Bailouts Destroy Prudence

So you notice that your income has shrunk, you may even have lost your job. So you decide to trade in your gas guzzler for a small vehicle and even reduce your monthly car payments, if you have such. And in other realms of your life, too, you may be making adjustments to cope with the general economic downturn. You cook at home instead of eating at your favorite restaurant; you do not purchase that pair of shoes you would have otherwise, etc., etc.


by Tibor R. Machan

So you notice that your income has shrunk, you may even have lost your job. So you decide to trade in your gas guzzler for a small vehicle and even reduce your monthly car payments, if you have such. And in other realms of your life, too, you may be making adjustments to cope with the general economic downturn. You cook at home instead of eating at your favorite restaurant; you do not purchase that pair of shoes you would have otherwise, etc., etc.

In short, you are acting prudently, tightening your belt, as the saying goes, in the face of the widespread economic contraction. Never even mind why the contraction occurred – some of it could actually have come around simply from people changing their preferences and behavior. (Instead, of course, it happened because the government has been abandoning its proper role as the protector of our rights and like a rogue referee, has been inserting itself into the game for decades on end!)

But now that the results of such bad government have hit so many of us, you are taking steps to deal with them. Ah, but no such luck. Instead of making it possible for you to deal with your reduced resources, instead of letting you make the budgetary adjustments you can make within the context of your own life circumstances, the politicians are insisting that if you refuse to spend the big bucks on those Detroit gas guzzlers, for example, they will tax you and hand over what they have extorted from you to the car makers, never mind your prudent choices. In time the savings you thought you could garner from your good sense and discipline will have to be shelled out in extra taxes so as to bail out those who aren’t getting your business any more.

Instead of insisting that those who make the big cars and whatever else that’s no longer in demand in the market place make their own adjustments, tighten their own belts, etc., the politicians insist that they continue to be paid as if nothing had happened, no one changed his or her purchasing behavior, as if the economy continued to be in fine shape.

This is just one of thousands of results of the mixed economy, the welfare state, in which your individuality is abolished and you are treated as a member of some ant colony or bee hive. You will be conscripted to be part of it all, never mind how sensibly you may figure out to deal with the fiasco. No, you will not be allowed to use your good sense, virtue, and occasional luck to address the economic mess the politicians, bureaucrats and their rent-seeking clients produced. These folks were the ones who prevented the realisation of the free market and instead created a top-down, planned or managed arena of wealth redistribution.

In such a situation it is impossible to identify the good versus bad players because the government lumps us all into the public for which it presumes to make decisions. Individuals are seen as simple cells in this public body, with governments and their cheerleaders in the academy and think tanks as the head of the body.

All of this is not something that no one could foretell. Among those who warned about where the planning done in a welfare state can take a society was F. A. Hayek, whose The Road to Serfdom, published back in 1944, pretty much foresaw it all. Members of the Austrian economic school, led by Hayek’s own teacher Ludwig von Mises, kept issuing warnings in all their books and articles but, alas, they were ignored by the all mighty politicians and bureaucrats. (Von Mises’ book, Socialism, published in the early 1920s and translated into English in 1936, showed, among other things, that central planning just cannot produce a productive economy.)

But socialist and near-socialist dreamers kept pressing their wish upon politicians that a top-down system of economic organisation be attempted, in one or another form, and in America this came out to be a mixed economy, one with capitalist as well as socialist elements. Such an economy can muddle along for a while but, in time, it simply cannot do what it is expected to, namely, produce wealth and forcibly distribute it so everyone will be equally well off. So if you are appalled that your efforts at economic prudence get you nowhere very fast, the culprit is our blessed mixed economy, the welfare state.

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Tibor R. Machan is a philosopher, a Hoover Institution research fellow, and a professor at the Argyros School of Business and Economics at Chapman University, USA. 

This article appeared in The News on November 14, 2008.

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