Lazie Fare (If I have Errored it is because its <>)

Yesterday I was walking to a subway station in Boston and a guy with pamphlets caught my eye. Two things were about to conspire against the poor fellow: I am on vacation and have nothing but Time and I relish a good public policy debate. Needless to say I spent the next hour and a half discussing with this individual from the LaRouche Youth Movement the finer points of financial policy.

For his credit I agreed with him on two important points. The first is that we are headed for an economic disaster. Most figures I have seen suggest that in the next two years 7 million people will lose their homes. Millions more will find themselves unable to purchase a new one due to drastically more stringent mortgage qualifications. Millions more will find their retirement fund (their home) devalued. The repercussions of this are pretty much unknown at this point. His second point was that we need to start investing in alternative sources of energy and public transportation. Again, I am a hippie, of course I agree with him.

Where we differed is that the LaRouche group believes that we need to start a new New Deal where the government takes out Trillions of dollars in debt in order to fund a wide array of public service works such as building nuclear reactors, high speed rail, and even a tunnel under the Bering Straight to connect the East and West by rail.

Over the years my stance on how the government should handle ANYTHING financial is to just let it be. My main point is that an economy is a fantastically complex thing and we must resist the urge to believe we can control it. We should take the Law of Unintended Consequences to heart.

I think it is a general tendency to believe that the scrap of paper that is in your wallet actually has worth. Money is and will always remain at its best a passive and universal indicator of value. When this is true money serves to improve the efficiency of an economy by allowing goods and services to be "won" by the person who truly values them the most. Any attempt to manipulate this system will lead to a warping of the value of money and a hindrance in its ability to perform
as a passive and universal indicator of value.

I can say this without qualification because it is true. There are many cases where we manipulate markets by adjusting prices and almost universally they lead to problems. A few text book examples follow.
  • Price ceilings - A good example are price limits on housing in large cities. This results in a shortage of housing in general because it reduces the incentive to build new housing. High Demand, Low Supply.
  • Price Floors - Minimum Wage (yes I know, this is controversial) we set the minimum that a person can get paid which invariably leads to less people being employed. More people are willing to work, but fewer people are willing to pay for said work. High Supply, Low Demand
  • Printing Money - Many governments have tried to do this in order to boost apparent wealth. Unfortunately more money does not equal more grain and invariably prices rise so that the same proportion of money buys the same amount of bread.
Some more subtle examples are what is going on right now. Had not the fed lowered interest rates down to 1% it is unlikely we would be in the crises we are today. Oh, they had a reason. The worry was that deflation would occur which they hoped to counteract by making borrowing easier (collecting interest on money is one way to increase the supply of money. A low interest rate means more people are able to borrow money and as a result of them paying interest money is created. A high interest rate is used to counter act a high inflation rate for the opposite reason. People are unable to borrow money so nobody is around to pay interest. ). A side effect of this tactic is that it made it way to easy for people to borrow money to buy houses and indeed, many people who normally wouldn't be able to purchase houses have.

In our efforts to help a certain segment of the market we invariably cause unintentional harms to other segments. Which can be alright except for the fact that almost invariably the balance is negative and not zero. We do more harm then good.

So what should we do? The government should get the hell out of the market. I know there are exceptions!! Monopolies, and utilities are rather unique problems that I am sure could be solved by the market but not within an acceptable amount of time. Yes, it might take 40 years or maybe longer but I have a feeling Standard Oil and Bell Telephone Company would have eventually broken up. But that is literally two or more generations of people. And utilities pose an interesting problem as who wants two or three power lines running to their house. This might change in the future though as we declining fossil fuels push us away from the centralized utility approach but that is off topic :-)

Remove subsidies, artificial prices, convoluted tax laws, central bank lending, and I will say it again, let taxes be! What does that leave for our government? This gets a little more philosophical as it depends on what you think the point of a government is. I personally believe that the government is there as a sort of insurance policy to protect us and cushion us from the unpredictability of life. You loose your job because someone in another country is able to produce your produce cheaper then your government will help provide training and support while you look for a new one. A country attacks us and our government defends us. That sort of thing.

Minimum wage is still up in the air for me. In a way it is government sanctioned welfare since we all pay the price (in that sense is it any different from taxes?) and yet on the other maybe it is better to tax and supplement income and provide a measure of flexibility in the labor market.

How does this apply the LaRouche? His suggestion sounds future oriented and good to the people but I don't believe that the government is necessarily the best at making the decisions. I do believe that we will have to build the things that he is suggesting but let the market decide when and where is the best place to do so. Additionally, the government taking out 6 trillion dollars in loans is going to have an effect on the economy regardless. All in all not a very well thought out plan full of memes meant to tug at emotions like FDR's new deal, clean energy, and economic crisis.

So in the end I wasn't able to convey my ideas very well and neither was he. But I hope he has spent some time trying to add some cohesiveness.

The real question in my mind now is to ask if such a policy change is even possible in the US and if so how would you go about doing it?