the only way the EPA mandated demand for corn can be decreased, is if we use less gas. The EPA and the politicians are constantly pressured by the environmentalists to get rid of carbon based fuels. The cost of producing a gallon of ethanol is greater than the cost of producing a gallon of gasoline. Your MPG decreases as a higher percentage of ethanol is mandated, because one molecule of ethanol doesn’t produce as much energy as one molecule of gasoline. Less productive energy at a higher price, is replacing more productive energy at a lower price. The result is a lower standard of living for society as a whole. Are the consequences of EPA policies, politicians policies, and the environmentalists vision, intended or unintended? Are they A) ignorant, B) self-interested, C) evil, or D) all of the above?

CONCLUSION

We can add health care and other interventions to this list but I think you get the point. Government intervention creates incentives and constraints that individuals take into account before they make decisions. These individual decisions produce consequences that were either intended or unintended by the planners. The consequences are what matter in judging the planners policies, not their good intentions, because we all know what road is paved with good intentions.

RELATED ARTICLE – Politician’s Affordable Ideas, Must Obey Economic Forces, at austrianaddict.com

RELATED ARTICLE – Mimimum Wage Laws Create Unemployment at austrianaddict.com

RELATED ARTICLE – Unelected EPA Driving Up The Cost Of Food And Energy at austrianaddict.com

This entry was posted on September 16, 2013 at 12:05 am and is filed under Econ. 201, Government and Politics. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Boom and Bust Cycle, Charles Plosser, Ethanol, Fed Policies, Intended Consequences, Minimum wage, Minimum Wage Laws, Supply and demand, Unintended Consequences, Wal-Mart