THE ECONOMY'S TRUE CONDITION
Massive federal spending and Federal Reserve manipulation of the money supply have created a false sense of economic stability in an economy that continues to labor under an enormous tax and regulatory burden that severely impedes the ability of small and medium size businesses (the engines of employment and innovation) to sustain and enhance economic growth.
A true indicator of the dire state of the American economy is the workforce participation rate. As of August 2014, 38.2% of Americans 16 or older who are not in the military and are not institutionalized were not in the work force. That figure is staggering. In other words, 92,270,000 Americans who could be working are not. Many of those are on federal assistance. The current work force participation rate is the lowest it has been since 1978, a year reflective of Jimmy Carter’s wretched economic legacy.
It is no coincidence that the figure of those who are receiving some form of federal assistance is roughly equal to the percentage of those not in the workforce. The overlap is substantial. It is a sober reality of the current regime that those who are still working must support through taxation a roughly equal number of folks who are not. That condition cannot continue indefinitely. The nation can either maintain its tax and regulatory policies, in which case the figure of those who have dropped out of the work force will continue to rise (resulting in a predictable collapse of the economy and the government), or the nation can dramatically pare back taxes and regulation, in which case economic growth will return and those now out of the work force will become employed in ever greater numbers.
A dynamic condition is created when such a large number of people have exited the work force. As taxation and regulation continue to grow and force industry (particularly small and mid-sized firms) to delay expansion, sacrifice research and development, and avoid new hires or fire employees, the move to the welfare rolls continues and, as it does, federal entitlement spending keeps growing, expanding the national debt and placing ever more pressure on the productive elements of society to bear the brunt of the increased costs along with the added layers of taxation and regulation. That leads to a death spiral for the economy. At first the private sector falters under the weight of the burden and then it progressively collapses. As it does, less and less revenue enters tax coffers. As revenues dry up in government, debtsskyrocket, and those offering social services via government contracts find it harder and harder to exist without substantial increases in federal outlays. As government spends ever more in a losing effort to maintain a penchant for unlimited government growth, as fewer and fewer are willing to contract with government to provide social services because the ever rising demand from more and more on the dole cannot be accompanied by federal payments to providers equal to the effort they must make,the overall economy quakes, inflation beckons and, sooner or later, fed tight money policies lose their ability to block inflation and control private spending (for, to do so, so severely limits credit as to exacerbate substantially the lethal burden on small and mid-sized firms most in need of credit).
This historic death spiral for an over taxed and over regulated economy can be reversed before a collapse but it requires courageous leadership. At root, it requires an appreciation for Adam Smith’s moral and economic philosophy. “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner,” wrote Smith, “but from their regard to their own interest.”
In short, economic welfare cannot be achieved through planned economies, whether under the mercantilist system that Adam Smith rejected in the 18th century or under the morass of regulations that erect politically preferred prior restraints under the administrative state of the 21st century. Smith’s “invisible hand” of the market offers the only solution that respects individual liberty and freedom of choice, recognizing that one’s pursuit of self interest in the market leads inevitably to the satisfaction of others’ needs and wants, enabling the economy overall to rise.
President Obama’s planned economy has eroded what is left to America’s foundation for economic growth. Obama’s crony capitalism has been a complete failure. Hundreds of billions of dollars are being poured into politically preferred segments of the economy while the most productive private companies bear the brunt of the burden. Indeed, so disrespectful is the current regime of free enterprise, that those responsible for increasing employment and fostering innovation are often the very targets of regulatory assault and aggressive tax enforcement. Crony capitalism, which is really just another form of national socialism, ultimately fails because it is based on a misunderstanding of the verities first appreciated well by Adam Smith—that no one can predict with certainty the wants and needs of people, which vary moment by moment, day by day.
Among hundreds of start-ups only one or two will hit upon an innovation that so captivates the public as to inspire them to make a purchase, but when the freedom to innovate is protected from government regulation and taxation, those start-ups that do meet demand can survive and create opportunities for employment, for expansion of the economic pie, and for raising the standard of living.
Either those elected to public office will lead us back to a free market and save the United States from the incredibly onerous course of the modern administrative state, or they will continue to buttress that state with excessive taxation, regulation, and government spending; if the latter, then sooner or later the electorate will become disenchanted and, thereafter, angry; they will replace the incumbents with market adherents or force those in office to bring down the tax and regulatory state and lead us back to a free market. Like nature, free markets inevitably win out because they mirror human nature; they are the reflection of individual liberty. People forever yearn to be free and that freedom is only possible if both political and economic freedom is secured, until it is agitation will push in the direction of freedom’s return. Sooner or later, the lie of the federal bribe (the false promise of entitlement without cost) becomes appreciated by everyone.
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