The folly and immorality of the “stimulus” plan passed today can be attacked on many fronts. For one thing there’s the awe-inspiring irony of a Democrat-dominated Congress and a Democrat president taking nearly a trillion dollars from the hardworking middle class people of this country and giving it to corporations and businesses—and precisely as a result of the apparent improprieties in which those same businesses were engaged! Honest liberals who resent corporate welfare must really have a headache at this point.
And of course there is the bewildering cost of the whole thing. As some bloggers have pointed out, the estimated cost of these bailouts is more than the cost of the Marshall Plan, the trip to the moon, the Louisiana Purchase, the S&L Crisis, the Korean, Vietnam, and Iraq Wars, the New Deal, and the cost of NASA, combined.
What is this money going for? Well, Fox News reports that at the President’s behest, Citibank decided to cancel plans for a corporate jet that would have cost $50 million. Why? If the idea of “stimulus” is to inject (or rather, relocate) dollars into the economy so that people will buy things, thereby “stimulating” the economy, isn’t the purchase of a $50 million jet a good thing? Wouldn’t it create jobs? (Or would it create only jobs for white people, against Robert Reich’s wishes?) As Don Boudreaux rightly notes, according to the “theory” of this plan, it doesn’t really matter what the government spends the money on, so long as it spends.
But of course, the amount of money isn’t really the issue. The issue is, control over the decisions of where that money goes. There are only two ways to decide what to do with resources in an economy: the Economic Way, and the Political Way.
In the Economic Way, consumers and producers decide through mutual bargaining and agreement, where resources are devoted. Consumers demand new cars, and producers respond by investing money and time into producing new cars to meet that demand. The motivating principle here is what the consumer wants.
In the Political Way, by contrast, those decisions are made based on what political leaders think are the highest priorities. And those decisions are not necessarily correlated to what consumers actually want. If consumers want new cars, but the political leaders want that money spent on airplanes instead (or monuments to themselves, or wars in foreign lands, or whatever) then those resources go to what the politicians want, not what consumers want.
In the Political Way, decision-making authority gets transferred away from you, and goes to government officials instead. Those officials are, in theory, and sometimes, responsible to you—at elections every four years or six years or whathaveyou—but only distantly, and only in combination with many other votes. In the Economic Way, you can choose: if you don’t like one restaurant, you can go to another; you can even destroy places you don’t like by withholding your custom, or even starting your own business to compete with a dissatisfactory company. These options are not open to you in the Political Way. There, all decisions about how to use resources are made on the basis of politics: on the basis of what group lobbies the hardest, what group has the best-sounding slogans, or “knows someone,” or makes campaign contributions, or looks best on television….
Is it the case that political leaders never make wise choices about how to use resources. Well, it depends on what we mean about “wise” use of resources? The only meaning that that term can really have is: the use of resources in ways that benefit the consumers—that benefit the people who have real needs and wants and hopes and dreams. To say that political leaders made wise choices about the use of resources independently of what the people of that country really wanted, is senseless. That’s the sort of thinking that dictators have, when they say, Sure, people were starving, but look at the beautiful palace I built; look at the great city I constructed. The problem is, actual people didn’t want that palace or city. So can that investment decision possibly be called “wise”? The only time a political decision about the use of resources is “wise” is when it coincides with what the people themselves actually wanted.*
Political decisions about how money should be spent or invested necessarily divert resources away from what consumers—that is, you and me, the people of the real world—want. It is virtually never efficient, because it is not responsive to actual needs. Actual needs are inherently individual; they cannot be aggregated.** That’s why government programs are virtually always half-assed, slipshod, poorly operated, slow to respond to consumer needs. Consumers have no direct say in their operation, no way to retaliate for poor performance—so why should bureaucracies care what consumers want?
What’s more, when we say that an investment “ought” to be made, what does that term mean? It means that it’s a wise thing to do. But why? Because it makes what a particular consumer considers a worthwhile return on his or her investment. Only he or she can know that. The wisdom of an economic decision can only be judged in terms of actual economic actors who face real tradeoffs—not in terms of disembodied abstractions about “the economy as a whole” or “getting America back to work.” The wisdom of an investment decision is inherently personal. Is it wise for me to invest $100 in a new pair of basketball shoes? No—because I don’t play basketball. There is no standard by which such an investment is “wise” for me. It is literally senseless to say that I “ought” to invest in such a thing, given my assets and liabilities. But investing $100 in a new law book would be a wise investment for me, because I’m a lawyer. Yet that choice would be unwise for a basketball player who needs new shoes. There is no such thing as a wise investment decision except for what that particular investor wants to see done with his or her money for his or her own purposes.
So the problem with the trillion-dollar “stimulus” plan is not the amount; it’s the fact that where that money is going is not determined by reference to what consumers actually want their money to go to. It’s determined instead by what government officials want that money to go to. And government officials don’t know and cannot possibly know what you actually need or want in your economic life. They are asserting that they know better than you do how your money ought to be invested. But there is no such thing as how money “ought” to be spent except for what you actually want, given the tradeoffs you face.
When a Congressman or the President says that it’s wise to “invest” taxpayer money in some project or other, he is making the case in terms of the Political Way: he thinks that he ought to put your money into this project. But such a claim is logically meaningless—because there is no such thing as an “ought” in investments except in terms of the Economic Way: in terms of what the consumer wants and is willing to pay for. Allowing the government to choose what to do with this money means making decisions about the future not on the basis of what real people need or want, but on the basis of political influence and the pathetic dreams of glory harbored by lifetime politicians.
*-I’m laying aside here collective-action problems, and specifically the problem of free-riding. Nobody, so far as I know, is claiming that the “stimulus” is required because these wise investments failed to be made due to collective action problems.
**-While we’re at it, this is another thing that bugs the hell out of me about Keynesianism. “Aggregate demand” is a senseless term, a “retrograde step which conceals real relationships and real causation and leads him to erect an elaborate structure of fictitious relationships and fictitious causation.” Henry Hazlitt, The Failure of The New Economics 28 (1977).
Update: I've altered this post to eliminate a few typos and grammar errors.
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