EMILE WOOLF – GOING POSTAL [19-11-2018 – EP43]

“DEBUNKING ECONOMIC MYTHOLOGY – PART 6”

“WHAT GOVERNMENT CAN – AND CANNOT – DO”

Whenever confronting a puzzling situation, it’s worth asking how it came about. When doing this I usually find it helpful to write about it and, given my personal orientation, my way through the maze is to focus on economic manifestations, identifying the principles that operate at the simplest level.

Staying with friends in Philadelphia, I noted with a measure of envy that their kitchen is equipped with devices that we don’t have in our kitchen in London. I suppose this is how progress spreads – I too may decide to install a boon that, at the press of a button, yields fresh, perfect-size ice cubes as I am about to pour my 6 o’clock Scotch; and a tap that provides water hot enough to brew tea. Some inventor must have staked a sizeable fortune on assembling the technology needed to achieve what was not previously available, and on bringing it to market at a price attractive to large numbers.

The bottom-line truth is that the fewer the factors of production used in producing goods and services people want, the wealthier the producer will be. This is surely the key to economic success – the greatest cost-effectiveness is achieved by the optimum use of capital: employing labour-saving, space-saving and materials-saving methods.

This is certainly the case at the individual level when we shop for bargains, or seek out the gardener or gutter-mender whose charges are reasonable and is recommended by others whom we trust. We make these judgments because of the simple fact that it’s our money at stake. Here is “economics” in action, according to its original meaning of “ household management” (from the Greek “Oikonomia”).

 

optimizing the use of capital

The same principle applies at the level of society as a whole. The laissez-faire, non-interventionist approach, that optimises the application of capital and other productive factors, is one in which the role of government is proportionate to the fulfilment of its true function as protector of its citizens’ lives, property and civil liberties.

This natural and original constraint on the size of the state is scarcely in evidence anywhere today, but it exists in the mind as a beacon of liberty from which unimagined benefits can flow from even partial fulfilment.

Beware the know-it-all, do-it-all, State

However, if we consider instead what we actually do find wherever we look, we recognise that “statism” – or government for its own sake – is the increasingly prevalent order. In this order of things, objective economic calculation is disregarded as a superfluous interference because government already knows what’s best. Citizens’ own preferences are rarely sounded out when state authorities conduct the planning. Problems associated with unemployment are rare when the planning process itself creates work and jobs can be made to order.

There is nothing better than a real-life example of what happens on the ground when local government supremos assume charge. Somewhere in the bowels of the rubbish removal department of our local Council, it has been decreed that something should be added to the list of things that our blue (recyclable) bins must not contain – a decision never communicated to people who live here.

On our usual collection morning last week, the vehicle operatives simply jumped out and stuck labels on every blue bin in the road without even opening their lids. The labels declare that the refuse has not been collected because it “contains objects that we cannot recycle”. Well, how did they know, since they didn’t look? What I do know is that our blue bin contained only a paper pile of newspaper and magazine freebies and the promotional rubbish about fashion and cruises that fills each day’s postbag.

When my wife phoned the council to complain the idiotic recorded responses took her from pillar to post for 35 minutes before she gave up, not once having spoken to an actual human being.

Piles of unwanted junk

 

Naturally there’s no unemployment when council office buildings are packed with jobsworths paid to spend the day in pointless meetings, filling in meaningless forms or sending out parking fine notices; or when post deliverers shove piles of unwanted junk through every letter-box on their round; or when garbage collectors stick notices on bins rather than empty them. Who would vote to have their resources squandered in this way?

Expand that spectacle from the local level to the national, and the scale of mindlessly futile employment broadens exponentially to take in all the make-work jobs that satisfy no human need. We have surely had our fill of infrastructure projects that, in the private sector, would never have even reached the drawing board.

[And by “private” I refer to privately owned capital – not the hare-brained “public-private” scams like Carillion that enrich a few professional exploiters at the expense of taxpayers and fail every test of ultimate worth.]

Building infrastructure in its time

There is a classic illustration in Alistair Cooke’s brilliant documentary, “America”, that I have just revisited. He covers the Transcontinental Railroad, a commercially dubious, desperately traumatic, government-sponsored project that virtually wiped out the buffaloes and, by the same token, thousands of native Indians.

Tellingly, a few decades later, James J Hill built the Great Northern Railway across the northern tier of the US without petitioning the government to requisition private property for his project. The Great Northern was the only privately funded – and successfully built – transcontinental railroad in U.S. history. No federal subsidies were used during its construction, unlike all other transcontinental railroads.

The lesson: If a project should be built, private investors will evaluate it and, if they can foresee a return, they’ll come up with the capital. In Patrick Barron’s succinct phrase, “there is such a thing as building something before its time!”

Education funding

 

So much of the logic is painfully obvious. Any new government initiative, such as funding for higher education, ostensibly designed to help people compete for jobs, can work only if there is a corresponding increase in suitable jobs on offer. Otherwise it merely adds to the number of better-educated unemployed.

Our government’s latest “help-to-buy” scheme for housing sounds great in theory. But it falls for the old Keynesian illusion that increasing demand will do the trick. It’s a complete waste of taxpayers’ money – until someone actually builds some damn houses!

Egregious misreporting – by omission

I am writing this while the political classes are once again writhing in the furnace of their self-made afflictions, and when the ash has settled (when, indeed!) there will no doubt be much economics material to choose from. Meanwhile it is fair to say that most debates staged on BBC this week studiously dodged the most important ingredient in the Brexit story: the untold opportunities that present themselves to a healthy economy freed, from the shackles of a broken customs prison. Not a mention of this, would you believe!

Nor was there any reference to the dire state of Eurozone finances, literally teetering on the brink of bankruptcy. We shouldn’t be surprised at this blanket silence – after all, it would frighten the horses and demonstrate, yet again, that they need us far more than we need them – and that, yet again, all the forecasts of impending British doom and gloom are so much huff-and-puff – warnings that would do those great forecasters – Carney, Lagarde, Draghi, Macron – proud!

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[19-11-2018 – Emile Woolf – Going Postal – Economic Perspectives 43]